Tobold's Blog
Monday, November 05, 2007
Troll on Fire talking inflation

I found an interesting article on inflation in MMOs over at Troll on Fire. (Warning! Reading that post might cause your eyes to hurt, as the author uses a rather small and grey font on black background.) He argues that MMORPGs have inflation, and could use some sort of central banker to control money flow according to some inflation index.

Interesting argument, but I don't think the solution is realistic. What we need to look at is the primary reason behind the inflation in these games: Your money supply goes up with your level. Thus as servers age and the average level goes up, money supply goes up for the economy as a whole. Troll on Fire quotes the example that a level 70 player isn't likely to farm copper in the newbie zones. Now look at that example from a different angle: time. A level 70 player isn't much faster farming copper than a level 10 player is. But in one hour of farming monsters a level 70 player can make much more gold than the level 10 player. Thus speaking with David Ricardo the level 70 player has a comparative advantage in making gold, while the level 10 player has a comparative advantage in making copper, and both gain by trade.

Time is the only real currency in a MMORPG. You can achieve anything by spending time. And whether you get a resource directly by spending time gathering it, or by farming money to buy it doesn't matter. Most players are likely to choose the method which gets them the most resources in the smallest amount of time. The more high-level players are around, earning more virtual currency, the more does the auction house price of the low-level resource go up. But that observed inflation is an illusion. In fact if you consider only time having a value, there is actually a deflation: The level 70 player gets more copper per hour by buying it for farmed gold. And the level 10 player gets more xp and levels per hour by gathering the copper, selling it, and investing it in equipment and training cost. So both players spend less time to get to their goals.

That this is actually deflation, not inflation, becomes even more visible if you consider fixed costs, like training or buying a mount. Lets consider buying a level 40 mount for 100 gold: The very first player on the server reaching level 40 hasn't got anyone richer around to sell loot or gathered resources to, so he needs to spend X hours killing monsters to get the 100 gold for his mount. Same server, one year later, some newcomer reaches level 40. He profits from many higher level players being around with more money, because he can sell them loot for their twinks or gathered resources. He ends up spending a lot less than X hours to get 100 gold together, lets say half the time, X/2. So the value of the level 40 mount went *down* by 50%, from X to X/2 hours. This is to the advantage of new players, and no virtual central banker fiddling with price indices is needed.
One thing I would like WoW to do different would be for basic type of materials for professions is have a NPC selling them at a set price, or else a system that isnt time-intensive to get those mats..

A system such as a once a day request for clanned chars to recieve a small ammount of mats for trying to make some gold. With a system like this a person can definatlly dump them right ontu the AH, but then again has much better potential using them on some sort of wares they can sell...

The AH does also need better organiztional controls.. it gets a bit chaotic with its layout.. Maybe even make it more like the classifieds/craigslist alternative option instead of a timed/auction view. Need it now? use auctions/buyouts... want a deal or easier to sell? use the classifieds..
Good article Tobold. You're one of the few out there who has a grasp of economics in MMOs. A guilder went all ballistic yesterday in kinship chat about inflation and the role of gold farmers in it. He had no clue of any of the basic forces in an MMO economy, but it didn't keep him from spewing a random list of "observations". Enlightening to read these and totally agreed.

On another note, I find people complaining about inflation are usually simply not willing to undertake any effort to make some gold. If you are unwilling to make any effort or investment, but want to lay your hands on anything that shines, you may end up disappointed. Just like in real life.

- Sveral
Can an mmorpg exist without an economy? Everything no drop?

That would certainly put a crimp in the gold farming )
I assume you mean copper ore. If so, it would be good to make that distinction within the post, as copper is a type of coin too and buying copper for gold can sound confusing.
A trick to read those articles with small fonts and/or bad colour combinations....

Just select the text, CTRL-C to copy it, open any text editor and paste it

et voila', you have plain vanilla text.. and easy to read. ^_^
Very good stuff. To be anal, I'd argue the infinite resources is the cause for inflation and note what you described was an effect of that cause. :$
Agreed. We're not earning a salary where we're being paid in gold. If there is inflation, then likely (i.e. if you're smart) the goods that we're farming are also getting inflated, so again, this is deflation, not inflation.

And regardless of inflation or deflation, a casual player who wants to raid will have issues paying for repair costs. It's pretty easy to make some gold in any MMO as long as you farm or know how to arbitrage the AH. But if all you want to do is play content where in general you lose gold, you have to do something to cover those costs. And it's not correct to blame that on inflation.
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