Essays on Virtual World Economy

Date of Completion

January 2011


Business Administration, Marketing|Business Administration, Management|Information Science




The advent and prosperity of 3D virtual worlds provide insights for exploring business models in the emerging virtual worlds industry. We explore the virtual goods pricing and permission strategies and investigate customer service in 3D virtual worlds. This dissertation contributes to the literature of economic models of pricing virtual goods, and to conceptual models of users' evaluation on service quality in 3D virtual worlds.^ With the rapid increase of virtual goods created for virtual world exchanges in 3D virtual worlds, an important question is how a creator sets prices for a virtual good to maximize her profit. A unique phenomenon in Second Life is the creator of a virtual good can assign permission "Copy", "Modify" or "Transfer" for their creations. We develop an economic model to examine under what conditions the Copy permission leads to the highest profit, and what are the corresponding pricing strategies. Furthermore, using data from the Second Life marketplace XStreet, we find that permission settings of virtual goods are not random. The effects of virtual goods permissions and other issues on virtual goods prices are analyzed and managerial implications are discussed. ^ In the Internet era, web-based services have become a convenient alternative to physical customer service interactions. However, lack of face-to-face interaction makes web service communication inefficient. The immersive 3D virtual worlds provide a new platform that offers customer service, where users can communicate "face to face" via their representative avatars. We propose a conceptual model of service quality to compare the quality of customer service and users' satisfaction in 3D virtual worlds to that of web-based services, and to investigate the advantages and disadvantages of customer service in both scenarios. ^