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In MMORPGs, an instance dungeon is a special area, typically a dungeon, that generates a new copy, or instance, of the dungeon map for each group that enters the area. This saves server work and ensures that there will never be competition (kill stealing, spawn camping) over resources such as mobs within the instance and that player characters experience minimum lag.

This also preserves the gaming experience, since some gaming scenarios do not work if the player is continually surrounded by other players, as in a multiplayer setting. Instance dungeons may contain stronger than usual mobs and rare, sought-after equipment. They also may include level restrictions and/or restrict the number of players allowed in each instance to balance gameplay.

Instances were first proposed by Richard Garriott in the late 1990's as a way to solve a set of related problems which had become obvious in Ultima Online. The problem is simple to state: everyone wants to be "A Hero" and slay "The Monster", rescue "The Princess" and obtain "The Magic Sword". When there are 2,000 and more players all playing the same game, clearly not everyone can be a hero. The problem of everyone wanting to kill the same monster and gain the best treasure was terribly obvious in the game EverQuest. The creation of instances largely solves this set of problems. There are few examples of boss camping and kill stealing in World of Warcraft - because a copy of the dungeon (instance) is always created on demand for you or your party.

Games that have been known to use instancing include:

• Anarchy Online
• City of Heroes/City of Villains
• Dark Age of Camelot
• Dungeon Runners
• Runescape (only for numerous 'minigames')
• EverQuest (instances added in 2003)
• EverQuest 2
• Final Fantasy XI (instances added with the Treasures of Aht Urghan expansion)
• Granado Espada
• Guild Wars (uses instancing for every area where monsters must be fought.)
• Myst Online: Uru Live
• The Realm Online
• World of Warcraft
• The Lord of the Rings Online: Shadows of Angmar
• Tabula Rasa
• Auto Assault

One game known for not using instance dungeons is EVE Online. Because of the vast amount of space available in the EVE universe, missions for players are created in real space, which any other player could in theory travel to. This allows multiple players to perform the same mission at the same time (in the same manner as an instanced dungeon) but also allows other players to view or participate in the mission, if they discover the location, or if invited to assist by the player who was initially given the mission.

Vanguard: Saga of Heroes is another game that does not use instance dungeons. However, it is envisioned that, through the Advanced Encounter System (AES), certain "boss" NPCs can be triggered when a group enters an area; this NPC would then be "tagged" to that group, meaning no other players could attack or interact with it. AES was not implemented in the commercial release of V:SoH, but Sigil programmers are reportedly working on it and are planning to release it in a future patch.

In RuneScape, instance dungeons are used mostly in quests, so that other players cannot interfere with the player who is doing the quest, such as battling boss NPC's or having to accomplish a special task.

Several games use instancing to scale the mobs to the players' levels, and/or the number of players present.