Archive for June, 2008
But First, Supply and Demand
Sunday, June 1st, 2008
The economic decision making of players in MMOs is very similar to real life (RL) decision making, but are the factors that operate within MMO markets similar enough for us to make real comparisons? Let’s start from the bedrock of economics, supply and demand, and see how MMO markets stack up to real markets.
Main Factors that Affect Demand
Taking a page from any intro to econ textbook, we have the following six factors that affect the demand curve for a given good. Some are simliar to RL, others differ quite a bit.
1.) Consumer Income: Unlike real life, not every day in an MMO consists of 24 hours. If a player logs on for only 2 hours per day, we should think of their day as only having 2 hours. This matters because any meaningful measure of income is Gains divided by Time, which in this case varies for each player.
In this flexible context, players do still have changes in income. Incomes might increase because, for example, a given profession (a trade skill within a game) might be suddenly be allowed to craft a new item (technological progression). Or, the game developer might make certain activities, like completing daily quests, more lucrative relative to normal expenses. These shifts affect the in-game economy only insofar as the cost of goods (consumable potions, repairs, and other things that are required in playing. Eventually I will write about “economic activity” in a forthcoming post) remains the same.
2.) Price of Substitutes: Should I purchase the +healing power potion for this raid, or should I save my gold for the crafted healing mace? While not perfect substitutes, these two goods offer a benefit to healing, and so the price of one will affect the demand curve for the other. Here, in-game economics are starkly different from RL as there are often few or no substitutes (this example notwithstanding), and there is usually only one source for a given good.
3.) Price of Complements: Something is a complement if it is used in conjunction with another good. For example, a bun is a complement of a hot dog. If demand for a good rises, so too will demand for its complementary goods.
An example of this in WoW can be seen in the highly desired 2-handed Mace, Stormherald. This crafted weapon originally required a combination of materials that could be obtained from two sources: mining minerals (which everyone could do) and collecting Primal Vortexes from a certain very-difficult raid dungeon. Originally, these Vortexes could not be traded, and therefore, were very difficult to obtain. In a recent patch (2.4.0), Blizzard developers made the Vortexes tradable, which immediately increased the demand for Stormherald. In economic terms, this caused a massive decrease in the price of Primal Vortexes, which, as a result of increased demand, dramatically increased the price of the mined goods.
4.) Population: In-game economies have dramatically more population influxes as games grow and wane in popularity, as players transfer from one server to the next, and as the overall pool of MMO players grows. Market changes deriving from population fluctuation may prove to be an interesting grounds for research, in the least because the high volatility will offer much to study. Additionally, there are unique “petri dishes” that we can study, such as the formation of economies in new games or servers, that hopefully will offer insights on developmental economics.
5.) Tastes: If one of the main motives for playing MMOs is to show off all your exotic and shiny gear, then tastes would play a big part in determining the costs of visually noticeable gear. However, many players are also number-crunching rationalists who will wear the uglies gear as long as it meant they could do more DPS (damage per second) to a monster. Sometimes, though, there are shifts in tastes that occur without anything changing in the game. For example, it was once thought that Warriors (a class of character in WoW) were most powerful when using 2-handed swords. Over time, though, more players came to believe that 2-handed maces were better, causing a shift in the demand curve for both swords and maces.
6.) Future Price Expectations: Game developers have found they generate less ill-will in their gaming community if they publish in advance the changes they plan for their game. This generates fertile ground for economic speculators and other future-minded behavior. Smart players save gold and crafting materials to use and sell on patch day (the day the game software changes). This causes price bubbles, raw material shortages and surpluses, and massive price fluctuation.
What to Do with This?
My route forward in looking at the factors of Demand (and Supply when I get around to writing about it), is to study specific goods and identify how their price equilibria react to changes in the game. For example, 
one such good may be Arcane Dust, pictured above in a WoW auction house interface. While some of this may be old hat to those who have taken even economics 101, it will be interesting to see how supply and demand act differently in-game, along with other topics such as elasticity and volatility.
Any MMO players have any predictions on what I’ll find once I start crunching the numbers? Am I full of bunk when I say that I will be able to find clearly definable shifts in supply-demand equilibria? Will in game mechanics be markedly different than RL? Please share your thoughts.
