Guilds and Transaction Costs Reduction in World of Warcraft: An Essay on the Economics of MMOs - Pierre Montagnon
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Paris School of Economics
APE Master Dissertation
Supervisor: Jérôme Pouyet
Referee: Laurent Lamy
Guilds and Transaction Costs Reduction in World of
Warcraft: An Essay on the Economics of MMOs
Pierre Montagnon
June 9, 2013
Acknowledgments
I first would like to express my appreciation to my research director Mr. Jérôme Pouyet for
his open-mindedness and for his considerate and sincere support. I am also obliged to Mr.
Laurent Lamy for his acceptance to invest time and effort into the evaluation of my work.
My deepest gratitude goes to Tony Belcher aka Zardoz, who did not only provide me with
remarkable data but also helped me understand and organize them with outstanding patience.
His crucial role in making this work possible cannot be overstated.
I also would like to convey special thanks to Morgan Muslinger, whose stimulating suggestions
and generosity as a host, a statistician and a friend helped me make it out. Extra thanks
go to those of my family and friends who proofread the preliminary versions of my work
and gave me computer assistance, especially Marion Trouillet, Bastien de Shague, Nicolas
Abraham Dodziuk, Sundar Ramanadane and Franz Schlüß.
Finally, I want to thank my parents for their unfailing love and moral support.
2
Contents
Acronyms and MMO glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Introduction 6
0 A quick introduction to World of Warcraft 8
0.1 What is World of Warcraft ? . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
0.1.1 The Warcraft RTS series . . . . . . . . . . . . . . . . . . . . . . . . . . 8
0.1.2 The plot of World of Warcraft . . . . . . . . . . . . . . . . . . . . . . 8
0.1.3 The product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
0.1.4 The game . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
0.2 Game mechanics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
0.2.1 Race and class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
0.2.2 Professions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
0.2.3 Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
0.2.4 RP, PvE and PvP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
0.2.4.1 Realm rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
0.2.4.2 PvE and PvP practices . . . . . . . . . . . . . . . . . . . . . 14
0.2.5 Reputation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
0.2.6 Money and Auction House . . . . . . . . . . . . . . . . . . . . . . . . . 17
0.2.7 Groups and social interactions . . . . . . . . . . . . . . . . . . . . . . 18
0.2.8 The guild . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
0.2.8.1 Hierarchy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
0.2.8.2 Durability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
0.2.8.3 Creating and joining a guild . . . . . . . . . . . . . . . . . . 19
0.2.8.4 The guild bank . . . . . . . . . . . . . . . . . . . . . . . . . . 21
1 A theoretical analysis of the opportunities granted by guild membership 23
1.1 Transaction costs economics and the guild . . . . . . . . . . . . . . . . . . . . 23
1.1.1 A quick overview of some transaction costs concepts... . . . . . . . . . 23
1.1.2 ...and their application to the economy of World of Warcraft . . . . . 24
1.1.2.1 Transaction costs in World of Warcraft . . . . . . . . . . . . 24
1.1.2.2 Opportunism in World of Warcraft . . . . . . . . . . . . . . 24
1.2 The economic and social role of the guild . . . . . . . . . . . . . . . . . . . . 25
1.2.1 The guild as a Williamsonian firm . . . . . . . . . . . . . . . . . . . . 25
1.2.1.1 Deterrence of opportunistic behaviors . . . . . . . . . . . . . 26
1.2.1.2 Reduction of trade and informational costs . . . . . . . . . . 26
1.2.2 The guild as a locus of social interactions . . . . . . . . . . . . . . . . 27
3
2 Specification 29
2.1 Testable hypotheses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.1.1 Exchange of productive resources . . . . . . . . . . . . . . . . . . . . . 29
2.1.2 Reduction of informational costs . . . . . . . . . . . . . . . . . . . . . 31
2.1.3 Socialization, roleplay and learning . . . . . . . . . . . . . . . . . . . . 31
2.2 Data sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.2.1 The main database . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.2.2 Additional data sources . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.3 Econometric specification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.3.1 Creation of synthetic explanatory variables . . . . . . . . . . . . . . . 35
2.3.1.1 Profession matching . . . . . . . . . . . . . . . . . . . . . . . 35
2.3.1.2 PvP/PvE orientation . . . . . . . . . . . . . . . . . . . . . . 36
2.3.1.3 Individual progression . . . . . . . . . . . . . . . . . . . . . . 38
2.3.2 Additional explanatory variables . . . . . . . . . . . . . . . . . . . . . 41
2.3.2.1 Realm-relative variables . . . . . . . . . . . . . . . . . . . . . 41
2.3.2.2 Gender, race and class . . . . . . . . . . . . . . . . . . . . . . 42
2.4 Model and first comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3 Results 44
3.1 Result tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.2 Estimates interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.2.1 PvP and PvE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.2.2 Professions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.2.2.1 Inner consistency and guild membership . . . . . . . . . . . . 46
3.2.2.2 A finer qualification of deviance . . . . . . . . . . . . . . . . 47
3.2.3 Realms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
3.2.3.1 Realm size . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
3.2.3.2 Server localization . . . . . . . . . . . . . . . . . . . . . . . . 49
3.2.3.3 Roleplay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
3.2.4 Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
4 Comments and further research projects 52
4.1 Data limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
4.1.1 Player and character progression . . . . . . . . . . . . . . . . . . . . . 52
4.1.2 Sociological matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
4.1.3 Market behavior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
4.2 Reciprocity and opportunism . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
4.3 Organizational topics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
4.4 Guilds today . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Conclusion 57
4
Acronyms and MMO glossary
Throughout this dissertation, I use common game-relative acronyms and technical terms.
Although each one is detailed at its first occurrence in the text, I think it could be useful to
sum them up.
• AH: the Auction House, centralized platform in which players trade goods.
• Craft: process during which ingredients are turned into manufactured goods using
professional skills.
• HK: Honorable Kills, points awarded every time the character takes part to defeating
another player of a comparable level in honorable conditions.
• IRL: In Real Life, refers to anything that is not in the game.
• MMO(G): Massively Multiplayer Online Game, video game in which numerous people
play simultaneously in a common universe.
• MMORPG: Massively Multiplayer Online Role-Playing Game, a MMO that is also a
RPG.
• Ninja looting: practice of overstepping loot sharing rules in order to get extra reward
from a dead PvE opponent.
• NPC: Non-Playing Character, any virtual avatar that is not controlled by players.
• PvE: Player versus Environment, practice of defeating computer-steered opponents.
• PvP: Player versus Player, practice of fight between characters that are controlled by
human players.
• Reroll: character that is not the first character of a player.
• RP: Roleplay, practice of having his character behave as he was real person.
• RPG: Role-Playing Game, game in which players play the role of characters in a
fictional universe.
• RTS: Real-Time Strategy game, video game based on strategy in real time, that is,
not progressing in turns.
• Tank: a generally heavy-armored character whose function is to stand a large amount
of damage.
• Twink: a character who voluntarily stops collecting experience points in order to be
at the top of a battleground level division.
5
Introduction
Virtual universes have now become so complex as to recreate quite convincingly part of the
economic and social organization of real societies. Although, very few econometrics have been
done for now on the topic of virtual decisions. Our purpose here is to suggest that analyzing
virtual behaviors is both possible and profitable to economics. We aim at showing that some
in-game mechanics can be described in terms of real-life economic concepts. As an example,
we will base an econometric reasoning on the question of being involved in a guild within the
universe of World of Warcraft and draw a link between guilds and firms in the transaction
cost economics.
As most readers may not be familiar with World of Warcraft and most game mechan-
ics we will refer to, they are strongly advised to browse chapter 0 below before coming back to
this introduction.
Although many guilds do not impose any entrance condition to their members, getting
into highest-achieving guilds is a challenge since characters have to fit level, skill and role
requirements to join top players. Nevertheless, guilds are so numerous within a given realm
that players always have the opportunity to join a guild that fits, if not to their skills, at
least to their game orientation. We may therefore consider that any player from level 10 on
is given the choice between being part of a guild or not, even if players are not equally aware
of what the costs and benefits of joining a guild are. Most of World of Warcraft players
belong to a guild, but there are huge discrepancies in the rate of guilded characters between
classes, races and level ranges. We want to show that a cause for these differences lies in the
economic and social role of the guild.
Being involved in a guild grants players with some privileges we will discuss later, the
most technical aspects of which are a private chat channel and a guild bank. Yet, is also
goes along with constraints that are both social and organizational. Once in a guild, a player
automatically takes part to guild conversations, and other guild members implicitly expect
him to answer their interrogations and their help requests. Social stigmatization may stem
from not fitting such expectations and is likely to cause the player being banned from the
guild. The player is also supposed to obey the guild master’s orders, whose range is various
among guilds but may go as far as gaming hours, specialization, production and positioning
directives. In most demanding guilds, players are also tied down by an obligation to perform
– their contribution to slaying monsters being recorded by the guild officers. Joining a guild
is therefore not an optimal choice for everyone.
Our purpose is to explain why some players are more likely to join a guild than others.
We will show that the guild plays a social and economic role that does not benefit to the same
extent to any kind of player. This is both an econometric and an economic problem since
6
we aim at highlighting relevant variables that determine the propensity of individuals to join
a guild, but also use the transaction cost economics framework to show that guilds may be
heuristically described as social groups and organizations. While we will discuss in a mostly
theoretical way the social nature of the guild, we will try and provide empirical evidence
that its economic function consists on reducing transaction and information collection costs
as well as opportunistic behaviors.
Readers may already have glanced at chapter 0 which describes the mechanics of World
of Warcraft that will be of interest later on. It focuses on information that is relevant for our
present analysis, and does not pretend to be a complete guide to understanding the game.
Chapter 1 deals with the theoretical framework of transaction costs economics and its appli-
cation in the present case. It details both economic and social functions of the guild structure
and puts forward some prominent implications that will be turned into testable hypotheses
in chapter 2. The latter, which might be the most important part of the present paper,
describes the way we handled a very large database that was never used before in order to
create synthetic variables that would encompass all the relevant information on characters.
This leads to the specification of a standard Probit model whose results are discussed in chap-
ter 3 using both economics and (elementary) sociology. Chapter 4 is devoted to sketching
prospects of a broader approach of the guild issue. It mostly deals with organizational mat-
ters and highlights new directions of research, a necessary condition of which being the use
of more comprehensive data. We conclude by discussing the legitimacy and the profitability
of the use of virtual universes data in economics. Although both questions still need further
investigation, there are good reasons to hope that they will eventually be positively answered
to.
7
Chapter 0
A quick introduction to World of
Warcraft
This chapter is a (short) guide on World of Warcraft’s game mechanics. Readers who are already
accustomed to MMOs and to World of Warcraft in particular may skip this part and go to chapter 1.
Released in late 2004 in most of English-speaking countries, Blizzard Entertainment’s World of
Warcraft has become the most successful Massively Multiplayer Online Role-Playing Game (MMORPG)
of all times. Almost nine years after its release, it still cumulates over 10 million subscribers, a score
that no subscription-based online game ever reached before. Before any further discussion, let us
review some prominent features of the game.
0.1 What is World of Warcraft ?
0.1.1 The Warcraft RTS series
One of the most successful Blizzard licenses, the Warcraft universe gave birth to a series of Real-Time
Strategy (RTS) games before becoming the locus of a Massively Multiplayer Online Game (MMOG,
in short MMO). Warcraft I (1994), Warcraft II (1996) and Warcraft III (2002) invited players to join
the battle for Azeroth, a Tolkien-inspired epic fantasy world.
Until the release of Warcraft III, two major factions were struggling for the control of Azeroth:
the Alliance and the Horde. Whereas the Alliance, embodied by the human race, was characterized
by nobility and honor, the Horde, led by the Orcs, was feared for its fierce determination and its
savagery. In Warcraft III, the Alliance and the Horde suddenly had to face the threat of Burning
Legion, whose activity greatly contributed to turn Warcraft’s plot into something more complex than
a Manichean conflict between green-skinned barbarians and fair-haired humans. This paved the way
for a more ambitious exploitation of the Warcraft universe.
0.1.2 The plot of World of Warcraft
World of Warcraft events take place four years after those described in Warcraft III. Since many of
the game mechanics we will describe in the next section are irreducibly entangled to the narrative
background of the game, a rough idea of the latter is necessary to understand anything about variables
at stake in World of Warcraft.
The scale of the plot of World of Warcraft is not quite the same as in the previous games since
every player now steers one character at a time instead of a whole army. Narrative twists are there-
fore conducted by exogenous updates (patches) decided by Blizzard and by expansion sets released
approximately every two years. The first expansion set, The Burning Crusade, was released in 2007.
8
Figure 1: Warcraft II cover
It allowed players to discover the ravaged world of Outland and fight against the remains of the
Burning Legion beyond the Dark Portal. In the second one, Wrath of the Lich King 1 (2008), players
could explore the frozen territories of Northrend while trying to defeat the Lich King, then Cataclysm
(2010) had them defend a blasted version of the original world after a giant dragon tried to destroy
Azeroth. In the last expansion set to date, Mists of Pandaria (2012), a brand new continent was made
available, reviving the conflict between the Alliance and the Horde.
0.1.3 The product
Warcraft III extended the Warcraft universe up to a point where the series could be turned into a
MMO. Although World of Warcraft was not at all the first game of its kind, players immediately
proved enthusiastic about living unconstrained adventures in a world that was already familiar to
them. And they were ready to pay for it. This meant a great opportunity for Blizzard to secure a
monthly income: most MMOs at the time were using a monthly subscription system, and so it was
decided World of Warcraft would do.
Consequently, people who want to play to World of Warcraft first have to buy a digital or physical
copy of the original software, install it and then pay a rough 15$ monthly subscription. If they fail
to do so, their account is frozen (but not deleted) and cannot be used until they pay again. Each
expansion set is released as an additional software that has to be bought separately but does not
increase the monthly fee to be paid.
As every MMO, World of Warcraft is intended to be played online and therefore requires an
Internet connection, the cost of which has to be paid by the player.
0.1.4 The game
World of Warcraft is a role-playing game (RPG). After having purchased a monthly access to the
game, players can create a character they will manage through a third-person view using keyboard
and mouse commands. Characters can move, speak and interact with each other and with their
environment. They can also use a full range of spells and techniques in order to progress - for such is
the keyword in World of Warcraft. The next section will describe in further detail what opportunities
are offered to characters and what kind of choices players have to make.
1
The data we will use were collected in 2009. We will therefore present only game mechanics that are
relevant to understand how the game worked in Wrath of the Lich King. This is why we explicitly highlight
features that were altered or deleted by Cataclysm.
9
0.2 Game mechanics
0.2.1 Race and class
A very classic RPG feature, picking a race and a class is probably the most significant choice the player
has to make when creating a character. While most of other specialization decisions can be reversed,
the choice of a race and a class is done before the character enters the game and binds forever.
Figure 2: Gender and races in World of Warcraft from Burning Crusade to Cataclysm
The race of a character (see figure 2) determines his physical appearance but also the area of the
world he will start to play in, the faction he will stand for (Alliance or Horde) and the classes among
which he will have to choose – for instance, it is impossible for an orc character to be a druid. Each
race also unlocks a special ability that the character will be able to use regardless of his or her class;
that is how Draenei players can heal themselves and their allies even if they do not belong to a class
that normally entitles them to use healing spells.
A character’s class (see figure 1.3) determines most of his abilities, from the kind of weapons and
armor he can carry (mages being unable to use axes or plate armors) to the kind of resource he relies
on (e.g. mana for spell casters, energy and combo points for rogues) and the full range of abilities he
can use. Each class corresponds to a predetermined range of spells and techniques that are unlocked as
the characters levels up. It is also doomed to a particular role when several characters play together.
It is generally considered that a dungeon group be composed of characters that deal damage (they are
called DPS classes, for damage per second), characters that provoke monsters and stand damage (the
so-called tanks) and others that heal their companions. All classes are not equally entitled to play
these roles, and no one would even think of asking a priest to become a tank. Belonging to different
classes therefore means playing different styles of game; some classes may nevertheless correspond to
several roles (the so-called "hybrid classes" of figure 3). A somewhat more refined orientation can
be freely chosen later in the game through a mechanism of specialization which consists in picking
(reversibly) a particular "talent tree" among three that enables passive and active techniques.
Finally, players can also pick the gender of their newly created character, but this choice is merely
cosmetic; so is the choice of the character’s name.
10Figure 3: Classes and roles in World of Warcraft before Wrath of the Lich King
0.2.2 Professions
After some time playing, a player is given the choice between several professions for his character.
Regardless of the class and race he chose earlier, he can pick up to two different professions that can
be either productive (what we will call craft professions later on: so are jewelcrafting, inscription2 ,
tailoring, engineering, alchemy, blacksmithing and enchanting) or collect-oriented (mining, skinning
or herbalism, that we will refer to as collect professions). A profession consists of a set of abilities that
can be acquired - as always in World of Warcraft - by increasing the corresponding skills. Conversely,
a player simply increases his skills in the professions he picked by practicing them with recipes that
fit his mastery level (see fig. 4 where yellow lines in the right dialog box correspond to recipes that
would increase the inscription skills if used). Each time a recipe is used while the right reagents are
in the character’s inventory, an item is created that can be either consumed, sold, carried or used in
some particular way; the reagents, of course, are destroyed. The whole operation is known as crafting.
Figure 4: Profession interface
2
which only appeared with the Wrath of the Lich King expansion set.
11Besides, professions may grant active or passive abilities that can prove useful beyond the scope
of crafting (see for instance the "Lifeblood" healing spell granted by herbalism mastery in fig. 1.4).
As we shall see later, although it is possible for any class to pick any profession, some classes are
likely to benefit more from some professions than from others. Collect activities also prove to be more
logically compatible with some productive professions than with others.
Aside from these two main professions, it is possible to learn up to four of the following secondary
professions: archaeology3 , first aid, fishing and cooking (see fig. 1.4 again). These professions do not
enable particular abilities but still allow to produce and find some items, components or consumable
goods.
0.2.3 Experience
As in most RPGs, experience is a key mechanism in World of Warcraft. Experience points can
be gathered by completing quests given by non-playing characters (see fig. 5), killing monsters,
discovering new zones of the world or performing collect activities. An experience bar indicates the
current amount of experience of the player. When this bar is full, it is reset and the player moves up to
the next level. Leveling up corresponds to increased characteristics and to the possibility of equipping
a better gear, but also to new abilities (depending on the class of the character) and to broader gaming
opportunities. As the character’s level increase, new dungeons and quests are unlocked. Profession
picking becomes available at level 10, mounts at level 20, dual talent specialization at level 30, mount
upgrades at levels 40, 60 and 78... along with many class-specific advantages. A character’s level will
also determine in which category the player competes while playing against other players (see section
0.2.4.2 for further details). As such, leveling up is the main priority of many players at the early
stages of the game.
Figure 5: Quest log. Yellow-colored quest correspond to higher levels
and yield more experience than green ones.
Maximum level was set to 60 when World of Warcraft was released. The first expansion set made
it possible to progress up to level 70, the second one to level 80, the third one to level 85. The level cap
is 90 in the most recent expansion set. From the moment a character reaches the maximum level, he
3
Only after the Cataclysm expansion set.
12does not gather experience anymore but can still compete for better weapons and armor, epic mounts,
fancy gadgets and sensational achievements.
0.2.4 RP, PvE and PvP
0.2.4.1 Realm rules
As they connect to the game for the very first time, players are dispatched between clusters named
realms (see figure 0.2.4.1). These clusters are designed so that players that speak the same language
play together, but they are also supposed to match players with the same expectations towards their
gaming experience. Within each realm, several thousands of players cross the same virtual world,
helping or fighting each other as well as computer-steered non-playing characters (NPC) and monsters.
Ensuring that only compatible styles of game coexist within a given realm was therefore one of the first
concerns of World of Warcraft designers. Rules set by developers therefore differ from one realm to
another; it is then possible to distinguish between different types of realms, which will prove relevant
in our later analysis.
Figure 6: Realm selection screen with realm types
• Player versus environment (PvE) realms abide by rules that do not allow players from different
factions to attack each other outside of regulated areas. Calling these realms "PvE" is not
totally satisfactory since they do not compel players to fight solely against their environment
but also allow mutually agreed player versus player (PvP) activity. However, we choose to stick
to the official designation of such realms.
• Players versus player (PvP) realms differ from PvE realms by one simple but important point:
they allow players to slay characters from the other faction everywhere except in a handful
of neutral cities. This setting clearly changes the game experience since environment and
computer-controlled creatures are no longer the only threat to the player.
• Roleplay (RP) realms are dedicated to players who want to feel totally involved in the game
and its universe, and therefore try hard to communicate and act exactly as if they were the
character they play (see fig. 7). RP realms thus abide by a more restrictive set of rules than
traditional realms as regards the choice of the name and the vocabulary of characters, but also
the content of conversations. Most of the time, real-life related public chatting is considered
13a misdemeanor in such realms. As far as player versus player encounters are concerned, RP
realms may follow the same set of rules as PvE or PvP realms.
Figure 7: Roleplay wedding
From chapter 1 on, the only discrepancy we will make between realms is related to their abiding
or not by roleplay rules.
0.2.4.2 PvE and PvP practices
Regardless of whether they belong to a PvE, a PvP or a RP realm, players are offered the opportunity
both to practice PvE and PvP. According to their preference for one or the other, players will gather
different types of gear and have different incentives to join a structured group, which is precisely what
we will be interested in below.
PvE: instance and raid dungeons
Figure 8: Classic PvE setting: players plundering an instance dungeon
Player versus environment mostly consists in exploring a dungeon that can be small or large
(called respectively instance or raid dungeon) with a group of respectively 5, 10 or 25 players. Groups
14are structured in order to benefit from complementarities between classes as we mentioned in section
0.2.1. Before patch 3.3.0 was released in late 2009, players had to join a group by their own means -
that is, using public discussion channels and call for companions who then had to be invited one by
one to join the group. In order to join the dungeon, players then had to gather in front of its entrance
or to be summoned by at least two present players. Patch 3.3.0 gave birth to an automatic matching
system named Dungeon Finder that made grouping and getting to a dungeon far quicker and easier.
For later analysis, let us highlight the fact that by the time the data we will use were collected, such
a matching system did not exist.
Figure 9: Raid group in front of their next opponent
PVE players’ typical task is to clear the dungeon from all kinds of evil creatures while looting
the gold and the rare items they carry4 and defeat the dungeon bosses, which are mighty monsters
with special abilities. An instance dungeon needs approximately half an hour to be completed by an
average group while raid dungeons can take from one hour to several weeks. Needless to say, rewards
are proportionate to the difficulty of the task and that the highest goal of a PvE aficionado lies in the
very last boss of the very hardest 25-player raid dungeon.
Loot and epic victories are not the only rewards of PvE players: each completed dungeon also
yields tokens that can be exchanged for high level class-specific gear. Moreover, each dungeon is
related to a series of quests with increased experience bounties; by completing a dungeon for the first
time, a player can be sure of earning extra gold and experience.
Unrestricted PvP, duels, battlegrounds and arenas
Player versus player, as its name indicates, is a player-centered activity. We already evoked unre-
stricted PvP in regular areas, which is only allowed in PvP realms. This kind of activity is not only
about stalking a questing character in order to kill him after he has been weakened by some random
creature; entire groups of characters may also struggle in neutral areas or even in cities of one faction
or the other. With strong coordination skills and an appropriate equipment, it is possible to kill the
computer-controlled leader of the opposite faction, even if the latter will systematically resurrect (re-
pop) after some time. Any killing of a player whose level is not too low as compared to his murderer’s
4
We will say more about the loot allocation in the next chapter.
15is considered a honorable kill (HK) and yields Honor Points to its performer. Honor Points can be
used to buy PvP-oriented gear.
Figure 10: Arena contest – Alliance characters slaying a Horde blood elf
Any player may also challenge another player of the same faction asking for a duel between the
two characters. The duel must be accepted for the fight mode to be enabled, and only the two dueling
characters can deal damage to each other – apart from characters from the opposite faction who would
happen to wander in the area.
The most popular way of practicing PvP probably lies in joining battlegrounds where teams (whose
size vary from 10 to 40 players according to the battleground) are automatically created for each
faction. Players are asked to complete various tasks which range from taking on a fortress defended
by the other team to capturing a flag and bringing it back to the faction’s base. Before the Cataclysm
expansion set, winning a game in a battleground yielded various tokens including Honor Points. The
rewarding system has changed since then, but detailing its new setting would be irrelevant to the
subsequent discussion.
When joining a battleground, players are dispatched according to the level of their character so
that high level characters could not compete in the same area as much weaker ones. Before the
Cataclysm expansion set was released, level ranges were ten levels wide (10-19, 20-29, ...). Now ranges
are more numerous and only five levels wide. In both cases, players eager to be sandbox kings have
strong incentives to prevent their characters from leveling up from, say, level 19 to level 20. By
avoiding to earn any experience points at -9 levels, they are sure not to meet higher level characters
in a battleground. This behavior is called twinking and will be of great interest in what follows.
Another important point it will be necessary to keep in mind is that access to battlegrounds can
be granted on an individual basis. Players can register to a battleground by standing in front of its
main entrance or by talking to a Battlemaster in a faction’s main city. As soon as enough players
registered for both faction, the battleground starts and groups are automatically constituted.
Figure 11: Horde characters besieging the Alliance-defended Wintergrasp fortress
Finally, Arena contests oppose teams of 2, 3 or 5 players in closed areas within an intra-faction
16or inter-faction deatchmatch-style competition. The rules of an arena are quite simple: the first team
with at least one member alive wins the game. Just as for pre-patch 3.3.0 PvE dungeons, a group has
to be made up before entering an arena.
0.2.5 Reputation
Another specific game mechanism in World of Warcraft lies on a reputation system that allow players
to buy various rewards (from gadgets to mounts through weapons and rings) at specialized sellers
when they reach the corresponding level of reputation with a given NPC-populated sub-faction. Each
sub-faction corresponds to a group of characters and quest givers; while completing quests or doing
specific tasks, players influence their faction-specific reputation level. By doing so, they can be hated
by some or honored and even "exalted" by others (see figure 12), which will of course determine the
quests and items they can receive from a group of NPCs, but also the attitude of the group towards
the character.
Contrary to Honor points for instance, reputation is not a token and does not disappear when a
character buys something that needs reputation to be acquired. Furthermore, reputation with most
sub-factions can only move upwards and is roughly linear with the number of quests a character
completed. That is why we will later consider the total level of reputation as a relevant variable when
it comes to evaluating the global advancement of characters.
Figure 12: Reputation interface
0.2.6 Money and Auction House
Money in World of Warcraft is materialized by gold, silver and copper coins. While one coin of silver
is worth 100 coins of copper, one coin of gold is worth 100 coins of silver.
Money is mostly used for two purposes. The first one is to exchange with NPCs who can sell
services (spells and techniques but also teleportation, haircut, item improvement or gear repairs),
equipment (weapons, armors, jewelry and gems to be embedded in compatible items), consumables
(food and drink but also potions or temporary amelioration (buff ) scrolls) as well as mounts, fireworks,
fancy hats, mock trains, pets and anything an Azeroth inhabitant could dream to possess.
The second purpose of gathering money in World of Warcraft is to exchange with other players
using the Auction House system. As this system will be of greater importance in our further analysis,
let us provide some more detail about its functioning.
17Figure 13: Auction house interface
All items that can be exchanged by characters that are in the same place (that is, items that are
not defined by the game as "bound" to the player who found or equipped them for the first time) may
also be offered in a centralized market place called the Auction House (AH). Players can access the
AH from any faction capital city (the market is then faction-specific) or major neutral city (where
it is possible to exchange items both within and between factions). Its window consists in a search
tool that allows players to know the prices and quantities of any type of item in the market. Several
prices can correspond to a single type of item since every seller chooses the minimum price at which he
plans to sell his merchandise. As in a regular auction, potential buyers make successive and increasing
offers. The auction stops after some time (which can originally be set by the seller from 12 to 48 hours
but is automatically increased if many offers are made within a short period of time) and the highest
bidder receives the item. A very common habit for sellers is to specify a buyout price along with the
lowest bid, so that bidders may acquire the item instantly if they accept to pay an extra premium.
When selling an item at the AH, players have to pay a deposit fee which is an increasing function
of the estimated minimal value of the sale they announce. If the auction fails, that is if no bid is made
before the auction time is out, this fee is lost. If some player wins the auction and thus acquires the
item, the fee is refunded to the seller and the buyer has to pay a commission to the Auction House
that is either 5% (in faction capital cities, that is to say by faction-specific Auction Houses) or 15%
(in neutral cities, which corresponds to realm-wide AHs).
Players who use the Auction House therefore incur a cost that has to be paid either by unsuccessful
sellers or by buyers. This particular feature will be of great interest in what follows.
0.2.7 Groups and social interactions
Although solo play is possible at every level and does not hamper the character’s progression in the
game, cooperation is necessary for players who want to achieve the highest goals, whether it be in
PvE (defeating a raid boss with a corresponding level is practically impossible without belonging to
a raid group) or PvP (fighting 1 versus 40 at similar levels actually has the same effect as in real life).
There are various ways to form a group (a practice that is commonly referred to in MMOs as grouping)
in World of Warcraft which range from the most flexible type of occasional help to an endangered
player of the same faction ("kill assist") to corporate-like guilds "friend listing" and field-made up small
groups (what [Engeström et al. , 1999] call knots) . Each grouping system comes along with a series
of rules that determine the rights of each characters with respect to the loot, common resources or
other members of the group. A typology of groups can be drawn and is actually quite interesting to
discover. However, we will focus on guilds and let interested readers find a more detailed presentation
of grouping in World of Warcraft in [Nardi & Harris, 2006].
Before turning to an extensive description of the guild, which will be the core subject of our study,
18let us sketch briefly how social interactions actually take place in the game. While group structures are
just frameworks and sets of rules within which such interactions take place, their phenomenal form lies
in written communication. It is possible for any player to use a wide range of chat channels to offer or
make a bid for an item (Trade channel), look for a questing partner (local, area-specific channels) or an
instance/raid group (the well-named Looking for group channel) or talk about miscellaneous matters
(General channel). It is also possible to broadcast short-ranged (resp. medium-ranged) messages by
making the character speak (resp. yell), and to target a specific – and possibly very distant – recipient
by whispering a message. Finally, a character who belongs to a formal group, whether it be a casual
knot, a raid group or a guild, is entitled to use a private channel whose content can only be read by
other members of this group. In addition to written communication, some well-structured groups use
such Internet voice chat utilities as Skype or Mumble.
0.2.8 The guild
The guild is the most structured form of grouping in World of Warcraft. As such, its most prominent
features are its hierarchical organization and its durability. Guilds are now associated with in-game
rewards and direct advantages, but before the Cataclysm expansion set was released, belonging to a
guild only enabled characters to benefit from a restricted network of co-players and a guild bank. This
is the particular setting we will be interested in.
0.2.8.1 Hierarchy
A guild is composed of a leader, a handful of officers and rank-and-file members who can be assigned
into subcategories. Each category has a definite range of rights over guild goods and lower-ranked
members. For instance, the leader can hire applicants and dismiss, promote or demote any member of
the guild. He can also publish guild messages that will be seen by any guild members as they connect
to the game and attribute access permissions to the guild chest. He may finally pass on the leading
position to any other member or simply disband the guild. Officers enjoy a restricted range of similar
powers, mostly with regard to rank-and-file members management.
0.2.8.2 Durability
Unlike most groups, the guild structure survives to players disconnection. A character may leave the
game and still be assured to find again its position in the guild if no officer chose to downgrade him
while disconnected. This particular feature will be of paramount importance in the understanding
of the subsequent discussion as it implies that guild members frequently deal with the same other
characters.
0.2.8.3 Creating and joining a guild
Guilds are faction and realm-specific, that is to say that a guild has to be either an Alliance or a Horde
guild and consist only of members playing in a given realm, although it is possible to create identically
named guilds in several realms. They are extremely diverse and range from the most casual group of
friends to incredibly well-organized communities of daily raiders that are often related to an Internet
forum and exhibit strong schedule rigidities. The level of implication that is expected from members
may therefore vary dramatically from a guild to another. Similarly, while 10 signatures are needed
to activate a guild charter and create a guild, the latter survives after founding members leave it, so
its headcount may vary from one single individual to several hundreds of characters. Figure 14 is a
screenshot of the Guild Finder utility that did not exist before Cataclysm but still provides a good
picture of the variety of guilds.
There is often a specific intention behind a successful guild. To some extent, players who join a
guild are supposed to be looking for the same gaming experience, whether it be roleplaying, questing,
practising PvP or PvE or simply spending good time chatting with guild mates. Let us note that it
19Figure 14: Diversity of guilds
Figure 15: Guild search criteria
is only possible to belong to one guild, so choosing a guild wisely is crucial. Figure 15 also stems from
the Guild Finder and represents the first step of a guild search using this utility.
Before the Guild Finder utility existed, players could find a guild by posting requests or responding
to recruitment announcements in discussion channels. They would then ask some officer of the guild
to enlist them. More often than not, they had to provide their recruiter with a short presentation of
themselves and their ideal gaming experience. Figures 14 and 15 show how the Guild Finder utility
simply standardized such preexisting procedures. This process is not a compulsory stage, though:
players who already possess a guilded character or know friends that belong to a guild may ask people
they know to recruit them.
200.2.8.4 The guild bank
Belonging to a guild entitles a player to use a range of devices, the most useful of which doubtless is
the guild bank. The guild bank is a chest composed of several tabs in which players can deposit items
Figure 16: Guild bank
they want to share with the rest of the guild and from which then can withdraw a given amount of
stacks of items that is fixed by the guild master according to the rank of characters within the guild.
For instance, figure 16 reveals that the character can freely take up to five stacks of items before the
end of the day.
All items that can be exchanged via direct trade and the AH can be exchanged using the guild
bank. Typically, by browsing the bank tabs one can find profession reagents and recipes, bags, low
level items, glyphs, potions, food, crafted goods and even some quest items. One can also exchange
gold even if this resource is much more critical (see for instance the bottom right hand corner of figure
16: the character can deposit but is not allowed to withdraw money because he is only a rank-and-file
member of the guild).
While there is no mechanically enforced reciprocity rule with regard to withdrawals and deposits
in the guild bank, each bank tab is related to a log (see figure 17) that indicates which member
withdrew or deposited which quantity of what good and when.
Figure 17: Guild bank log
The guild bank clearly constitutes an alternative to the Auction House for guilded players. More-
over, characters may use the guild chat in order to ask for reagents and particular crafted items;
21according to the tightness of links between the two involved players and to whether the favor is recip-
rocal or not, its frequency and its cost, it may lead or not to a monetary compensation.
This opportunity of substituting a barter and favor trust-based economy to the regular centralized
and decentralized exchanges of the AH and the Trade channel is a key feature of the guild.
Let us now turn to our topic of interest: how can theoretical economics describe the function of
the guild ?
22Chapter 1
A theoretical analysis of the
opportunities granted by guild
membership
We presented in the end of the previous chapter the technical aspects of the guild bank and the guild
chatting channel. While enabling players to discuss using a parallel, private channel and to exchange
goods through a partially centralized platform could be deemed anecdotal as such, this actually turns
the guild into a transaction costs and opportunism reducing structure.
We first draw links between basic transaction costs economics concepts and the economy of World
of Warcraft, then turn to a more precise description of the economic and social function of the guild.
1.1 Transaction costs economics and the guild
1.1.1 A quick overview of some transaction costs concepts...
The first appearance of the notion of transaction costs can be found in [Coase, 1937]. When they
exchange goods in a market with imperfect information, agents incur costs that are related to in-
formation collection, bargaining and ex-post contract enforcement. Information collection costs are
induced by market prospecting: in this respect, calls for tenders are a good example of market-induced
costly operations. Bargaining costs stem from the negotiation and the conclusion of contracts, and
enforcement costs encompass policing costs that are paid in order to make sure that both parties fulfill
their part of the contract. The original idea of Coase was to describe the firm as an alternative to the
market that allows to override these transaction costs.
Coase’s work was seminal for such later thinkers as Oliver Williamson (see [Williamson, 1973])
who detailed more thoroughly in what cases the firm, which is characterized by hierarchies, prevailed
as an optimal organizational form. Williamson describes an economy in which agents have bounded
rationality (as defined in [Simon, 1957]) and face a risk of opportunism from the people they bind
contracts with. By embedding transactions into a rigid hierarchical structure, the firm acts as an
institutional arrangement that deters opportunistic behaviors. According to Williamson, there exist
a continuum of hybrid organizational forms that are neither completely structured by subordination
relationships nor totally relying on market contracts and may answer optimally to organizational
problems. Between other factors, the choice of an integrated structure of governance as opposed to
market exchange is favored by a higher transaction frequency and a larger incertitude. Similarly, the
higher the transaction costs, the more integrated the optimal organizational form. We will see that
opportunism and transaction costs are also present in World of Warcraft and that the guild is an
optimal institutional arrangement in many cases.
231.1.2 ...and their application to the economy of World of Warcraft
There are two main markets in World of Warcraft. One is about gaming partners that are needed to
access dungeons and raids or to complete difficult, mostly PvE-oriented tasks (a market we will refer
to as the "group search market"), the other is about goods that are exchanged between characters
and is embodied by the AH system. Both markets are related to specific transaction costs. Moreover,
users of the group search market face a risk of opportunism due to information asymmetry.
1.1.2.1 Transaction costs in World of Warcraft
Before patch 3.3.0 was released (see section 0.2.4.2), the group search market was associated to high
informational costs that are very close to Coasian market prospecting costs. The "market" way of
finding a group was to post a written request on the "Looking for group" channel with detailed in-
formation about the dungeon that was to be visited or the opponent that was to be slain. Whereas
the battleground search system worked as a market auctioneer and allocated players between battle-
grounds using its perfect information, PvE players had to gather information in a decentralized way
and wait for potential teammates to show themselves. Once they had done so, which could take a
very various amounts of time from case to case, the requesting player had to examine each candidate
in order to know if the adequate level, skills and equipment conditions were fitted to. The only way
for the player to know exactly what kind of gear a character wore was to meet him or her in the same
(virtual) location and examine his or her equipment piece by piece. This could prove quite painful
for the group creator, especially in the case of 40-players raids. Moreover, this process did not convey
any information about the gaming skills of the player that was behind the examined character, so
information necessarily had to be both expensive and incomplete.
The costs of using the AH are explicit and have already been detailed in section 0.2.6. When
selling crafted goods and raw components, a player has to pay a small deposit tax that he will recover
if and only if someone buys the items. The buyer has to pay a transaction fee that amounts to 5 or
15% of the total price of the good. This institutionalized transaction cost was set up in order to deter
high-frequency trading in the AH and make money disappear from the economy1 .
1.1.2.2 Opportunism in World of Warcraft
Opportunism is present on the group search market and stems from incomplete information about
teammates. It is twofold, and we distinguish between ex ante opportunism and ex post opportunism.
A player has an ex ante opportunistic behavior when he lies about his character’s statistics and
specialization or his own skills as a player in order to join a high level group. Acting so implies
subsequent free riding: the player will not prove able to handle the difficulty of the dungeon and
therefore will not contribute much to its clearing while still earning a part of the loot. We call the
lie itself ex ante opportunism because the decision to cheat and use asymmetries of information takes
place before the group is formed, but the free riding behavior we just described is typical of the type
of opportunism that is described below.
Ex post opportunism takes place after players have joined the group and consists on seizing
opportunities to increase one’s payoff, in terms of bounty or absence of effort, even in cases when
this makes other teammates worse-off. Since there are no formal rules that define a "group contract",
it would be unfit to define this kind of opportunism as a "contractual twilight zone" exploitation, but
it does exploit the blur in grouping tacit rules likewise. Examples of such behavior are numerous.
Leaving the team alone in an uncompleted dungeon just after having received the item that one
1
Although we will not discuss it here, inflation is a burning issue in World of Warcraft since the game gen-
erates an infinite flow of monsters which drop gold or items that can be sold. In response to that phenomenon,
developers have to make sure that money leaves the economy by creating high-priced rewards that are only
sold by NPCs or taxing the AH transactions.
24was interested in is one of them. One can also think of staying out of the dungeon while the rest
of the team clear it and just enter the area in order to defeat the last, better-rewarding boss or to
complete some instance quest. Finally, let us mention one of the most abominated crimes in the
World of Warcraft universe: ninja looting, that is, overstepping the regular "Need before Greed"2 loot
allocation system by ticking the "Need" box in order to sell an item some teammates would have truly
needed. Although there is a way for teammates to ban a deviant player from their group, ticking
"Need" instead of "Greed" in the last period – that is, when the last dungeon boss has just been
taken down – is not deterred by any credible threat if the group is meant to be dismantled after the
completion of the dungeon.
Figure 1.1: Loot dialog box with the Need (dice) and the Greed (coin) icons
Opportunism is costly for teammates as it deprives them alternatively from proper support or
from well-deserved items. When generalized among a group, it systematically yields non-efficient al-
locations of teammates and resources.
In the next section, we claim that the guild, as an alternative to the group search market and to
the AH system, provides players with an opportunity to reach a quicker and more efficient allocation
of resources and players by reducing both transaction costs and risks of opportunist behaviors.
1.2 The economic and social role of the guild
We now characterize the guild by its economic and its social functions. First, we state that the guild
can be considered the firm of World of Warcraft and show how it contributes to reduce opportunism
and transaction costs. Then we describe its function as a social group and a socialization locus.
1.2.1 The guild as a Williamsonian firm
Just as a Williamsonian integrated organizational structure, the guild is an alternative to the markets
we considered above that reduces opportunism and transaction costs.
2
In most cases, dying monsters do not leave a sufficient number of items as to satisfy every player in the
team. The allocation of the bounty is made by splitting the gold reward equally between players and displaying
a "Need or Greed" box for each item. Players who need these items to equip should then tick "Need", whereas
players who just want them in order to sell them to other players or to NPCs should tick "Greed". Who
will finally get the item is determined by drawing lots among players, is any, who ticked "Need", and among
"Greed"-ticking players if no one ticked "Need".
251.2.1.1 Deterrence of opportunistic behaviors
Although no technical feature of the guild structure compels players into grouping into the game,
players of the same guild often play together. Repeated collaboration is frequent within a guild and
players get to know each other quite well, which has two implications : it reduces the incentives to
opportunistic behaviors and decreases the cost of partners search.
First, we claim that groups that are formed within the boundaries of a guild are less likely to
suffer from opportunistic behaviors than market-constituted ones. The reason for this is a simple but
powerful reputation effect : non-collaborative players who are branded by their peers cannot just walk
away and forget about the incident but they also have to endure stigmatization within their guild.
If made public to the whole guild, the event may disqualify guilty players to join later expeditions,
compel them into their making public apology or eventually lead to their leaving or being expelled
from the guild.
A simple game theory model can illustrate why deviance is less likely when collaboration is re-
peated. Let us examine the case of ninja looting. As we suggested before, players may deliberately
tick "Need" instead of "Greed" in order to get extra gear. Teammates are likely to check who actually
won the item and generally know what kind of gear fits to each class. Let us assume for simplicity
that getting caught ticking the "Need" box abusively is systematically spotted and punished by ex-
clusion from the group. Players play simultaneously at each period and choose to conform to rules
or to deviate. Deviation yields a higher probability to get the item at stake but subsequent exclu-
sion from the group – that is, end of the game. There are two ways to describe what changes are
induced by the same-guild framework. First, we may consider that the time horizon of the game is
fixed: it lasts as long as the dungeon is not cleared and stops when there is no item to loot anymore.
It is straightforward that deviation at the last period is an optimal strategy in market-constituted
groups. Guild-specific repercussions that were described above alter the payoff of deviation in the
case of guild-constituted groups by adding long-term negative consequences to any deviation, even in
the last period. In this framework, the overall effect of guild-constituted groups on the probability
of deviation is of course negative. A second, more heuristic way to deal with this particular group
setting is to consider that it leaves payoffs unchanged (and positive) but expands the time horizon of
the game. The underlying assumption here is that being known as a loot ninja by the guild prevents
the player from taking part to any further guild group. Since the payoffs associated to later games
are non-negative, so is the value of continuing the game. Incentives to deviate are therefore weaker in
this time-extended game than in that associated to market-constituted groups.
This reasoning is a somewhat oversimplified and one could argue that knots (see section 0.2.7)
sometimes give birth to repeated collaboration just as guilds do, or that deviation is not systematically
spotted nor punished by permanent exclusion. Yet, guilds do induce more rigidities than knots as of
social control and are by definition more likely to foster repeated interactions than any more flexible
kind of group, so the qualitative assertions above still hold.
Let us finally point out that some guilds, as we shall see below, are groups that enjoy a proper
identity and inner social ties. The decision to deviate or not is therefore likely to be affected by
limited benevolence (in the Humean sens of the term), or, in neoclassical terms, is likely to involve
others-regarding utility functions. It is self-evident that the opportunistic behaviors we described in
section 1.1.2.2 yield less utility in this particular case than when groups are constituted using the
group search market.
1.2.1.2 Reduction of trade and informational costs
Thanks to private discussion channels and guild banks, guilds enable players to search for teammates
and exchange goods without using the markets we described before. Although their range is more
limited, these alternative tools come along with smaller or null transaction costs.
As we suggested above, guilded players are frequently involved into repeated interactions through
which they come to know each other’s skills and characteristics. Let us also remind that players
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