The Social Dynamics of Economic Activity in a Virtual World

This paper examines social structures underlying economic activity in Second Life (SL), a massively multiplayer virtual world that allows users to create and trade virtual objects and commodities. We find that users conduct many of their transactions both within their social networks and within groups. Using frequency of chat as a proxy of tie strength, we observe that free items are more likely to be exchanged as the strength of the tie increases. Social ties particularly play a significant role in paid transactions for sellers with a moderately sized customer base. We further find that sellers enjoying repeat business are likely to be selling to niche markets, because their customers tend to be contained in a smaller number of groups. But while social structure and interaction can help explain a seller's revenues and repeat business, they provide little information in the forecasting a seller's future performance. Our quantitative analysis is complemented by a novel method of visualizing the transaction activity of a seller, including revenue, customer base growth, and repeat business.