Virtual gifts for a recessionary holiday

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A question for the economists out there - what gifts will turn out to be this holiday's most popular inferior good? It looks like the virtual goods industry (now worth an estimated $1.5 billion worldwide) is hoping they will win that prize. Dan Jansen, head of Virtual Greats, had this to say:

Maybe you can’t afford that Louis Vuitton bag, but you could in virtual form...They’re an affordable luxury in this difficult economy.

Perhaps Jansen's hopes for the industry are a little far-fetched, but the trade in virtual goods is no joke. According to the New York Times, China is at the front of the pack:

By most estimates, customers spend about $1.5 billion a year on virtual goods worldwide. Tencent Holdings, a publicly traded Internet media company based in China, is the leader, with hundreds of millions in annual revenue from virtual goods in online games and other applications. Internet companies in the United States are behind the curve.

As I mentioned in this previous post, China has decided it will try to tax virtual currencies. It appears that China has also placed bans on conversion between virtual currencies and yuan. It would be interesting to see how proponents of capital controls propose to deal with this issue.

If you really are looking to buy a virtual gift, though, here might be a better idea than the virtual Louis Vuitton bag. A Facebook application called Gifts from Causes offers to provide gifts to charity when you pay for a virtual gift. Of course, you'll need more than virtual money to pay for it.

(Hat tip: Giulio Quaggiotto)


Ryan Hahn

Operations Officer

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