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When Companies Fire Their Customers

Why should we care that a private company terminated a customer's account? Smart companies fire their customers all the time.[21] Does something make Ludlow's firing special?

EA could have had a variety of reasons for terminating Ludlow's account, including their stated belief that he was violating their user agreement. However, for the sake of argument, let's assume that this claim was purely pretextual to obscure the fact that EA vindictively and discriminatorily censored Ludlow. Characterized this way, we instinctively react negatively and emotionally to the specter of censorship. For example, one commentator hyperbolically claimed that EA "acts like a classic despot, using its powers to single out individual critics for the dungeons and the firing squads. [...] [T]he Herald censorship smacks more of tyranny for its own sake."[22]

However, when cooler heads prevail, we recognize that online providers routinely terminate accounts when users violate the provider's private rules. In some cases, providers censor customers for reasons—such as spam prevention—that are widely applauded.[23] If other online providers can enforce their private rules to curtail user speech, why shouldn't virtual world providers be free to do so as well?

Virtual world advocates typically advance three principal arguments to distinguish other online providers and explain why we should limit virtual world providers' discretion to terminate their customers:

  • Virtual worlds are immersive.
  • Virtual worlds allow players to invest and create real-world wealth.
  • Virtual world participants face switching costs.

Virtual Worlds Are Immersive

The first argument is that virtual world participants may psychologically feel that they are immersed in the virtual world and, in some cases, spend more hours online than in the physical world.[24] However, even if some participants immerse themselves in a virtual world, we still need a reason to find legal significance in these self-perceptions. People can declare themselves part of a virtual republic (and, in fact, do so regularly[25]), but this doesn't mean that we should recognize these virtual republics as sovereign equivalents. So long as these individuals have a physical presence in the "real" world, they remain governed by real-world laws, despite their psychological declarations. The immersion argument is more an indictment of those participants' ability to distinguish between reality and fantasy than a reason to create new legal rules.

Virtual Worlds Allow Players To Invest and Create Real-World Wealth

The second argument is that virtual world assets have real value.[26] An exchange rate may develop between in-game economies and physical world economies,[27] giving some virtual assets a tangible, quantifiable, real-world cash value/opportunity cost. However, virtual worlds are not unique in this regard; cyberspace is filled with virtual assets that have real-world value. Domain name registrars sell virtual locations (domain names), web publishers sell advertisers virtual real estate (positions on a web page), and web sites even create an exchange rate between virtual near-currency (such as airline miles or other loyalty program points) and cash.[28]

Moreover, all of these virtual assets are built on a user agreement. With respect to virtual worlds, almost all user agreements give the provider unlimited discretion to change the world or terminate the participant's access at its sole discretion. Therefore, a participant chooses to "create" value in virtual world assets premised on a shaky contractual foundation. Participants still have legal recourse for a provider's capricious actions; contract law, consumer protection, and other laws may still apply.[29] However, absent deception, contract-termination rights are generally upheld, even if the termination causes the terminated party to lose value.[30]

Virtual World Participants Face Switching Costs

The third argument is that participants make significant investments in a virtual world, and switching to alternatives creates costs.[31] Some virtual world participants spend hundreds of hours building relationships, reputations, and virtual assets, much or all of which is lost if the participant exits the virtual world. In theory, these switching costs could cause market failures by making it too costly for market participants to freely vote with their wallets and reward (or punish) virtual world providers appropriately.

Despite these investments, providers still feel the effects of market forces for several reasons:

  • Participants invest at different levels. Although heavily invested participants get the most attention (and make the most noise), many paying customers are casual users with trivial switching costs.
  • Competitors can offer marketing programs or product features that can induce participants—even the heavily invested ones—to switch.[32]
  • Heavily invested participants who don't terminate or switch may lose their enthusiasm for the world and decrease their contributions to the community accordingly, which can cause the world to atrophy and thereby make the community less compelling to newcomers.[33]
  • Word of mouth, especially about games, works really well as a market mechanism. If anything, the Internet (through blogs, enthusiast/fan sites, and product review sites) has strengthened the market. Bad buzz about a virtual world will keep away prospective new customers.[34] Therefore, even if investments inhibit competitive switching, providers still feel the marketplace effects of their choices.

Meanwhile, in other contexts, customers routinely incur some costs to switch between vendors. With respect to some online services (especially communication-oriented services such as email, web hosting, and blogs), these switching costs are not trivial but don't support regulatory intervention. Why should we give greater legal significance to the switching costs incurred in virtual worlds? As discussed above regarding commoditization, this issue seems especially problematic when the participant deliberately chose to incur switching costs, knowing that the provider could make unilateral choices at any time.

Conclusion on Virtual World Differences

Without a doubt, virtual worlds are both academically interesting and emotionally compelling. They can have richly textured visual environments, complex and absorbing storylines, curious denizens, and strong communities. However, we cannot let our fascination with virtual worlds and the people who occupy them cloud our judgment. Proponents of new rules for virtual worlds need to prove that virtual worlds should be treated differently than other online providers. This discussion has raised significant questions about the proffered justifications.

Meanwhile, rules to protect virtual world participants from private censorship could have unintended consequences. Specifically, these rules would restrict providers' choices about how to deal with unwanted speech. These restrictions distort providers' abilities to make profit-maximizing decisions, which in turn increases providers' financial risk and reduces incentives to invest in the industry. Converting private virtual world providers into state actors could paradoxically limit speech, not increase it.

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