Emergence of networks and market institutions in a large virtual economy
Economics
Using more than 40 million transactions from Team Fortress 2, this paper traces how a large virtual economy evolved from pure barter toward monetary exchange. Network analysis reveals the rapid emergence of commodity money, market makers, brokers, and other specialized intermediaries, showing how economic institutions can arise spontaneously even when they are not built into a market’s design.
Written with Daniel Friedman & Matt Baumer
Abstract: Starting with a complete set of transactions from an on-line trading community, we construct trader and goods networks, and track them over time using metrics such as node strength, assortativity, betweenness and closeness. The trading platform was designed to make barter exchange as attractive as possible; money was not part of the design and all players were created equal. Yet, within weeks, several specific goods emerged as media of exchange, and various specialized traders appeared. Eventually trade was predominantly money-mediated and market-makers played a major role. Our results illustrate how network analysis can capture the spontaneous emergence of economic institutions.