Baba Sucks

Gwyneth Llewellyn once again stands on top of the Internet to claim WIN.

You may have heard the latest wag from the valley, purporting that Second Life is some sort of Pyramid scheme. This all came from a blog post by Capitalism 2.0 author Randolph Harrison entitled, “SecondLife: Revolutionary Virtual Market or Ponzi Scheme?”

Excerpt from Gwyn’s winning comment,

It would be rather obvious for me (and I do well know that sometimes common sense does not apply to economics, but…) that if you’re willing to enter a small exchange which only has, oh, perhaps, 5 million L$ to offer, an offer of a “few million L$” (you mention US$10k, or about 3 million L$) would certainly make the market collapse… and give you an awful rate of exchange in return.

I fail to understand the point. This is the expected behaviour on an open exchange — or at least it was, when I had my economics classes. Where exactly am I missing the point?

To recap:

Linden Lab is operating a “rigged” exchange, since it’s “an open auction”, and “doesn’t work well for big trades”. To make “big trades”, you tend to suggest to go to the tiny private exchanges instead, but then complain that the market collapses due to your flooding of L$ there… and, as a conclusion:

it suddenly dawned upon me.

This game was just a pyramid scheme.

I’m baffled on how you start adding apples to oranges and suddenly the result comes out in onions. However, I blame my own ignorance. Probably, this makes sense to an economist. For the layperson, however, your experiences in trading on the LindeX and on the small, private exchanges, do only reflect how a market behaves, and the conclusion that “Second Life is a pyramid scheme” doesn’t follow. At all.