Economic Theory and MMOGs

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Economic Theory and MMOGs

• AGDC September 7, 2006
• Sam Lewis

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What is this about?

• Summary of 2 GDC Roundtables
• Monetary Policy managing the money supply
• Market Structure creating a trading structure
• Industrial Organization creating
  crafting/business relationships

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Who Am I?

• Sam Lewis
• Currently Lead Designer Cartoon Network
• Senior and Lead Designer SOE
• Designer and Producer Kesmai
• BA and MBA in Economics

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What is Economics?

• The study of how the forces of supply and
  demand allocate scare resources in a society.

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Why Use Economics?

• MMOGs are Social Games
• Analyze Current Phenomena
• Make Design Decisions

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Price Movements

• Thanks to Dan Speed EVE Online

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Natural Market Places
Thanks to Ahn Sang Hoon - Seal Online
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Final Reason

• You cant screw it up any worst than it already
  is.
• - Gordon Walton

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The Money Supply

• Objectives
• Sufficient cash for the economy
• Avoid monetary collapse
• New players arent poor

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Monetary Collapse

• Could be Considered Fun
• Plan for Commodity Currency
• Divisible
• Uniform
• Storable
• Durable
• Compact (High Value/Weight)

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Quantity Theory

• P MV/Q
• P price level
• M cash in circulation
• Q quantity of goods
• V the velocity of money

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Quantity Theory

• DP D(MV/Q)
• Healthy
• Holding cash maintains wealth.
• Hyper-inflation
• Holding cash loses wealth.
• Depression
• Holding cash increases wealth.

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Quantity Theory

• P MV/Q
• Control Price via Money Supply
• Poor Players via Market Prices

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Faucets and Drains

• Player-to-Game Exchanges
• Faucet Player selling to the game
• Drain Player buying from the game

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Faucets and Drains

• Players control cash creation
• If they need more cash they open up the faucets
• Drains are fixed
• They stay the same size regardless of the Price
  Level
• It will become Hyper-inflated
• Its just a matter of when

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Solutions

• Tie the Drain to Price Level
• NPC Prices rise and fall
• Auction
• Transaction Tax

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Transaction Tax Example

• Two Player Economy
• Adventurer needs bullets to kill mobs to get cash
• Crafter makes bullets
• Crafter sets price based on demand
• Crafter pays both a fix offer charge and
  percentage sales commission

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Transaction Tax
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Poor Player Issue

• Because Prices Increase-
• Value of starting cash declines
• Faucet stream too small
• Cant buy good stuff
• Makes new players dissatisfied

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Solutions

• Non-inflationary Solutions
• Have NPCs provide basics
• Make elder players dependant on a starting
  commodity or service

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Market Structure

• What Market Structure should be used?
• Real World Economy Objective
• Pareto-optimality resources optimally allocated
• Perfect Market
• Game World Economy Objective
• Fun players are engaged and can win
• Oligopoly

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Market Structures
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Market Structures
Oligopolies
Perfect Market

• Numerous Buyers/Sellers
• Homogeneity of Product
• Freedom of Entry and Exit
• Perfect Information
• No/Low Transaction costs
• Secure Transactions
• Infinity Divisible Goods

• Few Sellers, Many Buyers
• Substitute goods
• Barriers to Entry and Exit
• Imperfect Information
• Transaction costs
• Secure Transactions
• Infinity Divisible Goods

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Few Sellers

• Fragment the Sellers by Location
• EQ one Auction House
• EQII two Auction Houses
• WoW three Auction Houses
• SWG one planetary commodity/many player vendors
• Fragment the Sellers by Time
• EQ must be logged in
• WoW offers for limited time period

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Many Buyers

• NPC Vendor of Last Resort
• Consolidate the Buyers by Location
• SWG commodity auction info was server wide, but
  you had to go and pick it up
• EQII buyers view other auction info and purchase
  for a higher price
• Consolidate the Buyers by Time
• Posting offers to buy

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Substitute Goods

• Differentiate Goods Based on -
• Effectiveness Tradeoffs
• Esthetics/Fashion
• Scarcity

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Barriers to Entry

• High Fixed Costs
• SWG shop investment (house, tools, location)
• EQ and EQII significant time investment
• Specialization
• WoW one resource and one manufacturing skill,
  but need 3 or 4 to make an item.
• SWG (old) max two crafting skills, but need 3 or
  4 to make an item.

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Imperfect Information

• In conflict with few Sellers/Many Buyers
• Create Arbitrage Opportunities
• WoW market tracking software
• Future Economic Events
• There players working payroll cycle

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Transaction Cost

• Players Currency is Their Time
• Make it Expensive to Change Vendors
• SWG - have to pick up
• WoW time to get to the other locations
• Makes location based competition valid

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Security and Division

• Allowing players to cheat on a deal causes more
  customer service problems than it is worth
• Making goods indivisible means getting rid of
  cash
• Play with these at the risk of destroying the
  business game

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Industrial Organization

• Study of Industrial Structures
• Market Structure
• Manufacturing Chain
• Competitive Practices

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Industrial Organization

• Typical MMOG Relationship
• Adventurers Sells Raw Materials
• Others Supply Sub-components
• Crafter creates Final Product
• Sells Adventurers Items

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Industrial Structure

• Design Issues
• Manufacturing Chain
• Over Production
• Elder Dominance

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Chain Solutions

• No Independent Crafters
• Make sub-components
• Make final products
• Competition on 4 Ps
• Price
• Product
• Place
• Promotion
• (Predation)

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Over Production

• Caused by Oligopsony Structure
• Advancement Independent of Manufacturing
• Destroy Overproducing Factories
• Make Items Consumable

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Elder Dominance

• Caused By Natural Monopoly Structure
• High Fixed Costs
• First In Advantage
• Constantly Declining Marginal Costs

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Declining Marginal Cost

• Cost to Produce Always Cheaper
• FirstIn Always Under-Cut

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Overproduction Solutions

• Cap Quality
• Elders make the same quality item
• Cap Cost
• Elders cost the same, including wastage
• Use Comparative Advantage
• Elders move on to supply their market

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Conclusion

• Simple Economic Theory Provides Insights to
  Design Decisions

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References

• Terra Nova
• http//terranova.blogs.com
• Flying Scythe Monkey
• http//www.flyingscythemonkey.com/
• Eve Developer Blog (Dan Speed)
• https//myeve.eve-online.com/
• Synthetic Worlds
• Edward Castronova