Economics – Thoughts on MMO Inflation

I’ve been kicking the idea of inflation in virtual markets around in my head for quite some time now. Not exactly questioning the basic premise of inflation in virtual markets as much as some of the implied assumptions.

A lot of this started upon seeing the age-old question “why are market-board taxes a thing?” The stock answer, often given as though the question itself is a dumb one, is “to counter inflation.” At some point, I began to ask questions of that answer though.

How do we know inflation is happening? Are we sure it’s a bad thing? Are market-board taxes an effective way to counter inflation? You get the idea.

  • How do we know inflation is happening?

This is really the first question I set out to answer. I wanted to know, above and beyond all other concerns, if any of the other questions were even relevant. Based on my reading and a little personal research I have come to the conclusion that since virtual markets are driven by human actors or sometimes bots acting on behalf of humans, that they behave in a manner consistent with real markets. As such, I cannot come up with any good reason why inflation wouldn’t occur if the required conditions were met.

Part of my problem was that MMO economies aren’t quite like real economies. When you complete a quest or bounty in a game, the currency that is paid to you generally came into existence that very moment. It didn’t have a chain of custody and there likely isn’t a system behind the scene adjusting the amount you receive to account for the fact that it can essentially generate “infinite money.”

The older “monetarist” view of inflation is that greater money supply leads directly to inflation. If you have more dollars you’ll pay more money to get what you want and in doing so driving up prices. The easy answer then is that you must remove some of that excess currency via “gold sinks.” Those activities effectively delete currency in the same way that rewards create it.

It was while driving this particular train of thought that I happened across Wilhelm’s The November MER and the Surge in Outer Passage, a post regarding EVE Online’s rather frequent posts containing a variety of economic data. I figured they might have a graph of the Consumer Price Index, a common measure of inflation, and stopped by to take a look.

9b_isk.float.3

Of immediate interest to my question is overall money supply. As one might expect, this seems to trend upward for the most part. This indicates that the total amount of currency in the market does tend to increase over time. As a result, monetarist theory would suggest a slight inflation increase over the same time. Obviously, the methods of extracting money from the economy are slower than the ones generating it.

9d_economy.indices.short

If we look at CPI over the last few years, it seems to trend along with total currency. I may come back and do a statistical regression of their data at some point, but at a glance it seems to agree, though it’s not nearly as neat an incline as the currency supply.

9aaa_top.sinks.faucets.over.time

As a final thought, their data on where currency is being generated and destroyed is also provided. Marketboard taxes make up the majority of the money sink. The tax rate was changed right at the end of July, rather noticeable here. Of specific interest to me was the fact that market taxes are the number one currency drain in the economy. Regardless of where things end up regarding the effectiveness of currency deletion in combating inflation, it’s obvious that it does a decent job at removing currency in general.

It’s also interesting to see that the communication changes they made a while back, leading to a large drop in bounty payouts, seems directly correlated with a reduction in the money supply and the price indices. With bounty payouts close to their pre-change level the other charts seem to have levelled off but not returned to their previous levels.

Guess I should bring this to some manner of conclusion, though I would like to emphasize that it’s a conclusion, not the conclusion. At least in the case of EVE, it seems to hold generally true that an increased currency supply leads to inflation, at least in the “short” term. When you expand it out over the last decade the CPI actually seems to balance itself in a sort of equilibrium that helps protect basic goods like T1 ships from inflation.

And now I want to play EVE again.

Y’all take care, and be careful which rabbit holes you look into. “If you gaze long into an abyss, the abyss also gazes into you.” – Nietzsche. Why is it always Nietzsche?

6 thoughts on “Economics – Thoughts on MMO Inflation

  1. An interesting post – I wish more MMOs had the degree of data availability that EVE has for economic indices.

    WoW has been on an inflationary streak for years now, as one of the few remaining rewards that holds value for players is gold. They’ve normalized repair costs on gear to the old Plate values to increase repair bills as a sink, they’ve introduced expensive mounts (Legion has a spider at 2 million gold, BfA has an auctioneer/dinosaur mount that costs 5 million only two years later), and they’ve attempted to stem the tide of mission table passive gold by removing gold rewards from the older versions of the mission table and making the current table gold rewards nowhere near as large.

    In fact, many of BfA’s system changes are a crude form of monetary policy – everything in the game is attempting to siphon out more gold from players to NPCs to remove it from circulation – and their recent announcement that the auctioneer mount will not be available at the vendor after BfA seems another means to reduce gold supply by forcing more purchases of the mount.

    It’s definitely an interesting topic I don’t read much analysis of, so thank you for the post!

    Liked by 2 people

    1. You’re welcome!

      It’s something I’ve been chewing on for a while. Most of my effort has been centered around FFXIV though, but I think the basic ideas should be generalizable. I haven’t played WoW recently enough to have a good feel for where gold comes from, but (I believe) FFXIV has a fairly restrictive flow into the system. Most currency is going to be gained from doing the daily roulettes, followed by weekly challenges logs, then maybe quests as a distant third. If you’re a new player doing main story stuff quests probably read higher. Technically selling items to a vendor creates money too, but the sell prices are so low that it would be negligable compared to the others.

      Once I wrap up my current research paper I was going to see if I could estimate a cash flow in/out as well as a price index for XIV. I suppose it wouldn’t hurt me to take a look at WoW at some point too.

      If they’re doing all these things in WoW to curb inflation, and it isn’t working, I’d kinda like to know why.

      Liked by 2 people

      1. FFXIV would be an interesting system to look at for sure! I notice that there are a lot of ways to build via tradeskills such that you can opt-out of a lot of money sinks – you can repair your own gear, meld your own materia, desynth and create new materia, etc – and since you can play every job on a single character, you avoid some of the missed perks for not being a tank or healer in other games, like dungeon queue bonuses and extra money income. Some of the money sinks still work because the game’s information economy isn’t quite as hand-holding as WoW’s, but there are a ton of guides that can guide on the macro-level topics like crafting and gathering and those tend to touch on repair and desynth as ways to benefit. FFXIV also has the housing market, and Shadowbringers is increasing availability of that in intervals in such a way that players might be holding gil right now waiting for new housing – the new wards added in 5.1 or the completion of Ishgard Restoration, which is heavily hinted as being the opening of a housing district there. You can sink a lot into housing even without a house – I have a FC chamber room and an apartment and the cost of acquiring and decorating both definitely sunk a few years worth of starter, slow income from my character!

        Liked by 1 person

      2. There are, but I actually don’t know anyone who actively works to avoid those sinks. Up until recently the time sink required to do all your own repairs was a bit intense. I also wasn’t aware, but doing your own repairs lets you exceed 100% condition.

        I have personally assumed that most of the gil sink is in teleport costs and marketboard taxes. Housing *is* a major sink, but the limited supply of plots is probably keeping it moderated. I imagine entirely new areas like Shirogane and eventually Ishgard will remove an absurd amount of currency.

        The interesting thing about FFXIV is that most of the core gil cost of playing (repairs and teleports) are fixed costs. They cannot “inflate” in the traditional way without Squenix changing the system, which they don’t currently seem inclined to do. Same applies to many base housing costs as well.

        We actually have a medium FC house on Lamia, which is probably the single greatest expenditure I’ve ever witnessed. Weighing in around 14M it ate a significant amount of earnings from some friends who’ve played since launch. Think the most I’ve personally dropped is 1 to 2M in a single day on high end gathering/crafting gear or buying vendor gear for lazy crafter leveling.

        There’s a whole list of things I need to gather data on to get where I want to be in terms of basic understanding for just FFXIV that it seems almost crazy sometimes 😛

        Liked by 1 person

      3. I’d agree on the point about repairs – I just find it interesting to be an option at all. It is a nice side perk to have but I can’t imagine anyone playing so strapped for cash that they are repairing, synthing materia, and melding on their own solely to avoid the cost. But it offers that angle at least, where WoW can reliably ensure players are repairing via NPC and removing that gold from the economy. I wonder if there is an appreciable difference between the two games on that front in terms of end economic effect?

        Definitely agree on the teleports, but it is interesting that if you are playing solely Shadowbringers content, the overall cost of porting around the First is lower than the average cost of porting around in Stormblood.

        I wonder how likely it is that we’d see Square Enix remove the cap on teleport costs, up repair costs, or some other combination of measures.

        The fascinating thing to me about MMO analysis is that for games like FFXIV and WoW, it is far more subjective to analyze due to the lack of outside data availability – makes it interesting to narrativize when filling in the blanks, at least!

        Liked by 1 person

      4. I don’t know. Squenix seems to have taken a pretty hands-off approach with the XIV economy. I never really hear it discussed in live letters or the online channels I keep an eye on, which implies that it’s not a problem. If it isn’t broke and nobody is complaining about it, why bother?

        It’s a fascinating enough topic that I’m attempting to create a career with it, at least in the vaguest sense. At the very least my economics professor seems to enjoy it as much as I do.

        Data availability is an interesting animal in itself. If I wanted to look at something like “real” iron ore, I would most likely have to pay a company specializing in metallic ore market data for a report. That information is literally the product that they sell. Gathing that data for myself would be… time consuming, difficult, and likely less reliable.

        MMOs don’t exactly have that problem. The basic market data for right now is freely available to players any time they want to see it, and there are a variety of third-party aggregation sites for crafters/gatherers that sometimes provide similar functions. XIV’s rather strong anti-bot policy keeps that to a minimum though. I’ve considered picking up a second “disposable account” and a VPN service in order to experiment with automated data gathering in XIV, but haven’t decided if I really want to go that far or not. I’ve also considered trying to contact the development team directly to see if they would be willing to share non-identifying data, but haven’t decided how to best approach that idea yet. They may not even have systems in place that track things like “total gil spent on teleports in the last [time period]” anyway.

        It’s an interesting problem.

        Like

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