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Real Money Auction on Video game, Diablo 3

Recently, in May of 2012, Blizzard Entertainment released their sequel to Diablo II, one of the most popular video game of all times. However, people were more excited in Diablo 3 in the fact that Blizzard Entertainment launched Real Money Auction house, where players can trade items with real economic currency allowed by their government. This is the first attempt made by Blizzard Entertainment in order to cut illegal third party money to virtual item trade that prevailed in its previous sequel, Diablo II. This new method of Real Money auction house created both positive and negative stirs in gamer communities. Proven by illegal third party trade, it is certain that many of players are actually willing to pay their actual money for virtual item that doesn’t really exists. From the article, In This Video Game, You Can Make Real Cash Through Virtual Trading, the author points out how the video game attempts to create dynamic economy made and constructed only by its users, since Blizzard Entertainment will not sell any virtual item made by company. With Diablo III the distinction between virtual and real video game economies will disappear, creating a potential shift in how players and companies think about interactive entertainment.

It is interesting to find companies developing market behavior in games. However, what I find more interesting is ‘Would the virtual auction, Real Money Auction in Diablo III, be similar to the Real-Auction?’. Before we analyze whether or not Real Money Auction for virtual item will progress similar to Real Auction, let me explain how Real Money Auction in Diablo III works. First of all, there are two distinct group, buyers and sellers and everything that is sold and bought is generated by the users which also includes gold used in the game, therefore no outside resource coming in. Second, the auction used in Diablo III is the Second price sealed bid auction. However, what is different from real second-price sealed bid auction is that it has time limit of 36 hrs, the maximum bid you can make is limited, the sellers can set minimum bid and price of buy-out, and the bidders can bid multiple times.

In class, we learned that it is the most logical choice of bidder in second-price sealed bid auction is to bid truthfully.  However, would this be also the case for virtual auction? Perhaps it is the most logical to bid truthfully for item, but one must keep in mind that they are using actual money for virtual item. Therefore as result, in actuality, the bidders are more likely to bid truthfully in Gold-based Auction, where the bidding is made by non-physically existing currency, gold. Instead, the Real Money Auction follows the First price sealed bid auction. The reason is simple, the bidders are aware of the fact that they are using their actual money for virtual item. Also, not only they are aware of the fact that they are spending their hard-working money to game, but also they know the depreciation of their item over time. With constant modification made by blizzard that affects their item value and expected gold inflation due to inefficient gold-consumption rate, it is observed that the price of gold and item will go down, thus increase in value of choosing to hold on to their Real money for later time. With gold-depreciation and unstable value in item, the users are more aggressively looking to maximize their payoffs. Consequently, the users are more inclined to shade their value and bid at much lower price and try to utilize the time limit in their advantage by bidding at the last minute. Such behavior is not expected by looking at Real auction market.

It is certainly weird to see that a system where people can bluff more safely (no “real” economic effects”) actually follows more like today’s Real auction systems but a system, where a real economic effects can be done, is more likely to deviate from today’s known auction systems. This phenomenon is due to the fact that its been only 3-4 month that Diablo III’s Real Money Auction house launched and their economy is more risky and likely to be changed than current real economy. Regardless, analyzing and estimating people’s behavior in similar dynamic economy can bring more insights on some of unexplained phenomenon on real world’s economy and people’s behaviors.

http://www.nytimes.com/2011/08/02/arts/video-games/blizzards-diablo-iii-video-game-to-offer-real-trades.html

http://blog.gaming.stackexchange.com/2012/05/the-broken-economics-of-diablo-3s-auction-house/

wk93

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