An Empirical Analysis of Virtual Goods Pricing Strategies in Virtual Worlds

3D Virtual worlds are computer mediated environments intended for the users to inhabit and interact via their representational avatars. Trading virtual goods in 3D virtual worlds plays an important role in realizing the virtual economy. This essay examines the impact of the unique virtual goods permission settings (Copy, Modify, and transfer) on creators’ pricing strategies. We collect data of virtual items from the Second Life marketplace XStreet to explore the factors that affect virtual goods prices. We use ANOVA to test the relationship between each permission and price, and conduct random effects model to investigate how permissions affect price in different categories. Our empirical results show that “Copy” permission, which might be regarded to reduce the profit of the creators, has a positive effect in virtual goods pricing strategies. Virtual items are more likely to be assigned “Copy” which seems to give additional duplicates for free. Furthermore, prices of virtual goods with “Copy” permission are higher than those without, and the more copies a consumer wants, the higher the price difference between the items with “Copy” and those without “Copy” permission. The effects of other issues on virtual goods prices are analyzed and managerial implications are discussed.