The Rise of the Millennial Economy

Second Amendment arguments aside, would you pay $500 for a gun?  That's about what average guns go for these days – sometimes more, sometimes less, so let's agree on about $500.  However, what if that gun existed – just not in the physical world?  Would you pay $500 for a gun that you could only look at on your computer?

Welcome to the virtual world of online gaming.

Millions of people play online video games every day – sometimes all day!  And while the games themselves are often free, once inside, players are given the option to buy extra lives, or more weapons, or more bullets.  These "micro-transactions" are how game-developers make their money.  Players are willing to pay a buck here and a buck there to get an extra life and make it to the next level.  It's not so much individually, but in aggregate that the developers make millions every day.

And then there are the "skins."

Online games reward players' successes with new guns, or new knives, or missile-launchers, all called, collectively, skins.  These weapons are better, or stronger, or maybe just a different color – and they are unique.  Moreover, not everybody who achieves a certain level in the game will get the same reward.  Developers limit the number of some prize skins, making certain models rare and coveted.

But what if you don't need that extra purple-striped pistol?  Or better yet, what if you need a little extra cash so you can move out of your parents' basement?

It turns out that there is an active secondary market to sell these virtual items and plenty of buyers willing to spend and show them off.  Some games have their own marketplaces built in to trade or exchange skins, with players often charging for them through payment platforms like PayPal.  There are even escrow websites that will hold a skin and collect the sale price (taking a small fee, of course), making exchanges even more secure.

How much do these rare and coveted skins go for?  You won't believe it!

One escrow site reports an average daily trading volume of almost $250,000.  And while most items exchanged go for $20 or $30, the recent sale of a rare gun closed at $61,000!  That's not a misprint – someone actually paid a real $61,000 to buy a bright yellow virtual rifle that doesn't exist physically and can be used only in the game Counter Strike: Global Offensive.

Forget about the developers charging players a buck for some extra bullets.  This is the Millennial economy.

When I was in my mid-twenties, my goal was to buy a house for my family.  While most Millennials probably think that is ancient history, it really was not that long ago.  The first house I bought was $18,000 – and that was in California!  Okay, maybe that was a long time ago.  It wasn't in a great neighborhood, but it was a starter home.  Even adjusted to today's dollars using the consumer price index, it would still be only about $31,000.  However, the national real estate data company Zillow reports that the average starter home in California today goes for about $300,000.  What Millennial directly out of college, packing some student debt, can afford this?

People buy a home for a variety of reasons – investment returns, pride of ownership, status.   However, when a consumer can't afford a specific good, economists tell us he looks for a less costly substitute that provides similar amounts of utility.  Enter the virtual purple-striped semi-automatic pistol.  I can't build a house, just as a lot of videogamers can't win the best skins.  But we can both buy what gives us status, pride, and yes...even investment returns.

With the rise of online gaming over the past several years, is it any wonder that the purchase of homes by the Millennial cohort has declined?  Priced out of buying real estate, their age group can afford skins.  Moreover, skins are a fairly decent utility substitute for homeownership.  They generally hold or appreciate in value; the owner can show them off in games online; and, depending on the skin, they communicate status.

In the Millennial economy, virtual assets are supplanting physical ones.  Now if they only had a place to sleep...

Kevin Cochrane teaches business and economics at Colorado Mesa University and is also a permanent visiting professor of economics at the University of International Relations in Beijing.

Second Amendment arguments aside, would you pay $500 for a gun?  That's about what average guns go for these days – sometimes more, sometimes less, so let's agree on about $500.  However, what if that gun existed – just not in the physical world?  Would you pay $500 for a gun that you could only look at on your computer?

Welcome to the virtual world of online gaming.

Millions of people play online video games every day – sometimes all day!  And while the games themselves are often free, once inside, players are given the option to buy extra lives, or more weapons, or more bullets.  These "micro-transactions" are how game-developers make their money.  Players are willing to pay a buck here and a buck there to get an extra life and make it to the next level.  It's not so much individually, but in aggregate that the developers make millions every day.

And then there are the "skins."

Online games reward players' successes with new guns, or new knives, or missile-launchers, all called, collectively, skins.  These weapons are better, or stronger, or maybe just a different color – and they are unique.  Moreover, not everybody who achieves a certain level in the game will get the same reward.  Developers limit the number of some prize skins, making certain models rare and coveted.

But what if you don't need that extra purple-striped pistol?  Or better yet, what if you need a little extra cash so you can move out of your parents' basement?

It turns out that there is an active secondary market to sell these virtual items and plenty of buyers willing to spend and show them off.  Some games have their own marketplaces built in to trade or exchange skins, with players often charging for them through payment platforms like PayPal.  There are even escrow websites that will hold a skin and collect the sale price (taking a small fee, of course), making exchanges even more secure.

How much do these rare and coveted skins go for?  You won't believe it!

One escrow site reports an average daily trading volume of almost $250,000.  And while most items exchanged go for $20 or $30, the recent sale of a rare gun closed at $61,000!  That's not a misprint – someone actually paid a real $61,000 to buy a bright yellow virtual rifle that doesn't exist physically and can be used only in the game Counter Strike: Global Offensive.

Forget about the developers charging players a buck for some extra bullets.  This is the Millennial economy.

When I was in my mid-twenties, my goal was to buy a house for my family.  While most Millennials probably think that is ancient history, it really was not that long ago.  The first house I bought was $18,000 – and that was in California!  Okay, maybe that was a long time ago.  It wasn't in a great neighborhood, but it was a starter home.  Even adjusted to today's dollars using the consumer price index, it would still be only about $31,000.  However, the national real estate data company Zillow reports that the average starter home in California today goes for about $300,000.  What Millennial directly out of college, packing some student debt, can afford this?

People buy a home for a variety of reasons – investment returns, pride of ownership, status.   However, when a consumer can't afford a specific good, economists tell us he looks for a less costly substitute that provides similar amounts of utility.  Enter the virtual purple-striped semi-automatic pistol.  I can't build a house, just as a lot of videogamers can't win the best skins.  But we can both buy what gives us status, pride, and yes...even investment returns.

With the rise of online gaming over the past several years, is it any wonder that the purchase of homes by the Millennial cohort has declined?  Priced out of buying real estate, their age group can afford skins.  Moreover, skins are a fairly decent utility substitute for homeownership.  They generally hold or appreciate in value; the owner can show them off in games online; and, depending on the skin, they communicate status.

In the Millennial economy, virtual assets are supplanting physical ones.  Now if they only had a place to sleep...

Kevin Cochrane teaches business and economics at Colorado Mesa University and is also a permanent visiting professor of economics at the University of International Relations in Beijing.