Curse

Ensign · Nov 10, 2010, 12:53 AM // 00:53

Quote:

Originally Posted by awry

Wow a very insightful analysis and a good read to boot. But could you elaborate on the "overhang"? Do you mean that ectos have been accumulating in players' inventories as currency for so long that there isn't enough demand to change the market value?

I was being a bit more fast and loose with terminology than I should be. What I mean is that the quantity of ecto is so large (compared to the quantity of shards), and the demand for ecto-as-money so large (compared to demand for ecto-as-goods), that the price of ecto has almost completely decoupled from the demand for obsidian armor and chaos gauntlets.

The exchange rate (and that's really what it is now) is going to be almost entirely determined by rational supply expectations; consumption changes are just a proverbial drop in the bucket.

Mia Clemons · Nov 10, 2010, 04:16 AM // 04:16

From an economic standpoint:

Minis: Price of miniatures might go back down a little but will overall stay high. The supply will rapidly decrease while demand only slightly decreases as Minis are a more limited item in the market. (and it requires 50 minis per HoM for max points)

Crafting Materials: Price will substantially decrease as more time goes by. The supply will remain fairly the same but the demand will rapidly decrease as people meet the requirements for their armor/weapons.

In-Game Market for others(Elite Weapons, items, etc): This is probly the worst time to sell your in-game weapons etc for $. For example, because inflation is moderate and everyone is spending money on minis and armor/materials, you would be forced to reduce your price of your weapon/item considerably in order to make the sale. The fact is, the demand for these items is very low due to the market of minis/materials absorbing most player's ecto and platinum.

Suggested: Wait to sell your weapons/items until the market recovers (probably sometime after this year's Wintersday events).

Overall prediction/Summary: The more time that passes, the lower price for crafting materials but price on minis will remain the same while the supply slowly decreases. Wait to sell your elite/rare weapons or items until the value of the 100k returns to normal (or somewhere close to it).

<--Has taken several Macro/Micro/Specialized Market Situations Economics classes.

Hope that helps!

Skye Marin · Nov 10, 2010, 05:40 AM // 05:40

Also note that it is very likely that large groups of players will pay attention to the HoM again on three future occasions:

1) Beta is announced
2) Beta is active
3) GW2 is released

This will likely cause the same changes we've seen in the past month, again.

vader · Nov 10, 2010, 03:25 PM // 15:25

Quote:

Originally Posted by Verene

They've been going every six weeks about with large announcements; the HoM calculator game right at when another profession should have been released, judging by previous profession announcements.

So if they stick to that pattern, we should have something new in the next few weeks, since it's been a month since the HoM calculator was released.

Yes, I'm definitely glad that I got that last year. My guild leader bought his Vabbian literally a week or two before the HoM calculator came out, just barely missing the skyrocketing prices. Anyone who wants it now is going to spend over 400k for the rubies and sapphires alone (they were 13k each the other day at the trader).

I was very surprised when I saw the current price of Rubies and Sapphires. When you think about it though, aren't their drop rates lower than ectos and shards? Even though you can get them with trade contracts, they're still rarer than ectos. Maybe its time for me to break out that trade contract cheat-sheet and starting doing those quests with my characters.

Verene · Nov 10, 2010, 05:10 PM // 17:10

I don't think that the droprate is necessarily lower or anything for rubies and sapphires; it's more that unlike ectos and shards, there's really no way of effectively farming them. You can get them for trade contracts, but that's a limited (and small) number, not even close enough for a set of Vabbian. And while they can be salvaged from items (Jeweled/Ruby daggers, geodes, djinn essences), that's a rare chance as well.

Diamonds have gone up but haven't skyrocketed quite as much because they can be 'farmed', sort of, by doing dungeon runs (I get nothing but diamond and onyx from dungeon end chests). Ecto and shards are fairly easy to solo farm (though a lot of it is also down to luck...spent an hour spirit-spamming UW the other night, clearing everything in the wastes, and didn't get one ecto, when I usually get at least one from the aatxes in the first chamber). But there's no real way to farm rubies and sapphires, and hence the prices on them have skyrocketed.

Mordakai · Nov 10, 2010, 05:46 PM // 17:46

Quote:

Originally Posted by Skye Marin

Also note that it is very likely that large groups of players will pay attention to the HoM again on three future occasions:

1) Beta is announced
2) Beta is active
3) GW2 is released

This will likely cause the same changes we've seen in the past month, again.

I don't know what will happen to prices the day GW2 is released...

I predict the prices will climb up to GW2 launch. On the other hand, maybe as people fill up their HoMs, they'll care less about money and be more willing to give away minis and things to help other players? It's possible I guess.

Upon the day of release, I suspect there will be a significant reduction of the GW1 population. How this will effect prices will be interesting, as both supply and demand will decrease radically...

and frankly, at that point I won't care because I don't plan on spending a minute in GW1 once GW2 goes live.

Mia Clemons · Nov 10, 2010, 07:27 PM // 19:27

Too many people to quote; however, like i said in my above post, the price of materials will go down as more people acquire their weapon/armor. The price of minis should stay high as their supply is fixed and players have no control on which miniature they get on a birthday.

S&D: In regards to the overall supply and demand, the supply of materials will gradually increase while demand gradually decreases. Therefore, if your still looking to but materials for armor/weapons, i recommend you wait until after the next big Holiday event (Wintersday). Reasoning: People tend to spend a lot of money during the event on gifts, items, sweets/partypts, etc so the interest in the market is relatively low.

For Miniatures, the demand will most likely increase as the new Wintersday miniature is available. AND people will most likely be farming Gifts to afford the more rare minis. This will in turn increase the price of available rare minis. (1st and 2nd year minis will most likely not have a significant increase in price due to their availability). Suggested: Wait till just before and sometime after Wintersday to buy your minis as people will want a premium for their Minis to afford their Party/Sweet/Other titles.

doomfodder · Nov 10, 2010, 08:41 PM // 20:41

for the last few weeks (Nov 2010) I've been seein zkey ads in GTOB

WTB ZKEYS 5.3K ea PM!!!
WTS ZKEYS 6k ea

Mireles · Nov 11, 2010, 12:21 AM // 00:21

Quote:

Originally Posted by doomfodder

for the last few weeks (Nov 2010) I've been seein zkey ads in GTOB

WTB ZKEYS 5.3K ea PM!!!
WTS ZKEYS 6k ea

Will probably go back down to 5k during winters-day because of the snowball PvP.... but after that expect a steady climb in price because supply is decreasing because pvp is dying... and demand is up because ppl need a "pvp accomplishment"

Vlad · Nov 11, 2010, 01:09 AM // 01:09

Well cuz of the HoM hype more people started playing which is a good thing. The economy though.... everything costs more now... not the best time to buy but a good time to sell. Personally i prefer to wait until it all quietes down again then buy stuff.

Jessyi · Nov 11, 2010, 05:05 AM // 05:05

It's difficult (to impossible?) to get a lot of usable information out of Guild Wars economic analysis, since irl governments actually have means of collecting data and compiling it into key statistics, whereas that doesn't exist in Tyria. Shame on those Xunlai agents for shirking their responsibilities! At any rate, with those terms missing from the math it's hard to say how big of an impact different factors are really going to have.

Game gold is essentially a fiat currency. It comes from nowhere and ultimately goes nowhere. It can circulate and if supply increases (by a ton of gold farmers for instance) then you can end up with price inflation. GW gold isn't managed by central banks, unlike irl currencies (god damn Xunlai agents), and furthermore, every player has the "right" to print as much money as they can. Mass bannings could be considered a form of monetary policy though...

The major limiting factor protecting the value of gold is how much of it can be held on a single account. If you cram your storage and toons full, you might get as high as ~$2M if you buy slots and never pick up another gold coin. Full capacity might be better estimated at $1.5M, and my educated guess is that few people carry that much. There is no significant limitation on how much ecto you can store - $100M today fits into just under 3 storage panes (and armbraces? loooooooool). The game design forces us to store value in other assets, and ecto was chosen because it was perfectly fungible and had the highest value:unit ratio (then armbraces for the same reason). Since ecto prices are expressed in platinum, a relatively fixed amount of platinum and an ever-increasing supply of ecto resulted in devaluation of ecto against the plat.

The supply and value of goods the currency is/was being traded for has also ballooned, which has protected the purchasing power of platinum, ectos and armbraces. I imagine if we were still living in a world where the only items available were those that existed at the game's release, with today's supply of ecto Flint's Fleshcleaver would be worth 250e. Similarly, almost every good in Guild Wars is a durable good. Even "consumables" can be stored forever. Item durability means goods aren't being removed from the economy which causes more deflation of all monies and near-monies.

Inflationary pressures appear when demand for old and common weapons disappears, when massive farming increases circulating currencies, and when popular farming spots are nerfed (limiting supplies of goods). Obviously the announcement that certain items were needed to complete the HoM for GW2 caused skyrocketing demand on all those items (the supplies of which can be very roughly estimated by their respective price increases). The evaporation of those supplies caused major shortages and massive demand-pull inflation.

I suspect that significant announcements also play a large role in determining prices, at least in the short-run. Unlike real life where assets don't simply poof in and out of existence, when your account is offline, your assets are non-existent until you come back. While this does have the effect of scaling the economy in tandem with population, the added demand volume likely pushed prices even higher as players had to compete with old-timers just coming back to cram up their HoM.

So...which of those factors is most significant besides the obvious HoM announcement? Beats me. Strong counteracting forces could yield the same prices as weak ones, and without reliable data to check against you just can't know for sure which factors are the most causative. Since ever-expanding piles of goods and currencies end up depreciating *everything* (except goods with fixed or diminishing quantities), the best way to make money outside of power trading is to predict and react to the next rush (if you can). In retrospect, hoarding diamonds and onyx was an obvious move, as well as minipets and maybe to a lesser extent rare armor materials (I don't blame you if you didn't see the Vabbian armor thing coming - I sure didn't).

Ok, I'm sick of talking.

Ensign · Nov 11, 2010, 08:23 AM // 08:23

Just some nits to pick; only nitpicking because your post was pretty useful overall.

Also I do think in game economies are a fun and convenient tool for understanding what happens in 'real world' economies. If only these were the sorts of university homework problems that were assigned!

Quote:

Originally Posted by Jessyi

Game gold is essentially a fiat currency.

Not exactly; it functions more as a high demand, high supply commodity. Crafters (particularly elite armor crafters) drive most of the initial demand for gold, and the convenience from exchanging it with the traders, and the storage capacity, make it a convenient store of value and medium of exchange.

Now gold is certainly mostly valuable as a medium of exchange / store of value and not as a crafting material for high-end armors. But it's that utility (and the evocative name) that made it gain value as a currency. Otherwise there wasn't anything forcing players to use gold as a currency; if there isn't enough utility players are perfectly happy to reject it as currency (Diablo II comes immediately to mind).

There's no such thing as a legal tender law in a game world! (At least not yet!)

Quote:

Originally Posted by Jessyi

The major limiting factor protecting the value of gold is how much of it can be held on a single account.

This actually works in the opposite direction. The gold storage cap drives *down* the price of gold, and *up* the price of alternative stores of value. You can likely thank the storage cap for the whole ecto farming business!

Quote:

Originally Posted by Jessyi

The supply and value of goods the currency is/was being traded for has also ballooned, which has protected the purchasing power of platinum, ectos and armbraces.

I don't think that's exactly right. Certainly there's a component of the value of currency in circulation inflating or deflating prices to match the supply of goods entering the economy. But a large amount of currency is simply saved, which lowers velocity and drives up the value of the currency.

I'd argue that what's driving that savings isn't what items are on the market, or even potential purchases of existing items in the future (for whatever reason), but expectations of new items / new demand being introduced to the game that could then be purchased with said savings.

You would then expect said changes to spur a burst of dis-saving and corresponding price inflation, which is indeed what we saw from the HoM update.

Quote:

Originally Posted by Jessyi

Inflationary pressures appear when demand for old and common weapons disappears

Other way around. Lower demand = lower prices all else being equal, regardless of the amount of currency in play. See: World Macroeconomy, 2008-present.

Quote:

Originally Posted by Jessyi

and when popular farming spots are nerfed (limiting supplies of goods).

This is actually a good example of rational expectations. The instantaneous supply doesn't change, but prices change immediately in response to expectations of supply changing in the future.

Quote:

Originally Posted by Jessyi

Unlike real life where assets don't simply poof in and out of existence

Lower Manhattan would like to have a word with you.

^_^

Jessyi · Nov 11, 2010, 04:15 PM // 16:15

Mmmm...crafters *have* to accept gold. They were programmed that way. Since that's true, it does give the gold a definite value. It's not exactly like a fiat currency then, although without trader NPCs gold wouldn't be retired from circulation. It is only because of the demand programmed into the universe that makes it acceptable as a currency, not any genuine commodity value. Still, it makes what you said true.

The storage cap drives down the price of gold as gold, but why would it drive up the prices of other near-monies in the long run? I do "blame" the storage cap for the existence of ecto-farming, and as I saw it the ever-rising supply of ectos would make them cheaper to buy in gold, increasing gold's purchasing power expressed in ecto. Isn't that what we observe?

edit: (I don't entirely blame storage limitations for ecto farming although the necessity, especially today, does drive a lot of that. In the very beginning ectos were valuble as ectos as much as money. Ecto farming was as much a way to get gold as gold farming and it was very lucrative because people didn't know how to do it efficiently. I never even touched on efficiency and information channels like guru and gwwiki as factors, and maybe I should).

Quote:

The supply and value of goods the currency is/was being traded for has also ballooned, which has protected the purchasing power of platinum, ectos and armbraces.

Let me expand a little on that. I wrote this with the assumption that all the players would keep playing and the amounts of money traded would correspond to the relatively shrinking base of goods. I know that's basically nonsense, and I touched a little bit on it when I talked about players leaving the economy and taking their stuff with them. Of those who remained there would be a lot of saving (less so if they knew with certainty that nothing new would ever be released), and with that money hidden from the market prices wouldn't bottom out - this is true. But if I said something other than "Flint's Fleshcleaver" and substituted a q9 15^50 crystalline, how much of that money would be drawn out and what would the final price of that item be? The Crystalline in this case was HoM, and exactly what you said would happen, happened. I thought that was what I said though?

Quote:

Inflationary pressures appear when demand for old and common weapons disappears

You're right to pick this out. When I read it through the first time I assumed the consequence that that old demand would be replaced with fresh and fiery demand for new and uncommon weapons. If that didn't happen, then yes, the prices would lower (hence why you said "other things equal" I assume). Since I didn't say they weren't equal, I'm saying it now: the virtually non-existent demand for items that were must-have 4 1/2 years ago have removed them from the market, and demand has continued to shift and focus on the newer, shinier, and sharper. Because of the continual infusions of demand following newly introduced items, some inflation occurs (which is good if you ask me).

I should have written that out last night, but I didn't feel like it. I don't think I mentioned either that obsolete weapons are a kind of exception to the item durability thing that I mentioned, so I'll say that now too.

Quote:

Lower Manhattan would like to have a word with you.

Not counting fraud! Maybe I'll tackle that another time? lol

Anyways, I hope this clears things up? I don't want you to think my econ powers are weak and puny. I'd rather you think I'm just a lazy writer.

Ensign · Nov 11, 2010, 06:19 PM // 18:19

Quote:

Originally Posted by Jessyi

Mmmm...crafters *have* to accept gold. They were programmed that way. Since that's true, it does give the gold a definite value. It's not exactly like a fiat currency then, although without trader NPCs gold wouldn't be retired from circulation.

Well the whole 'fiat currency' thing bugs me because of its overuse by a certain subset of crazy people. It's really a pretty subtle thing in practice.

Currency starts as a durable good, typically one whose supply is relatively inelastic with demand. Adoptation of said good as currency drives up demand and hence price; widespread use can and will eventually lead to demand-as-currency dominating the value of said good. It's thus convenient that historically, eventual currency goods were largely useless and didn't cause problems from shortages (besides financial problems that is).

Now eventually people figured out that the first steps of currency adoption could be skipped by tender laws, so now we use currencies that are pure currencies, enacted by fiat, with no underlying commodity value outside that value derived by demand for currency. But what's missed is that for *any* widely adopted currency, the value is almost entirely a product of demand for currency; while there is some underlying value as a commodity, it's only a very small fraction, and you'd still be more or less wiped out if it stopped being accepted as money.

Quote:

The storage cap drives down the price of gold as gold, but why would it drive up the prices of other near-monies in the long run?

Well, since they are both essentially money, it's an exchange rate problem. The depreciation of one is an appreciation of the other by definition.

As for the general price level of non-money goods, it's a little bit more complicated with multiple currencies, but the same principle holds: higher currency supply at the same velocity gives a higher aggregate price level, which reflects in both currencies.

Quote:

Let me expand a little on that. I wrote this with the assumption that all the players would keep playing and the amounts of money traded would correspond to the relatively shrinking base of goods.

Here's what I think you're getting at. Demand for old commodities drops, which leads to price deflation. But people keep playing and instead save with expectations of future consumption when new goods are introduced. Then when new goods are introduced, all of that currency hits the market to compete for the new goods; that flood of dissavings causes inflation.

So you're right that the drop in demand does eventually lead to inflation; it builds up an unsustainable savings glut (which causes deflation), which will eventually reverse and correct itself and the price level via inflation.

Players leaving the game desn't really change anything; you just have a smaller economy. You get differences from demographic differences between new and old players. It's that demographic difference that drives the swing - HoM bringing a lot of old money back into the game.

Quote:

Anyways, I hope this clears things up? I don't want you to think my econ powers are weak and puny. I'd rather you think I'm just a lazy writer.

Nah, and macro is hard an unintuitive. It's very easy to mess up if you don't do the math. Lots of good points and good discussion!

awry · Nov 11, 2010, 08:44 PM // 20:44

Amazing discussion. I've wondered how much real world economic principles apply to a virtual economic community, but never took much time to think about it. You guys have added a lot of good points that I have not considered or known about. One point I would like to inquire of you guys then, about the issue of real world exchange of plat and ectos for dollars. Although it is a condemned practice, is that in any way an indication of virtual value or a measure of that value and if there is a shift in how much they offer per dollar, is that a good indication of the economic situation in gw? They are after all operating on real world supply/demand based on people's willingness to exchange money for time.

Jessyi · Nov 11, 2010, 08:48 PM // 20:48

Well, there's two halves to why I made my original post yesterday. One was that I just got back from class after holding my prof back for an hour so we could talk about the practical problems confronting a gold standard, so this was already on my mind (I desire the depoliticization of money for obvious reasons). Two, how could I resist the opportunity to bounce a few ideas off the legendary Ensign?

I guess what I should have said, because it's the most accurate given the economic rules of the GW universe is just what you said: it's a high supply/high demand commodity (instead of trying to pigeonhole it as fiat). It's a strange beast because unlike a fiat currency which isn't a commodity, and unlike a real gold which is, GW gold goes from dust to dust in a way that reminds me of just one good real life example - oil. But anyways, point taken.

Quote:

Well, since they are both essentially money, it's an exchange rate problem. The depreciation of one is an appreciation of the other by definition.

Yes. This. All I'm saying is that if you logged off GW with $1M a few years ago, you could buy more ecto with it today. With ecto as a currency, that's basically meaningless, though as a commodity it isn't.

Quote:

So you're right that the drop in demand does eventually lead to inflation; it builds up an unsustainable savings glut (which causes deflation), which will eventually reverse and correct itself and the price level via inflation.

That was my thinking, yes. And it's not merely an eventuality; the correction is spurred by the introduction of new and shiny things.

As to the varying population - I know I talked about that before when I said the economy scales with the population automatically, because everything on that account is offline when the account is offline.

However, when something like the HoM announcement arrives, what happens? A ton of dormant accounts come back online, but only those with hidden fortunes have the economic muscle to send prices into the stratosphere, while the remainder become non-participants. The savings come out in a big way, are consumed by material traders, and the materials evaporate.

If those accounts then go offline again then from our point of view all that happens is that the supply disappears with nothing but high prices left behind. The funky thing about the material market in this game is that mat trader prices react hilariously slowly to massive spikes in demand. They remain bought out for weeks! Because of this, not enough stored wealth is elicited and destroyed, and most of those hidden fortunes just go back to sleep. In the end, prices don't accurately reflect market forces - at least, not in a timely way.

Actually, I don't think macro is all that difficult to understand in terms of "what is", but my interest in economics in real life is entirely normative. There are a lot of people out there who think that certain things must be or cannot be done and I beg to differ. I'm not an economist yet, but I know what I know. Some day I'll write a book and dedicate it to my monk so you know it was me.

dansamy · Nov 11, 2010, 09:21 PM // 21:21

Anytime that I start thinking I am pretty smart...Ensign comes along and leaves my jaw hanging open.

I'll never to pretend to understand economics on even the scale of a gaming world, much less the global economy.

This was a good read. Thanks guys!

Mia Clemons · Nov 12, 2010, 05:12 PM // 17:12

Quote:

Originally Posted by Ensign

Well the whole 'fiat currency' thing bugs me because of its overuse by a certain subset of crazy people. It's really a pretty subtle thing in practice.

Currency starts as a durable good, typically one whose supply is relatively inelastic with demand. Adoptation of said good as currency drives up demand and hence price; widespread use can and will eventually lead to demand-as-currency dominating the value of said good. It's thus convenient that historically, eventual currency goods were largely useless and didn't cause problems from shortages (besides financial problems that is).

Now eventually people figured out that the first steps of currency adoption could be skipped by tender laws, so now we use currencies that are pure currencies, enacted by fiat, with no underlying commodity value outside that value derived by demand for currency. But what's missed is that for *any* widely adopted currency, the value is almost entirely a product of demand for currency; while there is some underlying value as a commodity, it's only a very small fraction, and you'd still be more or less wiped out if it stopped being accepted as money.

Well, since they are both essentially money, it's an exchange rate problem. The depreciation of one is an appreciation of the other by definition.

As for the general price level of non-money goods, it's a little bit more complicated with multiple currencies, but the same principle holds: higher currency supply at the same velocity gives a higher aggregate price level, which reflects in both currencies.

Here's what I think you're getting at. Demand for old commodities drops, which leads to price deflation. But people keep playing and instead save with expectations of future consumption when new goods are introduced. Then when new goods are introduced, all of that currency hits the market to compete for the new goods; that flood of dissavings causes inflation.

So you're right that the drop in demand does eventually lead to inflation; it builds up an unsustainable savings glut (which causes deflation), which will eventually reverse and correct itself and the price level via inflation.

Players leaving the game desn't really change anything; you just have a smaller economy. You get differences from demographic differences between new and old players. It's that demographic difference that drives the swing - HoM bringing a lot of old money back into the game.

Nah, and macro is hard an unintuitive. It's very easy to mess up if you don't do the math. Lots of good points and good discussion!

Thank god ive taken Macro and Micro Economics. However, i dont think the Guild Wars economy can be treated as a normal economy. Gold itself is essentially an unlimited resource as you can freely acquire more of it via killing monsters or selling junk to merchant. In any case, i feel your estimate on the market changes would be the most accurate out of all the estimates we've seen so far.