Deflation in WoW?

I want to piggyback on Ted's recent post on inflation but go in the opposite direction.

We all repeat the mantra that inflation in MUDs/MMOs is inevitable - both the RMT and the in-game economy. And if you've played SWG, you'll remember the run-away inflation there.

But here's the weird thing. I'm not seeing this in WoW. Prices for most goods and services seem to have fallen over the past few months rather than risen. Some examples on my server (medium PvE):

• Reagent: Large Radiant Shards - used to be 8-10g, now about 4-6g
• Crafted Weapon: Phantom Blade - used to be 50-60g, now about 25-30g
• Enchantment: Fiery Enchant - used to be 45-50g, now about 30-35g

And this is in the face of what everyone seems to think is massive influx of RMT into WoW servers - given all the fuss over gold farmers. But even if that were not the case, shouldn't we see inflation from an aging server anyways as more and more people hit 60? Stability is one thing, but deflation just seems strange.

So my questions are:

• If you play WoW, are you noticing deflation on your server?
• If there is deflation in WoW (rather than the typical inflation), what is so different about WoW's economy that's causing this to happen?
• Has Blizzard actually figured out how to prevent inflation?

Comments

[hikaru]

simply, prices are dropping because there is less demand.

over time, less people are playing the game.
of those still playing, the need for items which can be purchased with money decrease.
unlike in the flesh world, you reach a point where the next level of durable goods are bind on pickup, and the consumables, such as those shards, you no longer need, as you've already reached 300.

think, an X amount of linen cloth is being created for Y number of players. Z is linen cloth consumption, for skill-ups and for the demand for linen goods. after some time, Y decreases as players leave the game, but X will continue to increase. the decrease of Z is inevitable.

[Nick Yee]

Hikaru - several problems with that analysis:

1) It's not clear at all that players are leaving WoW at a rate faster than any other MMO. Also, players leaving hasn't stopped inflation in SWG.

2) The skill-up limit you describe in fact would create inflation because now people have more money in their pockets. The increase in money supply is precisely why inflation occurs in MMOs in general.

[Chris]

What you are seeing has likely nothing to do with inflation or deflation per say.

What is more likely is that as individuals reach level 60, the time and energy they need to expend getting certain items is decreasing, thus in the short term they are passing on those savings to their customers.

In the long run WOW is injection far too much gold into the system for the economy to remain stable.

[Nick Yee]

Chris - that would imply that the WoW market is operating under good-will rather than greed and self-interest. I find that a little hard to swallow ...

Also, by passing on those savings, those low and mid level characters now have more money to spend. That increase in spending power should lead to inflation.

[Galrahn]

This is bigger than WoW.

I have often wondered why some economies in MMO games tend to have inflation over time, while others seem to have deflation. It is very hard to compare games because of different economies, but why does SWG have inflation while WoW has deflation.

Lineage 2 has deflation too, so it got me wondering, is it because gold or adena in WoW or L2, depending upon the game respectively, retains its value than credits in SWG?

I don't know.

[babylona]

My personal guess is that it's a combination effect of the auction houses - a freakishly nigh-perfect neo-classical economic device, as far as I know of unseen to this extent before now - with more high-level players having reached level 60 and now furthering crafting, especially since WoW crafting (very much unlike SWG crafting) is extremely simple and relatively accessible.

This may also be compounded by the level 35 (!!!) requirement to reach the highest level of crafting. This would force highly crafting-oriented players to significantly level multiple toons in order to produce a variety of high-level goods.

Also, while there is probably not a "goodness of the heart" aspect at work, what may well be true is that people leaving the game, becoming wealthier and replacing old goods, and/or finding new goods at better prices are offering those goods on the AH at lower prices, driving down the cost in general.

[Chris]

Greed & Self Interest: You will want to sell what you have rather than hold it as inventory. The person next to you will want to do the same thing.

Micro-Economics: In a perfectly competitive environment with undifferentiated goods (which is exactly what WOW is); goods will be priced at the cost of the lowest cost provider. Cost here is the price to acquire for a LVL 60 character with the best equipment. If your cost is higher than the equilibrium price, you are simply priced out of the market and will not acquire those goods.

So, what your seeing is micro economic activities of a perfectly competitive business environment.

[Nick Yee]

Chris - But those are general economic principles that operate across (presumably) all games. What's special with WoW (and L2)?

[babylona]

Nick - they're not necessarily economic principles that operate across all games. That's why I was mentioning the neo-classical model.

In the neo-classical framework (dear lord, I hope I'm not mixing up my terms, which I may be, and if I am, please correct me - I may here be thinking of the classical model in actuality), the expectation is that [Nash] equilibria will be attained, but the huge caveat is that all economic agents are expected to have equal and complete knowledge of the current pricing of available goods. The models I'm talking about never exist in the real world, thus, neither do true equilibria exist.

WoW's auction houses provide for this model to exist, at least to a greater extent than is usually possible. Complete or nearly-complete agent access to pricing information changes the formulae quite a bit, and also reduces both localized activity and localized economic phenomena.

[Nick Yee]

babylona - Thanks for the elaboration. But here's the part that intrigues me. Wouldn't it mean that the actual money supply is increasing dramatically (since everyone is saving money due to the competition) and having no effect on inflation? Or is that extra money actually going somewhere else and keeping the money supply stable?

[Some Guy]

It might be related to an out-of-balance end game. People have completed the end-game tasks that require or are accelerated by auction house items. Thus, not only do they not buy those items, but they themselves farm and sell the items because they believe there will be a demand for them. The buyout price option also encourages undercutting other people's auctions, which will trend the average price lower if there is a relatively stable supply of the item.

[babylona]

Well. There are a lot of possibilities to answer those questions. The first thing is that even wealthy folks rarely will want to pay more than the going rate. That said, many if not most AH auctions are "buy it now" auctions, meaning that the price set is the price you pay. So frequently the "auction" aspect of auction houses is minimized.

The second is that there are not a lot of high-level money sinks in WoW (yet?) Housing is frequently the biggest big-ticket high-level item, and that doesn't exist in WoW (nor, as far as I can tell, is it planned in the near future.) The money might not be being saved purposefully, but it might not have many places to go.

Third, players will frequently save in anticipation of future expansions or patches. The upcoming developments don't look all that money-sinky though.

Fourth, RMTs may be part of the force causing deflation, since that is a place for extra cash to go. If players have nothing very interesting to purchase with their cash, the temptation to sell it for real-world dollars will increase, especially as common knowledge of the possibility to do so grows (as it has.) RMTs and their effects on game economies I think are far less well-understood than most of the posters here seem to want to acknowledge, particularly as pertains to their potential for helping the general population as opposed to harming it (not that it is universally good; only that there may actually be some advantageous effects, and if there are, ain't nobody mentioning it on sites like these :)

Personally, I'd beg you to do another survey, on this subject specifically - all we see are pricing data and RMT values, we have absolutely NO information about player motivation for either in-game or extra-game trades & savings.

[Ricardo Chirino]

Interesting.

I'm no economy expert, but this is a bit of my own experience with the in-game Auction House system:

I'm a Blacksmith/Miner Paladin, lvl 41. I ususally sell my leftover trade goods on Ironforge's AH, and sometimes I even sell them as means to get money to buy items or skills I need. Since I want to sell them fast I usually ask around for average prices or check the AH prices for the same goods I'm selling, and then I put them on auction for about 10% to 15% less than the other sellers... I've seen prices dropping steadily and my guess is that people want to buy things at most competitive prices. I've tried putting the goods at the same price range or even more (longer auction times too) and most of the time they don't sell. It's like an unsaid convention for pricing on said goods, perhaps people say others "I got the Gold Bars for less than that, you were ripped off!"

Don't know how much impact this would have in the economy on the long term but it might be a factor to consider, since like in real life, when I go to a store that sells the same good more expensive I don't buy it since I can get it at a lower price.

Hope to hear your opinions.

[Timothy Dang]

Nick Yee> We all repeat the mantra that inflation in MUDs/MMOs is inevitable - both the RMT and the in-game economy.

I think we actually use "inflation" as shorthand for "inflation or deflation". I'm having trouble recalling, but as Galrahn mentions, there's also sometimes deflation. The "problem" is that the economy becomes "too rich", which can show itself on either the cash side or the stuff side.

I recall that shortly after I started playing Legends of Kesmai, a random player who I'd spoken to for maybe 30 seconds gave me some really nice armor. Only later did I find out that it was the uber-armor of the entire game, acquired through killing the biggest baddest dragon. Shortly thereafter I died and lost it.

Players like that had become so wealthy that it wasn't worthwhile for him to sell it. The warm fuzzies of handing it to a newbie were of greater value. as I understand conversation on this topic, that still falls under the broad heading of "inflation".

It may well be that WoW is balancing the stuff-inflation and the gold-inflation enough that it doesn't show up much in prices. Does it nonetheless happen that the increasing wealth breaks the game? I certainly experienced largess in WoW as well (starting out, at least two strangers gave me a gold piece, for instance).

[Eric Nickell]

In WoW, there are 7 drains on the currency supply. (Bear with me. I'm new to analyzing MMOG economics.)

/1/ Postage costs.
/2/ Transportation costs.
/3/ Costs to train new skills.
/4/ Armor repair.
/5/ Purchase of items from NPC vendors.
/6/ Auction house fees.
/7/ Deletion of characters.

(Am I missing any way for WoW gold to disappear?)

We can also categorize the expenses based on whether they're one-for-all or recurring. Level 60 players who continue to play (especially PvE) continue to incur postage, transportation, and auction house costs, and if they may keep buying vials and thread to produce articles for sale. But once they have their mount and epic mount, they're unlikely to buy another.

So, as the population continues to have a higher fraction of 60s, we would need to compare the money coming into the economy via grinding or questing to the recurring costs incurred by the end-game players.

My guess is that the first two, while recurring, are negligible. Training costs are one-time. Armor repair is significant, but I would guess smaller than the grinding gold. There are big-ticket items you buy from vendors, but they're one-time expenses. The ongoing stuff is fairly cheap. And let's assume that the last is insignificant.

Hmm. That leaves /6/.

Since the AH is so central to the economy, I've been wondering whether the AH fee (5%? I think) is more significant in balancing the economy that previously thought.

[Rohan Verghese]

I think it's a side-effect of WoW's soulbinding system increasing the supply of materials. Most of the really good items are bind-on-pickup, found in the instances. So most 60s are constantly going on Instance runs looking for specific pieces of equipment. During these instances, a lot of excess stuff like Shards is picked up. The player has no use for these items, so they are dumped on the open market.

As well, for crafted items, most people tend to charge material cost + small constant profit for items. (Heck, most enchanters will enchant for free if you provide materials.) So if the materials drop in price, the crafted price also drops.

If you really want to see if there is inflation, check out the bind-on-equip world drops. Things like Glowing Brightwood Staff and other weapons. Stuff that a 60 would buy to twink out an alt.

The supply of these is relatively constant, so they should be a better measure. Not a really good one, though, as bind-on-pickup stuff tends to be better. Another interesting item to check out would be Arcanite, as that item can only be made once a day or so.

[lewy]

Rohan Verghese wrote:

"If you really want to see if there is inflation, check out the bind-on-equip world drops."

Agreed. A couple of months ago a friend of mine put a purple staff that dropped in Scholo or Strat up on the auction house for one thousand gold. To our amazement it sold almost immediately.

So far as the reagents listed goes my guess is that as the population of the server matures and moves into the higher level instances the supply of the stuff that drops in those instances is outpacing the demand. Another guild mate, one of those types who watches the auction house obsessively, claims that the lower level shards were actually costlier than the higher level ones for awhile. His guess was that the bulk of the server population had moved past the instances which provided the low level shards, so the market for those had tightened up even as the market for the higher levels ones crashed. Inflation is just a general trend, it doesn't have to apply universally to every commodity.

[James Grimmelmann]

It's important to note that the "inflation" that Ted is talking about and the "inflation" that Nick is talking about are different things. Ted is concerned with the relative purchasing power of VW currencies against the dollar (or other real-world currency). Nick is concerned with the relative purchasing power of VW currencies against in-game items.

In Ted's terms, both VW currency and VW items are subject to inflation, since with time, it takes more of them to buy you a US$. In Nick's terms, some VWs see inflation in currency and deflation in items, since it takes more VW currency to buy a VW item. WoW is seeing the opposite--it takes less VW currency to buy an item.

"MUDflation" and "database inflation" are Ted-type inflation, and I've seen plenty of convincing arguments that they're more or less inevitable. Something I haven't seen is an attempt to create a value-weighted basket of VW commodities and to track its value against real-world currency, which would adjust measured MUDflation stats for the continual introduction of new kinds of items.

Nick's question has much more to do with the relative balance of "currency" and "items" and their sources and sinks within a VW. (Note that in some sense it's arbitrary whether we call a given set of bits "currency" or an "item;" currency is in a sense just an in-game asset that's especially freely interconvertible into other in-game assets.) Lots of comments above address the specific balance within WoW quite helpfully.

[babylona]

James - could you clarify that? I'm a little bit perplexed as to the exact differentiation you're making (I'm not saying you're wrong, though I suspect I may disagree on some of what you're saying - I'm just not exactly certain what you're stating.) I'm particularly wondering what you mean by "basket of VW commodities."

[lewy]

Mr. Grimmelmann and I are wondering the exact same thing. I posted a similar question in the Tedflation thread. Put simply it looks like the cost of 100 WoW gold in US dollars is declining and has been for some time. The question is what relation does this have to the items that WoW gold buys? Assume that the price for 100 gold has fallen from $10 USD to $9 USD. Is that really a sign of deflation if the price of weapon X has increased from 10,000 WoW gold to 20,000? What is the trend for inflation of in game items in terms of USD, not WoW gold?

Deflation of WoW gold in terms of USD is inevitable because every player acts like a mint--he or she can go out and "produce" more gold by killing orcs. More gold is added to the game databases, hence the term database inflation.

[Green Armadillo]

It should be noted that the examples in the OP are all related to the in-game crafting system. I would argue that this system isn't showing a lack of inflation, it's just taking longer for prices to stabilize than one might expect. I think what we're actually seeing is the tail end of a "baby boom" of sorts.

When the game launched, there was a period of time where copper, the lowest quality ore, was unusually valuable, to the point where it was more efficient to mine copper in the newbie zones, sell it, and purchase tin or iron than it was to actually mine the tin or iron. This was because the bulk of the server's crafting population, regardless of what level (and what disposable income), needed to grind through their copper phase. I lack hard data to back this up, but my impression was that over time (as the bulk of the server's players advanced their crafting skill) the higher level minerals each in their turn went through a high demand period and then stabilized in price once most players had moved on. This creates an artificial sense that deflation has occurred when in fact the problem was that the supply chain had not yet matured sufficiently to meet demand.

Yes, people can switch and make a new character on a different server at any time. Sure there were people who lagged behind the pack and still need lower level materials (though I'd argue that their economic impact is limited, as the game's rest system for occasional players has the net result of making casual players have LESS money than regular players of the same exp level by doubling exp without an increase in loot). And yes, alts with a large grant from their rich level 60 uncle have a lot of money to spend. But I would argue that this dwarfs the effect of most of the average population of the server being same level (exp or crafting) at the same time. The rate at which lower level characters need money (and thus farm items/materials for sale) eclipses the rate at which level capped characters with ever increasing supplies of cash want lower level materials and equipment.

Thus, as other people have mentioned, the places to look for inflation are things like rare, saleable world drops and consumables that are of use to top level players. For instance, I'm seen a 150% increase over the last 2 months in the reliable going rate (i.e. the rate at which the item WILL definitely sell in the 2 hour minimum on the AH) of swiftness potions, a low level alchemy product that happens to be useful in PVP. There definitely IS inflation, it's just not affecting lower level items as much because there isn't DEMAND for those items.

(As an aside, players of the web game Kingdom of Loathing might notice a similar trend - there are ridiculous amounts of in game currency in circulation, but the inflation doesn't reach low level items because lower level characters readily supply those items in far greater quantity than the rich would have an incentive to purchase.)

[babylona]

Thank you, Lewy, that helped me understand better.

For one thing, those statements assume that the conditions of inflation and deflation are defined by conversion values to real-world currency. I'm not saying that's an erroneous definition; I'm saying that I don't know. I do think that to decry RMTs in one sentence and yet compute inflation & deflation by comparison to real-world currency is both self-defeating and a little bit absurd, but I suppose that is beside the point.

What is, I think, more the point is that none of us here ARE actually certain whether decreased prices for in-game items *constitutes* inflation or deflation, which is sort of remarkable. Real-world inflation - as I believe Mr. Grimmelman is saying - is always and invariably accompanied by an increase in price points, and *never* a decrease. By that definition we are certainly looking at deflation in Mr. Yee's post. Yet real-world deflation is also (presumably) accompanied by all market participants owning less currency or currency-convertible items - less wealth, especially less generalized wealth. Yet the assumption in a MMOG is that if prices go UP (traditional inflation), people have more money than otherwise (traditional DEflation.)

It's an interesting conundrum, furthered by the fact that the reverse can just as easily explain the phenomenon: people having less money driving prices down. I think what this points to is the fact that we actually haven't the slightest idea how liquid the average WoW player actually is, and that that fact could completely flip everything we're saying here on its head.

Would be interesting if we could get per capita income anonymous statistics from one of the developers. (ha.)

[babylona]

(Amusingly, upon reread of my last comment, I just realized that the assumption is that players have more money REGARDLESS of whether prices are going up or down. If it's inflation, players are wealthier, if it's deflation, players are wealthier. Compare this post with Castanova's post referenced several times herein - all comments on both posts are trying to explain increased wealth. That's pretty remarkable in and of itself.)

[Nick Yee]

babylona - well put ... and I'm also wondering if the money supply is actually shrinking per capita ...

[PJ]

Ummm, I've not played SWG for a year or so, I left over the change to merchant, if there is ingame inflation on item prices NOW - thank that change, fewer outlets of goods - higher prices, and the ability to have a monopoly.

I ran a shop there for nearly 3 years, I never changed MY prices since day one and retired very VERY wealthy.

I'll take your word that on your server the items mentioned have actually gone down to a 'reasonable' cost - but that's only because there isn't really a demand for them, and you will be very lucky to GIVE them away. That's what I would expect to happen as supply and demand sorts itself out, until it normalizes.

On other items - that folks actually have a use for, potions, purple epics, etc - the price has gone thru the roof.

The Auction House is a decent system, but it has no competition. I often wonder what folks are smoking by the asking prices of items they set.

Now, if I had boatloads of gold from buying it - yeah, it really wouldn't make a difference. If I'm EARNING that cash ingame, heck no I'm not going to pay those prices, I do it myself - or do without.

SWG had private vendors. With enough private vendors as WELL as a central system you really can't have a monopoly.

The Auction House is packed day and night with people ready to scoop up a 'deal' and remarket at obscene rates. While this isn't necessarily a bad thing - toss in buying gold from outside the game and the natural breaks that would normally be put on this process are gone.

I won't list things at normal prices to have someone turn around and resell them, if I had a private vendor and it actually took some effort to go around LOOKING for good deals - yeah, that's ok - but not simply camping the auction house.

The Auction House can not only serve as a monopoly function, it also gives players a warped view of value. Just because someone lists something at a price doesn't necessarily mean it sold at all.

Gold Farmers in WoW also monopolize resource gathering - to the point that it's practically impossible to find some of the upper end resources no matter where you go - or what time, it's a 24/7 operation for them. Believe me - THOSE resources they can charge whatever they like for. The only exception is Thorium - because there is tons of that - that's not what they are after, they are after the rare gems, not the metal - which still fetch premium prices.

There is precious little left at lvl 60 a player really NEEDS, although the high-end game of WoW is noticeably absent coin - coin which is needed for everyday repairs. People are quitting over not only enough content at 60 - but the need to 'farm' gold just to be able to continue to DO the 60 content.

What is noticeably missing in all the mainstream big MMOs is a BUYERS market, reverse auctions where the BUYER sets a price and says - I want this and that - this is what I'm willing to pay.

[babylona]

PS - I was, after all, correct in my terminology. See http://en.wikipedia.org/wiki/Neoclassical_economics for a more complete explanation of neoclassical economics theory.

Errrr... Couldn't this have absolutely nothing to do with gold inflation, and everything to do with less demand for those items as more and more of them enter the world? Using those examples to say inflation is not happening is, er... Idiotic.

[babylona]

Huge apologies for comment spam, but I'm frankly getting kind of excited about this. I think we're seeing something we don't have a name for yet, something discrete from inflation or deflation, and I think we're basically seeing a behavioral Markov state (that of increased player wealth), which, if I'm right about it, is just really really interesting. It would be an ergodic (in the highly traditional sense of the word) outcome within not only economic confines, and not only highly simplified economic confines, but economic confines reflecting several existing economic theories that in essence defy this outcome.

And it also kind of oughtn't exist.

I have a big long thing about it posted now, and it's already linked in trackback, not going to be so spammy as to link again, but I'm too excited not to post the theory :)

[Jonas P]

Think of it in terms of inflation but not of currency, but in terms of items. Inflation typically occurs as a result of large amounts of currency being introduced into the system. When this happens in a system, the currency is then worth less and less. This is happening, but the money sinks are taking care of some and besides, thats not really the issue. The issue is that there are new players being made every day, each one fighting the same mobs, crafting the same stuff, all the way up the experience ladder and all of these items are being introduced into the system. The key is that every item in game is, in theory, unlimited. (rare drops are not limited, just rare, so technically, you could get lucky 500 times in a row and have 500 of one rare item) THAT is inflating the system because every duplicate item that is introduced into the system decreases the worth of that item. So, in this case, the items take the place of currency in the traditional inflation model.

When viewed this way, it makes sense for items to be selling for less and less, becuase they are worth less and less due to the fact that there are a ton of em. Just like the Russian ruble during post WWII. It was worth less and less the more rubles there were.

[jbz]

One bit of information that's missing, as we all talk about population aging (level-wise) and the like: is this happening relatively evenly? Or is this change in conditions indexed tightly to the date-since-open of each individual server? Perhaps not linearly, since the oldest servers had 'game learning curve' to cope with. But since (as far as I know) you cannot transfer gold between servers without utilizing gold merchants (and how many people want to transfer badly enough to figure out how to be both sides of that transaction? honest question) the aging and changing of each server environment, compared to that server's age, would be revealing data.

Of course, it's quite possible someone posted that and I missed it entirely. It's late. :-P Gotta get back and get my 45 mage up to 52 so I can raid w/my guildies.

[Timothy Dang]

babylona> (Amusingly, upon reread of my last comment, I just realized that the assumption is that players have more money REGARDLESS of whether prices are going up or down. If it's inflation, players are wealthier, if it's deflation, players are wealthier.

I don't think there's anything surprising about the possibility that players have more money and there's deflation (or that they have more money and there's inflation). Inflation happens when people really want to buy stuff and so push the prices up. Deflation happens when people don't so much want to buy stuff and so push the prices down.

In principle, either one can happen even though there's a lot of cash around. In general in RL we expect inflation to go along with economic growth to some degree, because people getting paid more are prone to want to buy stuff more, etc. However, there's not just the money side of things, there's the stuff side of things. If the economic growth means there's a lot more stuff to buy (say a whole lot of new computers), then the price may fall even as the wealth is increasing.

In MUDs it's clear that wealth increases over time. They're built that way because that's what it seems players want (see Dr. Cat's post in the other thread). But there's two wrinkles. First, more wealth != more cash. Wealth is stuff and the stuff-value of cash. Some of this stuff value is fixed (via game-set prices), but some isn't (player-to-player trade), and so inflation does push down the wealth of players holding cash. Second, whether to expect inflation or deflation would have more to do with the proportion of stuff to cash. Lots of stuff, little cash -> deflation; little stuff, lots of cash -> inflation.

(It's even possible that you could get inflation or deflation for other reasons, but those are the biggest likely causes.)

Anyway, this might all miss the point you're trying to get at?

[Nick Yee]

The problem with the "it's just a huge supply driving down prices" theory is that it happens in all MMOs. Most items in every MMO are in theory unlimited. There were also more and more of everything in SWG, but the prices there went up. What's different about WoW?

Besides, how does the currency retain its value if it too is also increasing (both from the normal inputs and from the savings from lowered prices)? Items lose value but somehow the expanding money supply can maintain its value?

[Timothy Dang]

I'm trying to compare to the big games I'm most familiar with, and I can't offhand think of a particular thing that's different about WoW which would account for the difference. There's the auction house, but EQ has the bazaar (I assume EQ2 has something similar?). SWG has an auction system, but encourages other ways of trading so it's likely not comparable to WoW's auctions.

So, maybe the AH has something to do with it, as others have suggested. I've gotten the feeling that (outside of guilds, at least) the AH significantly dominates other forms of trade (no data, just an impression). But while I guess that's possible, I don't really buy it. I would not be surprised to see a particular market institution (such as the AH) affect how high prices are. I would be surprised to see the institution significantly affect whether or not there's inflation. In other words, I would expect a market institution prone to low prices to show inflation in those low prices about as much as a market institution prone to high prices would show inflation in those high prices. (whew! I hope that can be followed.)

WoW has more "soulbound" stuff than I recall seeing in other games. When I last played EQ (ages ago) NO DROP items were an anomoly, not the norm. However, you would expect that making things non-resellable would push the prices up, not down.

It could be that saving up for the big-ticket items of mounts might affect people's willingness to spend?

Inflation is a macroeconomic topic and I have a strong tendency to think in microeconomic terms. So, here's an argument you an draw on a supply-and-demand graph. It's kinda inappropriate because we're talking macro, but I think it contains some truth:

Draw your supply and demand curve. Remember economists are weird and draw price on the vertical axis and quantity on the horizontal axis; Demand slopes down, supply slopes up, where they cross is equilibrium. Now, if the amount of money increases, then players are willing to spend more to buy something, so the demand curve moves up/right. If at the same time, the amount of stuff is increasing, then players are willing to sell more stuff at the same price, so the supply curve moves down/right.

So the new equilibrium is to the right of the old one, more stuff is getting sold (both of these effects cause more stuff to get sold, in fact). The price could go up or down, it depends how the demand & supply curves are shaped, and how much they move.

So, my guess is that it's a balance issue (and that this balance will be different from game to game), that WoW has a net-stuff-feed that's (in some sense) great than its net-cash-feed, and so causes prices for stuff to fall.

Although, as others point out, could this be due to your focus on profession outputs? WoW has the common learning-by-doing approach to professions which means players want to make stuff for its own sake to skill up, and may be willing to sell for dirt cheap thereafter. It's possible that due to the muturity of your server, there are a lot of players in that range of their profession now?

Here's a question, do you think there are negative effects from the deflation? Has WoW acheived a good balance, or is the deflation going to cause harm just as inflation might (for instance, by making professions less worthwhile for newly starting players).

[bruce boston]

It's pretty late to be jumping in here, but I wanted to make a few comments...

Timothy: "WoW has more "soulbound" stuff than I recall seeing in other games. When I last played EQ (ages ago) NO DROP items were an anomoly, not the norm. However, you would expect that making things non-resellable would push the prices up, not down."

In the design of the economy of There.com, I use an assumption that goes something like "increases in the secondary market value of an item increases its primary market value". But, I would guess the opposite to be just as true. Due to the fact that WoW has a high number of soulbound items, the secondary market value of most items is low. As such, I think there is an argument that would expect that increases in 'soulboundedness' could cause the values on the primary market to decrease.

I think there are also supply and demand issues going on in WoW. But, what economy doesn't have these.

Switching topics, I'd like to open an assumption for discussion. Is it safe to say that you can't have deflation without having inflation? What we label an economic shift as all depends on your perspective. In highly liquid MMORPG economies, which may or may not apply to WoW,
(a)stuff/services=(b)currency=(c)stuff/services. Most likely if someone is seeing increases in the availability of (a) or (c), someone else will see increases in the availability of (b). If someone sees increases in (a) without seeing the increases in (b), they may claim that the market is in a period of deflation, if they see increases in (b) and not the increases in (c) they will claim that the market is in a state of inflation.

So, second question, are prices a good measure of wealth, or economic health? If the price of green swords has gone up, and the ownership rate of green swords has gone up has real wealth thus increased or decreased? If the price of black armor has gone down, and the ownership rate of black armor has gone up has real wealth thus increased or decreased? If the consumption of linen has decreased but the price has decreased has real wealth gone up or down? I think there is a strange assumption that when prices move, real wealth decreases. But, increases in supply are often very good signs of an overall increase of real wealth. As are, oddly enough, increases in price, and/or increase in production.

This leads to three more questions, what's bad? And, is the game funner with less cheap-linen, more expensive-green swords and more cheap-black armor. If it is funner, for how long?

-bruce

[babylona]

Timothy: Individual market institutions MORE often affect that kind of thing than otherwise, especially when the institution in question facilitates agent communication. There are entire fields of study that focus primarily on how and why and in what ways individual and differently-scaled and differently-modeled institutions affect economies in all ways.

Bruce: I think what you're saying there goes back to my original point, which is first that we basically don't know what we're talking about due to no data about player liquidity, and second that I personally believe we are seeing a phenomenon here that ought to be described seperately from inflation and deflation; a new phenomenon, in fact.

But what is true is that for whatever reason, the AH and/especially the player behavior centered therein is fairly peculiar to WoW, and that may be at least partly caused by other factors, including the soulbound items.

[Mark Wallace]

As people have pointed out here, there's just not enough data available to allow anyone to say why any of these things occur. We know what conditions drive real-world inflation/deflation because there's a vast amount of related data that's produced every day by a large number of government agencies working in a fairly transparent economic system. MMOGs, by contrast, give no economic data at all. We don't even know if deflation actually is happening in WoW. I don't doubt that it is, but a few anecdotal examples aren't enough to really go on. Some kind of CPI generated from the basket of VW goods that James Grimmelmann mentions above would be a good start, but even that would leave us pretty much in the dark given a lack of population figures and money supply statistics.

As far as a Markov state is concerned, that seems to me to be a fancy way to dress up what anyone who follows markets already knows: that the past is never a predictor of future performance. If it were, no one would ever lose money on their investments.

That said, I agree that there's a bothersome lacuna in most economic analyses like these, which is only exacerbated by the environment we're dealing with here. That's the theory that economic agents always make the rational choice that will maximize their gain. This is fine as far as it goes, but the problem is that we tend to define "gain" too narrowly. Not everyone wants to ding as fast as possible. I was flying a mission in Eve the other night, lost my ship, and then had the guy I was flying with give me a better ship for free. He didn't do this because he thought he'd later profit from the deal. He did it because he wanted to have some fun pwning Gurista pirates. That, to him, was gain at that moment. To my eye, the traditional supply and demand curves have more limited application in environments like MMOGs, where a greater proportion of people define gain in other than purely economic terms of stuff / currency / level.

[galiel]

Mark, I was with you all the way in your second paragraph, which I thought was insightful, until this last sentence:

To my eye, the traditional supply and demand curves have more limited application in environments like MMOGs, where a greater proportion of people define gain in other than purely economic terms of stuff / currency / level.

Is that really your perception? That non-economic activity is *greater* in an MMO than in a real life society?

I guess YMMV drastically, but in the world I live in, people do generous/spontaneous/foolish/friendly things all the time, without calculating the "rational-man" outcome. In fact, that is the default for the human interactions I participate in in society. It is abstract entities like "corporations" that act, most often, in utterly amoral ways.

If anything, current MMO commercial games tend to encourage, by measuring, designing for, and valuing, amoral decisions, while ignoring if not actively thwarting non-market transactions and interactions.

I would love to hear if you think differently, or if I just misunderstood your statement.

[Stephen Routledge]

One thing I have noticed is that the introduction of Blackwing Lair has drained a massive amount of cash out of the top end of the economy. Last night I estimate our guild spent somewhere in the region of 1000 gold on repair costs (each player had total repair costs of 20-30g for the night depending on their class, this doesn't even include other stuff like reagents for spells and so on). This morning I helped several guild members grind for cash as they were getting to the point of being broke; one of them couldn't even afford the cost of a griffon flight. I'm sure this is having an impact on things.

[Timothy Dang]

Bruce> In the design of the economy of There.com, I use an assumption that goes something like "increases in the secondary market value of an item increases its primary market value". But, I would guess the opposite to be just as true. Due to the fact that WoW has a high number of soulbound items, the secondary market value of most items is low. As such, I think there is an argument that would expect that increases in 'soulboundedness' could cause the values on the primary market to decrease.

You're right. I was thinking only of the supply side of things, that restricting resale would reduce the supply and increase prices. But reducing resale should also reduce demand (people pay a lot for houses assuming they can sell them later), and decrease prices. Then the question is, which effect dominates.

I don't really follow your "(a)stuff/services=(b)currency=(c)stuff/services" paragraph. Sorry, I'm trying to get used to ascii discussion; I'm most comfortable face-to-face with a handy whiteboard when talking about things like this. If we're reasonably strict (which I haven't previously been) in defining inflation as a decrease in the purchasing power of cash and deflation as an increase in the purchasing power of cash, then they can't both happen at once (although it is conceivable that different market baskets could show one or the other). But I may well be misunderstanding you.

Bruce> So, second question, are prices a good measure of wealth, or economic health?

MUDs are funny because IRL we mostly think that wealth and economic health are pretty much the same thing (with lots of caveats for wealth distribution, how that wealth is created, environmental impact, etc.). In MUDs, traditionally too much wealth has been considered at least as much of a problem as too little wealth (maybe more of a problem because it's easier for those running the game to increase wealth than it is for them to decrease it).

However, if just talking wealth, I would assume you want to look at the stuff more than the money. How much to concentrate on the stuff depends on how much stuff the world provides stuff (or services) at fixed prices. The more significant fixed-price NPC purchases are, the more real wealth in cash is.

babylona> There are entire fields of study that focus primarily on how and why and in what ways individual and differently-scaled and differently-modeled institutions affect economies in all ways.

Yep, I know about this. I'm not trying to discount the importance of institutions. For instance, I know that experimentally posted offer markets (such as we're used to in retail stores) often show higher-than competitive equilibrium prices while double auction markets (such as NYSE*) tend very strongly to show the competitive equilibrium price.

So, for instance, if you were to take SWG's market institutions and substitue them for WoW's, I wouldn't be at all surprised to see the price level rise.

That's static, however. I'm not familiar with (maybe you know of some) any research which shows that the market institution affects the rate of inflation. Just because the SWG-institution might have higher prices, I don't offhand see any reason to expect that the SWG-institution would result in faster rising prices. Thinking about it, I guess it wouldn't be too weird to find out that the institutions affected inflation, hmm.

Also, it's probably the ascii trouble for me again, but I don't think I understand what you're saying about what's new about game inflation/deflation.

* Of course, NYSE is a stock market. Experimentally, markets for things like stocks often seem to have bubbles. The double auction markets which show strong consistent convergence to equilibrium are for commodities, rather than instruments like stocks. But NYSE is a nice example of a double auction cuz most people know kinda how it works.

[Timothy Dang]

OK, I hate to do it but I have to follow-up on myself now:
So, for instance, if you were to take SWG's market institutions and substitue them for WoW's, I wouldn't be at all surprised to see the price level rise...
Thinking about it, I guess it wouldn't be too weird to find out that the institutions affected inflation, hmm

So there's two empirical questions. We have hard data on the first from laboratory experiments: Given identical demand and supply conditions, some market institutions are better at achieving competitive equilibrium than others. We have no data that I'm aware of on the second (do market institutions affect inflation).

There are a number of economists who would be downright giddy to examine one or both of these questions systematically in a MMOPRG. In the first case, getting a different, deeper environment than the laboratory to study the same thing could reinforce that it's not an artefact of laboratory conditions. In the second case, laboratory experiments are not well suited to studying such macroeconomic questions.

This is kinda my spin on what Prof. Castronova said in an earlier thread. They're interesting questions for the real world and for game worlds, and there's people specifically trained in this kind of thing (raising hand) who would love to collaborate to figure it out.

[Brian 'Psychochild' Green]

I find it interesting that most people are focusing on theory and generalizations. I think the explanations for this based in gameplay issues.

I think one of the biggest things is that the high level game is so completely different than the low level game in WoW. When the game first launched, people went on and on about how the game had "no grinding". In fact, advancing through the first 30 or so levels is actually quite a bit of fun. However, once you get to 60 your only means of advancement is getting better drops. Eventually you get to the point where the only improvements will come from going on large raids in the high-end lairs. You have to spend a significant investment of time, then hope not only that an item you can use drops, but also that you win the random roll to get that item. Some of the high end equipment comes in sets, so you have to repeat this many times in order to get your equipment. This is, in a word: grinding.

It's also important to note that two of Nick's examples deal with the enchanting tradeskill. As most people know, enchanting is one of the few tradeskills that has less limited earning potential. People at higher levels are going to want enchantments on their weapons more than they're going to want my high level leather items which are inferior to just about any reliable leather drop in instances. Back in the day, Enchanting was tremendously profitable; a guildmate of mine bragged about making 120 gold off on the Crusader enchantments, but tried to downplay the money he made by saying it cost him 100 gold to get the materials. I could do nothing but marvel at the idea of making a 20% markup on any of my leather goods. I've been sorely tempted to drop my main character's leatherworking tradeskills and pick up something more profitable multiple times.

So, what happened in the game because of these factors? Many people that reached 60th level decided they didn't want to grind, so they started new characters. Personally, I have about 4 alt characters between 20-30 level. Every character gets tradeskills, so many people chose a tradeskill that they saw made money. They worked up a character again, and with prior knowledge and cash gifts from the previous characters were able to do it more efficiently. This means that there were more enchanters, increasing the supply. As we know, increasing supply means that prices drop, as they did. This also explains the price shards dropping as well; more people were destroying more trash magical items and making more enchanting components. People didn't need as much money the second time around, so more items got turned into enchanting components. It's also interesting to note that large radiant shards are available from some of the drops in Uldaman, which is where the high level Enchanting trainer is.

The alt theory holds out because prices on the lower end have actually gone up noticably. More alts being created means more demand, which tends to increase prices. I see this first hand as all my alts are about level 20ish, and even with small gifts (about 10 gp each) from my main level 60 character (after buying an epic mount with money I earned) cannot afford most of the tradeskill recipes up on the auction halls. Demand has driven these prices up beyond the buying power of even a modestly funded alt. Also, with people playing alts instead of high-level main characters, this would drop the demand for higher level goods and services, leading to a further drop in prices.

There are a number of other gameplay factors as well. The high level drain on cash (from epic mounts and the cost of repairing truly high-level equipment as Stephen mentions above) is keeping the high-level cash supply low for now. We don't see this as much at the lower levels because a large gift for a low-level character is almost insignificant to a high-level character. However, I'm sure that if we come back in about a year's time we'll see some of the more expected economic behaviors in WoW that we find in other well-established games. As we see alts reach higher levels, we'll see more people doing their own tradeskills, further dropping demand. One reason I haven't dropped leatherworking on my main character is because I can provide leather armor to my Rogue and Hunter alts at cost; that's one less person buying from alts working leatherworking themselves. And many more.

Overall, I think we're still seeing the game in the early state economy before characters pool at the top and make more money than they can reasonably spend. I suspect that this will stretch out the time before costs will rise as seen in other games.

My thoughts and observations,

[Initria]

Demand:
* No equipment decay. Your item never needs to be replaced, so if you are happy with what you have you never have to buy again.
* Bind on Pickup. No supply so no demand. Just about everything that's really desirable just cannot be bought. (This includes the product of some of the best crafting recipes... only the crafter can use it.)
* Bind on Equip. No supply so no demand to sell hand me downs.
* Except for notable exceptions, crafted items are or have the reptuation of being less desirable than drops. By the way, those notable exceptions are inflating.
* With a bored population of level 60s, players have a plethora of items from raiding. On many occasions I have seen a whole party not even pick-up some drops becasue they were "so worthless."
* The crafting is very simple. People already have their alt's profession leveled up by now, which means the once lucrative recipe market is drying up as crafters have what they want. (I now regularly see recipes which used to be priced at 500-1000g down to the 70-90g range, with every indication that prices will continue to drop.)

Supply:
* The huge amount of raiding (with all the 60s WoW has) causes a lot of items to show up on the AH and it is now a buyer's market.
* WoW drops a lot of items, if not cash. Supply easily keeps up with demand from levels 1 to 59 now from all the alts going through the levels again with the advantage of hindsight.
* A tremendous number of quests. From levels 1 through 60 you can fully outfit you character with very decent quest armor and weapons. Quest items are Bind on Pickup so no hand me downs.
* Poor itemization of "bosses." By now the bosses have been min-maxed so you know who has what and how to get there so even their rares have become easy to come by.
* No intelligent randomization of item stats. Items are not randomly generated to fit the class that finds it so it is quite common to get something of absolutely no use to you. Because of the high number of drops, you just want to get rid of it. This should have been an inflation producing mechanism, but its effect is diluted due to the high number of drops.

Don't forget that folks that start alts are not playing their 60s so the main bread winner is not earning. They're still going to be bargain hunting.

[Raph]

It's database DEflation, dammit! :)

I don't think the economies of SWG and WoW are very comparable.

In SWG just about everything breaks or is consumable. In WoW it's the opposite.

In WoW the currency doesn't officially float; in SWG it does (there are VERY few things in the game where the currency is pegged at an absolute value).

In SWG goods are far more tradeable; in WoW many of the most valuable things are soulbound.

All in all, I am not even sure what people mean when they say "inflation" or "deflation" anymore. :)

[Scott Hartsman]

I'm with Raph on this one. I don't think SWG and WoW can be compared, but WoW and EQ definitely can.

Not to be a wet blanket, but this appears to be much the same thing that has been occurring in the markets in EverQuest for quite a few years. :)

During periods of few new items being added, prices slowly go down. More of the same items are in circulation, and more people are capable of generating those items for a shrinking number of people who do not yet have them (and care to get them), so the trade price decline.

During periods after an expansion (and a new pile of powerful toys) comes out, the price of the "old toys" goes down even faster, as the desirability now goes down also.

That's not to say that inflation isn't occurring somewhere. People's stored cash increases, as there becomes less to spend it on that anyone cares about.

What does the RMT price per block of coins look like recently? If it's been going down steadily as bank supplies go up and in-game prices go down, I'd bet on this one.

- Scott

[Björn Laxvik]

Inflation in all its glory - is it really strange that items devaluate in a game where better weapons are being introduced constantly, thus comparativly speaking, deflates the value of them?

"Most items in every MMO are in theory unlimited." Hum? - Since they require TIME as an input to actually produce them, and since TIME isnt unlimited - aren't items in a mmo limited..? )

I would say that demand (and in the long run - value) for any given item in a mmo that focus on an "itemdriven upgrade path" alá EQ and WOW MUST be decreasing - if not it would imply that there is no reason to upgrade said item. One could draw attention to the AoNecropotence of EQ, which only raised in value and price as the demand for it didnt dwindle, and the supply was farily limted, while other things, like any standard weapon, got cheaper as better items were made available.

[Mark Wallace]

galiel > Is that really your perception? That non-economic activity is *greater* in an MMO than in a real life society?

Very quickly: That's not quite what I meant, even though it does look like I was unclear about it. What I meant was that the proportion of greed to non-greed related activity is lower in virtual worlds than in the real world. I.e., direct economic gain is slightly less important overall than it is in the real world. I don't think there's more non-greed activity than greed activity. I just think the greed activity is less overwhelmingly prevalent in virtual worlds than in the real world.

Put another way: I still think greed outweighs non-greed in VWs, just by a smaller margin than in the real world. Therefore, non-greed gain will be more of a motivating factor than we usually think of it as.

Greed or non-greed, though, it's all economic :)

[Mark Wallace]

Sorry, galiel, reading you again, perhaps that is what I meant. Have to revisit later. But in any case, I do think that gain/utility in VWs often has a lot more to do with fun than with hoarding gold, levels or equipment, which is what we most often assume. And fun quite often doesn't necessitate hoarding those things in VWs.

[magicback]

Wow, a lot of comments to read through so apologies if I'm repeating or missed something above.

I think Psychochild's observation is a good general explanation of what's happening in WoW. Another additional point I would emphasized is the end-game economics that Brian noted. Blizzard has balanced the top-end economic for players to grind a bit more for the next shiny and whatever remaining funds are passed to the alts.

So, it would be really good see the median cash hordes of lv60 characters, or, even better, avatar's cash flow statements per level at an aggregate level. If we assume that there is a rationale utility for the buildup in gold, we can observe what they are spending the gold on and comment about that.

As for the inflation-deflation-devaluation thing: It may be good to specify whether we are talking about macroeconomic or microeconomic level. An economy can experience overall inflation while experiencing pockets of deflation. A good example is the increase in housing prices in certain areas and a general decrease in consumer good prices.

Oh, I agree someone should create a basket of goods across game economies to calculate purchasing power and determine PPP (yes, I know it's not so easy to do). So far we only have gold-to-RL$ as an indicator.

Frank

[anthiypatus]

Brian 'Psychochild' Green has got it: "Many people that reached 60th level decided they didn't want to grind, so they started new characters. Personally, I have about 4 alt characters between 20-30 level."

When I left the game, I had a bunch of mid-range level characters and no gold left in the bank.

From level 1-40 the game is perfectly balanced for the experienced player. If you play well and utilize the AH and your tradeskill to make money, you should hit 90g (mount money) just as you hit level 40. For the first 40 levels, every gold you make goes right back out through gold sinks. This isn't unusual in the early game for most VWs though.

However: having lots of alts is the _norm_ in WoW. From level 1-40, solo PvE and questing is a pure joy. After 40? Not so much.

Combine this with the radically different classes, the two factions, and the different races. Also throw in PvP and PvE servers as an added stimulus to reroll from scratch.

In UO and most muds I've played? The early game just wasn't as fun as the early game in WoW. Thus, the early game generally wasn't that much better than the late game. So rerolling was a much less attractive option.

Let me reiterate: rerolling new characters is the absolute _norm_ in WoW. Literally _every_ person I knew in WoW had multiple alts. Of the hundreds of toons in my guild, I'd say 3/4's of them were alts.

I think I had about 15 different characters on a bunch of a different servers when I finally quit. In UO and every mud I've ever played, having 15 different characters at the same time was _absolutely_ unheard of.

Does L2 also reward rolling a new toon?

I seem to remember Bartle suggesting Permanent Player Death as a good thing for the health of a VW. In essence, WoW has created a situation in which players are voluntarily choosing to "commit suicide" and reroll.

While this doesn't completely explain the lack of inflation, it's certainly an important piece of the puzzle. If far fewer people are playing the end game then the end game won't disrupt the economy as much.

[galiel]

Mark,

Greed or non-greed, though, it's all economic :)

But of course, there is a tremendous difference. For one thing, nearly all economic theory focuses on greed (or, to put it more charitably, "rational-man" theories involving measurable, descrete (which almost always means monetizeable) transactions).

It is not just intangible currency such as love or trust or respect or honor or tradition or culture that are ignored; even clearly economic phenomena such as peer production is not considered or included or accounted for in most economic theory.

As Yochai Benkler and others have noted, this activity, which is not organized in corporations and not conducted via markets, shouldn't even exist according to classic economic theory, and there are no satisfactory mathematical or statistial models that account for it--yet it is very, very real, and has very, very real economic impacts, whether one is talking about the scientific community or Apache & Linux, or Project Ginsburg & Wikipedia &the Open Directory Project, or OhMyNews & Indymedia & The Regular, etc., etc.

There is certainly less of this activity in MMOs than in the "real world", and, in my opinion, that is because it is not recognized as desirable activity by the developers. It is essentially democratic, decentralized power, anathema in today's MMOs. (Of course, it is treated with great hostility and fear by "real-world" corporatists as well...)

I am still puzzled by your insistence that there is less greed-driven activity in MMOs. Since they all focus almost entirely around personal achievement and character development, the *only* thing developers measure is greed. What else is there in an MMO design?

The fact that players, being human, desperately seek other forms of interaction, and play their own meta-games--with great difficulty and often despite developer antagonism--in order to bring in those non-greed-driven activities, just indicates how important they are. But there are certainly less of them in an MMO than in "real life".

Free society is full of non-greed-related, non-greed-based social organizations and mechanisms, from churches to schools to clubs to pick-up games to food kitchens to academia to families on and on and on.

Where are the MMO analogs to these?