In studies of games and digital media, the term virtual economy is used to refer to economies based on artificially scarce digital markers, such as virtual items and currencies in online games and apps (Lehdonvirta and Castronova 2014).^[1] Most digital goods are not scarce: A piece of text, music, or video can be duplicated indefinitely without losing any of its value. This is because most digital goods are information goods: Their value is based on the information or sensory experience encoded within the bits (Shapiro and Varian 1999). But some digital goods are not information goods. Instead, they are markers whose value is based on a use they have in a digital environment, such as a game. They can only be duplicated when the rules of the environment permit it. These are known as virtual goods, and the sociotechnical assemblage comprising their production, exchange, and use are what we understand as virtual economies (Castronova 2002; Lehdonvirta and Castronova 2014).

The uses of virtual goods can be instrumental (e.g., beating a challenge), social (e.g., signaling status), or hedonic (e.g., indulging in a fantasy)—in other words, the same kinds of uses that material goods are put to in material cultures (Lehdonvirta 2009; Belk 2013). Indeed, virtual goods and virtual economies are often designed to mimic or simulate material goods and economic processes in appearance and function. But often they also begin to take on meanings of their own and become intertwined in the structuring processes of new social worlds and subcultures, such as in the segmenting and stratification of the players of a given game or online community (Lehdonvirta, Wilska, and Johnson 2009). The social worlds or fields that virtual economies help structure can be culturally and economically significant, given that many games now attract tens of millions of players, giving rise to streaming audiences and professional e-sports leagues (Taylor 2012), and they grow into commercial and mixed-media franchises (Steinberg 2015). Thus, it would be incorrect to say that virtual goods and economies are merely simulations or make-believe versions of “real” goods and economic processes; they are goods and economies in their own right, with distinct characteristics (Fairfield 2005; Lehdonvirta 2010a, 2010b). They are contrived and socially constructed, but the same can be said in different ways about all economies according to the view held in contemporary economic sociology (Callon 1998; MacKenzie 2009).

An indication of the “real” or consequential nature of virtual economies is the fact that they often intersect with national economies, either by design or through subversion. Some virtual economies are designed to involve exchanges in national currency, yielding revenues to the publisher who controls the economy (Lehdonvirta 2009; Lehdonvirta and Castronova 2014). Some virtual economies give rise to “real-money trade” not sanctioned by the publisher (Castronova 2006; Heeks 2009; Lehdonvirta and Ernkvist 2011). Both types of intersection are illustrated in the virtual economy of the video game Puzzle & Dragons, which is also a significant cultural phenomenon. Following the approach in contemporary economic sociology, attention is given to the social, material, and cultural underpinnings of the system.

Puzzle & Dragons is a mobile game that was released in 2012 by GungHo Online Entertainment, a Tokyo-based company affiliated with the telecommunications giant Softbank. The game involves players fighting monsters by solving match-three style puzzles. It is available for Apple, Android, and Amazon mobile devices globally. In Japan it is colloquially known as “Pazudora,” while globally its players know it as “PAD” (and hereafter it will be referred to as PAD). By late 2014, PAD had become a massive commercial hit. It has been downloaded over 32 million times and is the first mobile game in history to generate over $1 billion in revenue (Freier 2015). Though earlier games, such as Angry Birds by Finland-based Rovio, had attracted more downloads, none had been able to tease quite as much revenue out of their players. Today, PAD stands as an iconic title that inspired countless imitations and influenced the mobile game business around the world.

The game is played by tapping symbols on a device’s touch screen. The device communicates with GungHo’s server, which is where the game’s state is stored. The game revolves around the player venturing into dungeons with a team of dragons and other monsters and battling hostile monsters encountered within them. The battles are played out as a tile-matching puzzle game: The strength of the player’s monsters’ attacks depends on the tile combinations the player is able to produce. Between encounters, the players’ attention is directed to managing their monster teams, such as developing the monsters’ abilities and acquiring new, potentially more powerful monsters.

The monster designs draw on classic Western fantasy tropes as well as Japanese, Chinese, and other mythologies and cultures. Occasionally, GungHo releases monsters fashioned after characters from other pop-culture franchises, especially from Japanese anime and video games, as part of cross-promotion and licensing deals. Players collect monsters to progress further in the game (instrumental use) and for the satisfaction of complementing their collections (hedonic use), as well as to brag about their monsters on online discussion forums (social use). There are over 2,100 different monsters in the game, if distinct variations of each monster are included.

PAD’s publisher earns revenues by selling what are essentially lottery tickets with virtual monsters as prizes. A slightly more precise description of the mechanism is as follows. New monsters can be acquired as rewards for clearing dungeons as well as by purchasing monster eggs using a game currency. The game currency can be earned in dungeons or bought for “real” money (i.e., national currency) using the mobile device’s in-app purchase (IAP) function. Once hatched, an egg reveals a randomly chosen monster, more powerful monsters being much less likely to appear than weaker ones. Collecting the most desirable monsters in the game thus boils down to spending money on game currency and then spending game currency on monster eggs. Some players report spending hundreds and even thousands of dollars in this way.^[2] Still, most players of free-to-play mobile games such as PAD spend nothing, opting to stick with the free features only.

This lottery-style mechanism, known in the mobile game industry as “gacha,” draws frequent comparisons to gambling and is the subject of occasional moral panics in Japanese and foreign media. But, for our purposes, what is important here is that the prizes that draw people to spend money in this way are not cash prizes or luxury consumer goods: They are virtual goods. The monsters in PAD are virtual goods in the sense that there is demand for them and their supply is limited, even though they are digital. One can duplicate a picture of a monster, but one cannot duplicate the monster itself without access to GungHo’s servers. As the sole supplier of PAD monsters, GungHo can “monetize” them—either by selling them directly, as many other game publishers do, or by selling them indirectly through gacha, as is the case here.

Like many virtual goods, PAD monsters are positional goods: Their value to a consumer is not absolute but instead is linked with the scarcity of their supply (Lehdonvirta and Castronova 2014). If powerful monsters were too readily available, the game would become easy to beat, causing both the game and the monsters to lose their attraction in the players’ eyes. GungHo must thus use its power over the game to balance free rewards (used to attract and retain players) and monetization (used to earn revenues) with the need to maintain scarcity. Rewards can never be as generous and prices never as cheap as players would desire. The features related to the issuance, use, and destruction of monsters and currencies within PAD’s servers comprise its core virtual economy.

The virtual economy of a video game does not necessarily end where the game ends. Players and other stakeholders sometimes manage to construct sites and processes that extend the economy beyond the game designers’ original intent (Lehdonvirta and Castronova 2014). In the case of PAD, players desire more, and cheaper, monsters than GungHo is willing to supply. Could an entrepreneur outside GungHo find a way to supply them?

It turns out there is a way to manufacture rare monsters in PAD without paying anything to GungHo. When a player completes the game’s first tutorial mission, they are rewarded with an amount of free game currency sufficient to buy one monster egg. It is possible for a player to reinstall the game on their device and rerun the tutorial repeatedly until this egg yields a rare monster. This practice, known as a “reset marathon” (risemara in Japanese and “reroll” in English), also applies to other, similar games and is well known among those games’ more dedicated fans. Dozens of tries, and hours of tedious rerolling, can be spent to generate one of the more desirable starting monsters.

PAD provides no mechanism for players to transfer a monster from one user account to another. The only way to transfer a rare reroll monster is to transfer the entire account by handing over the username and password. Acquiring a rerolled monster from another player is thus probably only attractive to new players seeking a starting advantage and to some old players wishing to start anew. Despite this seemingly limited demand, we have observed that a small cottage industry has appeared around manufacturing and selling rerolled PAD monsters.

One prominent site where rerolled PAD monsters are bought and sold is Yahoo! Auctions, Japan’s leading consumer-to-consumer online marketplace. To get a sense of the size and structure of this market, we created a script that collects data on PAD reroll monster trade from Yahoo! Auctions. We ran the script from December 1 to 31, 2015, capturing all 958 transactions completed within this period. The total value of the trade during this period was ¥2,142,323 or approximately $20,000 USD.

The average sale price of a monster was ¥2,236, but the price varied significantly depending on the type of the monster. The above figure shows the monsters with the highest market values. Kaito, Killua, Goku, and Juggler are crossover characters from other Japanese pop-culture franchises, which probably contributes to their high valuations. Sylvie and Isis are original characters, but ones that are particularly powerful and hard to get. A player would probably have to spend a significant amount of money to obtain them via the official gacha lottery mechanism. These and other statistics about the monsters are collated into player-maintained, online databases that support participants’ decision making on the market.

While there are many buyers on the market, the number of sellers is surprisingly small: All of the 958 monsters that changed hands in December 2015 were sold by just thirteen different sellers. The top seller, using the nickname roos_trade, sold a total of 224 monsters and earned a total of ¥591,820 (about US$5,500). The amount of effort that must go into manufacturing these monsters via the reroll mechanism as well as the amount of money earned in this way suggest that roos_trade and the other top sellers are not just normal players but semiprofessional or even professional monster manufacturers or wholesalers. Their monthly gross earnings are in the same range as Japanese office workers’ salaries. Of course, the sellers may not necessarily be located in Japan. Previous research suggests that people who harvest and sell virtual goods in games for a living are frequently located in countries with relatively low wages and good internet connectivity, such as China (Heeks 2009; Lehdonvirta and Ernkvist 2011).

Yahoo! Auctions and the cottage industry of semiprofessional or professional monster manufacturers that it supports are part of PAD’s extended virtual economy: a network of economic actors and processes, rooted in the artificially scarce virtual goods inside the game but extending beyond it in terms of sites as well as socioeconomic consequences. In this study, we focused on examining the reroll monster trade. Reroll monsters are “commodities” in the sense that each is equal in characteristics to all other reroll monsters of the same type. This makes them amenable to aggregate economic analyses, such as calculating the average market price for a given type of monster, as we did. But, each month Yahoo! Auctions also hosts hundreds of auctions for PAD accounts that contain unique combinations of monsters and currencies. There are also other sites beyond Yahoo! Auctions where “real-money trade” and account swapping takes place, including in discussion forums and gamers’ personal friendship networks. These, too, are components of PAD’s extended virtual economy.

In short, the Japanese hit mobile game PAD features a virtual economy that is constructed on the basis of commercial ties between the publisher and the gamers, the client-server technical architecture of the game and the game mechanics that this affords, as well as a pastiche of global cultural imagery and Japanese pop-culture franchises. In technical terms, the economy consists of virtual currency, virtual monsters, and processes of converting the currency into monsters. The monsters are a form of virtual good: They have certain uses within the game and its social world and are thus in demand among the players, but their supply is artificially limited by the publisher. The game’s publisher earns revenues by selling the game currency for national currency, thus intersecting the game’s virtual economy with national economies.

We employed the concept of the “extended virtual economy” to refer to economic actors and processes involving the game’s virtual goods but extending beyond the game’s intended design. Specifically, we examined the subversion of PAD’s mechanics by entrepreneurial actors in order to manufacture monsters for sale and the sale of these monsters on the popular online marketplace Yahoo! Auctions. Yahoo! Auctions may appear to be a surprising hub for virtual goods trade, given that it is not where gamers usually gather. But neo-institutional theory suggests that it provides the institutional infrastructure that such exchange needs: the matching of buyers and sellers based on listings and searches and the enforcement of agreements based on a reputation system and a dispute resolution process (Vulkan, Roth, and Neeman 2013). Gamers trading casually within networks of gamer friends may have less need for such infrastructure, but it is likely to be very important to professional sellers seeking to do business with numerous buyers to whom they have no previous links. Economic sociologists might further note that the institutional infrastructure was supplemented by information databases that supported market participants’ decision making, allowing them to act as calculating, “rational” agents (Callon 1998).

Beyond introducing and illustrating the concept of virtual economies, this essay presented an original empirical finding: the unsanctioned real-money trade of virtual goods taking place on a professional scale in a modern mobile game. The literature on virtual economies and real-money trade started over a decade and a half ago from studies of massive multiplayer online games (MMO) and virtual worlds (e.g., Castronova 2002, 2006; Fairfield 2005). The term “gold farming” was used to refer to professional game laborers who worked inside online games to harvest virtual gold to sell to normal players for a profit (Heeks 2009; Lehdonvirta and Ernkvist 2011). The online games of this era typically used a subscription revenue model, and purchasing items or currencies from gold farmers was considered cheating. Today’s games, especially mobile games, are different; items and currencies are often available for purchase directly from the publisher. We have previously raised doubts as to whether professional gold farming and similar “third-party gaming services” are still viable in the mobile gaming era (Lehdonvirta and Castronova 2014, 140). These findings from PAD show that they are still very much viable, though we cannot estimate the scale of the phenomenon.

The wider significance of a virtual economy is that it contributes to structuring and stratifying the social world formed around a media franchise. It includes people who accept the stakes on offer as meaningful and spend varying amounts of time and money on its economy to reach different rungs of its social hierarchy, the most prominent of whom perhaps also earn back some advertising revenues by streaming their participation online. It also includes people who are likely indifferent to the symbolic stakes but participate commercially in the virtual supply chain that provides markers to the first group. Such virtual economies can also be found outside video games in other mediated social worlds with artificially scarce markers, such as in messaging apps and social media platforms (Lehdonvirta and Castronova 2014). For example, Twitter followers are manufactured for sale in so-called bot farms and purchased by brands and politicians wishing to inflate their stature online. The concept and literature of virtual economies is thus useful for making sense of economic phenomena and their consequences in a wide variety of mediated settings.

1. The term has a different meaning in economics and political economy; see Lehdonvirta (2013) for a comparison. ↑
2. “How much do you spend on PaD?” Reddit, March 25, 2014, https://redd.it/21c3mg. ↑

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