Economic Goods: Scarcity in a Virtual World
In economics, scarcity is defined as a condition of limited resources, where society or a system lacks sufficient resources to produce enough to fulfill subjective wants.
Alternatively, scarcity implies that not all of society’s goals can be attained at the same time, so that trade-offs are made of one good against others. Neoclassical economics, a school of thought that refers to a general approach in economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, defines its field as involving scarcity: following Lionel Robbins’ (late British economist) definition, “Economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”
Traditionally goods and services are scarce because of the limited availability of resources along with the limits on our technology and skillful people relative to the total amount desired.
- If people desired nothing, there would be no scarcity.
- If resources were great enough to produce more than anyone desired, there would also be no scarcity.
Inefficiencies in the use of resources may also limit the production so that goods are scarce. It is hard to eliminate all inefficiencies, and some characterize institutional inefficiency as artificial scarcity.
Goods, which include services, that are scarce are called economic goods (or simply ‘goods’ if their scarcity is presumed). Other goods are called free goods if they are desired but in such abundance that they are not scarce, e.g. air and seawater. A vrtual equivlent might be common starter “textures” or devices common to all players.
Where and when goods are scarce it is necessary for society or people to make choices as to how they are allocated and used.
In virtual worlds, as an example, avatars may desire to own a private virtual island. The amount of virtual land, however, may be limited by design, or by game play, market structure, or individuals with market control so it is necessary to make choices as to how avatars allocate their resources.
In a “real-world” market economy, this is often achieved by trade. Other ways to make this decision involve tradition, community democracy, and government top-down or centralized command. In the market, individuals and organizations, such as corporations, trade resources amongst themselves, reallocating resources to where they are most wanted by those with purchasing power. In a smoothly operating market system, the rate of exchange between different resources, or price should adjust so that demand is equal to supply.
Certain goods are likely to remain inherently scarce by definition or by design and this is the most common type of goods in virtual worlds/games (e.g. World of WarCraft, Ultima Online) examples include land and/or positional goods such as awards generated by honor systems, fame, achievements, experience and levels. These things are said to derive all or most of their value from their scarcity. But these may be seen as examples of artificial scarcity, a reflection of game or in-world design.
Since virtual goods can be produced and copied at almost negligible cost, they do not need to be scarce. This is why copies of of common digital goods are free or can be had at very little cost- depending on intent. However, virtual currency and many other virtual products are kept artificially scarce through intellectual property protection, as in Second Life, by the IP holder. The same for game levels, awards, special items, etc. where the trade-off is time.
Players or in-world participants (avatars) who desire these goods will often use “real-world” currency or barter to acquire these economic goods. Brokers may purchase accounts in whole and “strip” them and sell them piece-by-piece to maximize their return on investment.
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