Download Economic Theory and MMOGs

Economic Theory
and MMOGs
AGDC – September 7, 2006
Sam Lewis
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
Who Am I?
Sam Lewis
• Currently Lead Designer Cartoon Network
• Senior and Lead Designer SOE
• Designer and Producer Kesmai
• BA and MBA in Economics
What is Economics?
The study of how the forces of supply and
demand allocate scare resources in a society.
Supply
Supply
P
r
i
c
e
P
r
i
c
e
Demand 2
Demand
Quality
Demand 1
Quality
Why Use Economics?
• MMOGs are Social Games
• Analyze Current Phenomena
• Make Design Decisions
Price Movements
Thanks to Dan Speed – EVE Online
Natural Market Places
Thanks to Ahn Sang Hoon - Seal Online
Final Reason
“You can’t screw it up any
worst than it already
is.”
- Gordon Walton
The Money Supply
Objectives
• Sufficient cash for the
economy
• Avoid monetary collapse
• New players aren’t “poor”
Monetary Collapse
Could be Considered Fun
Plan for Commodity Currency
• Divisible
• Uniform
• Storable
• Durable
• Compact (High Value/Weight)
Quantity Theory
P= MV/Q
• P = price level
Healthy
• M = cash in circulation
• Q = quantity of goods
Hyper-inflation
• V= the velocity of money
Depression
Quantity Theory
DP= D(MV/Q)
• Healthy
– Holding cash maintains wealth.
Healthy
• Hyper-inflation
– Holding cash loses wealth.
Hyper-inflation
• Depression
– Holding cash increases wealth.
Depression
Quantity Theory
P= MV/Q
• Control Price via Money Supply
Healthy
• “Poor” Players via Market Prices
Hyper-inflation
Depression
Faucets and Drains
Player-to-Game Exchanges
Faucet
Player Control
• Faucet – Player selling to the game
• Drain – Player buying from the game
$
Drain
Game Control
Faucets and Drains
• Players control cash creation
– If they need more cash they open up
the faucets
Faucet
Player Control
• Drains are fixed
– They stay the same size regardless
of the Price Level
• It will become Hyper-inflated
– Its just a matter of when
$
Drain
Game Control
Solutions
Tie the Drain to Price Level
• NPC Prices rise and fall
Faucet
Player Control
• Auction
• Transaction Tax
$
Drain
Game Control
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
Transaction Tax
“Poor” Player Issue
Because Prices Increase• Value of starting cash declines
• Faucet stream “too” small
• Can’t buy good stuff
• Makes new players dissatisfied
Solutions
Non-inflationary Solutions –
• Have NPCs provide basics
• Make elder players dependant
on a starting commodity or
service
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
Market Structures
Structures Approach Perfection
Barter
Monopoly
Oligopoly
Perfect Economy
Market Structures
Perfect Market
Oligopolies
• Numerous Buyers/Sellers
• Few Sellers, Many Buyers
• Homogeneity of Product
• Substitute goods
• Freedom of Entry and Exit
• Barriers to Entry and Exit
• Perfect Information
• Imperfect Information
• No/Low Transaction costs
• Transaction costs
• Secure Transactions
• Secure Transactions
• Infinity Divisible Goods
• Infinity Divisible Goods
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
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
Substitute Goods
Differentiate Goods Based on • Effectiveness Tradeoffs
• Esthetics/Fashion
• Scarcity
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.
Imperfect Information
In conflict with few Sellers/Many Buyers
• Create Arbitrage Opportunities
– WoW market tracking software
• Future Economic Events
– There players working payroll cycle
Transaction Cost
Player’s 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
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
Industrial Organization
Study of Industrial Structures
•Market Structure
Crafter
•Manufacturing Chain
Key components
Resources
•Competitive Practices
Adventurer
Crafter
Consumables
Equipment
Crafter
Industrial Organization
Typical MMOG Relationship
•Adventurers Sells Raw Materials
Crafter
Key components
Resources
•Others Supply Sub-components
•Crafter creates Final Product
•Sells Adventurers Items
Adventurer
Crafter
Consumables
Equipment
Crafter
Industrial Structure
Design Issues
Crafter
• Manufacturing Chain
Key components
Resources
• Over Production
Adventurer
Crafter
Consumables
• Elder Dominance
Equipment
Crafter
Chain Solutions
• No Independent Crafters
– Make sub-components
– Make final products
Crafter
Key components
Resources
• Competition on 4 Ps
– Price
– Product
– Place
– Promotion
– (Predation)
Adventurer
Crafter
Consumables
Equipment
Crafter
Over Production
Caused by Oligopsony Structure
• Advancement Independent of Manufacturing
• Destroy Overproducing Factories
• Make Items Consumable
Elder Dominance
Caused By Natural Monopoly Structure
• High Fixed Costs
• First In Advantage
• Constantly Declining Marginal Costs
Declining Marginal Cost
• Cost to Produce Always Cheaper
• First–In Always Under-Cut
$
Marginal Cost Curve
Quantity
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
Conclusion
• Simple Economic Theory Provides
Insights to Design Decisions
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