International wage differential in virtual world?

September 30th, 2005 Jun Sok Huhh Posted in news |

Sep. 28th, the National Police Agency of Korea(NPA) announced the arrest of professional item traders who has offended the law of Korea.

According to the announcement, a group of Korean and Chinese traders who set up for item transaction hacked some Korean web-sites to get National Registration Numbers(a lot like Social Security Number, but it's more important information for Korean). With this hacking, they stole the information about 53,000 people, and made about 120,000 ID of online games. Chinese partners who had arranged and operated sweatshops took their virtual products (made in China) over to Korean partners. They sold those items in Korean trading market. From 2003 to Aug. this year, they've earned about 100 million US dollar for this transaction from which around 60 million were remitted to their Chinese partners by illegal way.

A police officer who investigated this case says, "Recently, there are a lot of words that one out of four in any online games is from China. According to our estimation, the number of workshops in China dedicated to item production is around 1,000, and more than 40,000 workers (or gamers) are hired in this business."

It is a lot suspicious how they could guess the exact size and scale of sweatshops and their activities for producing item of Korean online games in China. I think numbers of NPA's announcement exaggerated definitely. But, there have been many rumors among Korean players about this kind of business. According to those unidentified stories, at the outset Korean gamers were hired for this job. many Bosses of workshops, however, gradually turned their eyes to overseas like China or Vietnam where wage cost was exceedingly low. Assuming that organizing production in virtual world be following same logic in real world, the movement or transition of workshops would be a natural consequence of seeking profit. As a result, the supply of items is mostly from foreign players (or employees) who have much lower reservation wages. above episode shows a sort of natural strategic move of virtual businessmen who are dedicated to item trading.

Undoubtedly, there are some limits for these activities. 1) Physical limits; connection from abroad is not fit for profiting from playing. 2) Legal issues; this kind of activity can be viewed as a crime. Anyway, it it interesting that the reason for which traders from the story were arrested is not trading itself, but hacking of privacy and smuggling of foreign currency.

What if there are no legal issues in the way? By the law of economic forces, (at least in theoretical sense) most of items which are traded in the game-serving country might be supplied by foreign cheap labor. Wage differential of real world is the key factor for virtual world transaction. Also, lower production costs mean that there are much more chances for the price falling down, if not the demand for items exceed the increasing amount of supply. At lower price, independent producers who were previously making their profit by enjoying games can not earn profit any more. Finally, Chinese workers will occupy the supply side of trading markets, and most of Korean players will take demand side.

Is this weird division of labor good for players in Korea? Lower price of items might be some (or great) help to beginners or busy players who have not enough time to raise himself fast. Gains from trade, whatever. How about potential sellers who had endured so many toiling hours for the money earned afterward? Actually, economic incentives for RMT has been a strong motive for younger native players. Is this beneficial to the game-servicing companies? They might feel indifferent as far as there is no difference in the revue from games. Only the number of subscribers matters, not their nationalites. Is there any need or reason for them to take serious actions against this sort of activity that pursues 'comparative advantages' from international wage differential of real world in virtual world?