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Price convergence in an online virtual world

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  • Michael Morrison

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  • Matías Fontenla

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. Copyright Springer-Verlag 2013

Suggested Citation

  • Michael Morrison & Matías Fontenla, 2013. "Price convergence in an online virtual world," Empirical Economics, Springer, vol. 44(3), pages 1053-1064, June.
  • Handle: RePEc:spr:empeco:v:44:y:2013:i:3:p:1053-1064
    DOI: 10.1007/s00181-012-0567-3
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    File URL: http://hdl.handle.net/10.1007/s00181-012-0567-3
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    References listed on IDEAS

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    1. Peter C. B. Phillips & Donggyu Sul, 2007. "Transition Modeling and Econometric Convergence Tests," Econometrica, Econometric Society, vol. 75(6), pages 1771-1855, November.
    2. Mario Cerrato & Nicholas Sarantis, 2007. "Does purchasing power parity hold in emerging markets? Evidence from a panel of black market exchange rates," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 12(4), pages 427-444.
    3. Chesney, Thomas & Chuah, Swee-Hoon & Hoffmann, Robert, 2009. "Virtual world experimentation: An exploratory study," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 618-635, October.
    4. Fischer, Christoph, 2012. "Price convergence in the EMU? Evidence from micro data," European Economic Review, Elsevier, vol. 56(4), pages 757-776.
    5. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584-584.
    6. Dumas, Bernard, 1992. "Dynamic Equilibrium and the Real Exchange Rate in a Spatially Separated World," Review of Financial Studies, Society for Financial Studies, vol. 5(2), pages 153-180.
    7. Baum, Christopher F. & Barkoulas, John T. & Caglayan, Mustafa, 2001. "Nonlinear adjustment to purchasing power parity in the post-Bretton Woods era," Journal of International Money and Finance, Elsevier, vol. 20(3), pages 379-399, June.
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    Cited by:

    1. repec:eee:ecolet:v:158:y:2017:i:c:p:62-66 is not listed on IDEAS

    More about this item

    Keywords

    Price convergence; Law of one price; Virtual worlds; Online video games; Phillips Sul log t ; Band of inaction; F1; F3; C99; C23;

    JEL classification:

    • F1 - International Economics - - Trade
    • F3 - International Economics - - International Finance
    • C99 - Mathematical and Quantitative Methods - - Design of Experiments - - - Other
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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