Price convergence in an online virtual world

Abstract

This paper tests for the existence of price convergence using a unique data set from the largest online game, World of Warcraft. It provides a controlled setting without the usual obstacles that make testing price convergence difficult. These difficulties include trade barriers, transportation costs, imperfections and restrictions in capital markets, and differences in productivity growth. The data set consists of eight structurally identical copies, or worlds, of a virtual macroeconomy. We use the non-linear convergence test developed by Phillips and Sul (Econometrica 75(6):1771-1855, 2007), and find price convergence in all eight worlds. We further develop our own simple band of inaction test for price convergence, and under reasonable parameters find price convergence in all eight worlds. © 2012 Springer-Verlag.