Question: Norrath is a place in the online game EverQuest II. It is a virtual world with roughly 350,000 players "arrayed over worlds that are tethered to dozens of servers." As Rob Walker noted, "EverQuest is filled with half-elves, castles, sword fights and such, and involves a fairly complex internal economy, whose currency is platinum pieces used to buy weapons, food and other goods." This virtual market, however, has led to a real-world market, with real dollars for virtual goods. Players sell weapons, complete characters, and other virtual items on EverQuest's internal market called Station Exchange and on eBay. Common items sell for $10 to $25, while extensive characters or weapons can fetch a thousand dollars or more.

(Based on Rob Walker, "The Buying Game: A real market, overseen by a real corporation, selling things that don't really exist," New York Times Magazine, October 16, 2005, p. 28.) Why would someone buy virtual goods? Does supply and demand play any role in this real market for virtual goods? If there were virtual games similar to EverQuest II where everything is free, would any real markets exist for their virtual goods? How does paying for a virtual product differ from the situation where a buyer could purchase a nice watch for a reasonable price, but decides to buy a luxury brand for 10 to 20 times as much?