Rants tag

Rants, ruminations, and rambling remarks from my mad, muddled, meandering mind.

Monday, September 2, 2013

A Brief Follow-up on "Barriers to Entry"

I came across this reddit thread while trying to figure out why my "Barriers to Entry" post from a week or so ago is suddenly a hot topic again. The reddit thread is a few months old, but more clearly expounds on the reasons that it is hard to make a gold profit from the Trading Post in Guild Wars 2.

TL;DR: In an economy with perfectly distributed information on prices, no barriers of entry and exit, and zero (or uniform) transaction costs, you will end up with "normal profits" (i.e., no one will get rich but no one will lose their shirt, either.)
Most of the profit in the real world (and certain in-game economies) result from market "stickiness" and imperfect knowledge of prices. For instance, "arbitrage" which I mentioned in my previous post, is the profit that can be made from the difference in price of the same goods in different markets. For example, the difference in price of pork bellies on the Chicago commodities exchange, versus the New York commodities exchange. In the modern global economy and Internet, this sort of arbitrage is harder (but not impossible) to accomplish.

In WoW, the segregation of the Horde and Alliance Auction Houses made arbitrage very easy to take advantage of with a little coordination of friends through the neutral AH. I've been away from WoW long enough that I am ignorant of whether those exchanges have been integrated or not, but I know other games, like Rift, SWTOR, TSW, and GW2, all have common Player Exchanges, some across servers as well, so the possibility of such arbitrage is reduced or eliminated.
One big Shovel
Mike Nelson, University of Utah.
Factors of Production
Another cause of "excess" profit in the real world is the immobility of the "factors of production." For example, the machinery required for modern mining is far beyond affordability at any individual level. This combined with other barriers like mining rights, means I cannot simply go out and start mining for copper or iron, even if I had the knowledge required to recognize the ores. Most MMOs limit the number of gathering or crafting knowledge and skills a single character can possess, thereby immobilizing the factors of production somewhat and increasing the potential for profit; especially if the player can corner the market for the item in question.

In GW2, by contrast, all I need to gather materials is to purchase the appropriate tool to do the gathering. There is no barrier to obtaining the items I need to craft, or to sell those items at the Trading Post. The conditions of the GW2 Trading Post are such that I know the price everyone is selling or buying for, and there is no barrier to posting that is not there for everyone else (e.g., the deposit). Now, because the TP disallows posting at prices below what vendor would buy items for, there is always a minimum price. Now,  it is possible to take loss versus that vendor price, when you factor in the TP transaction fee. But since there was virtually no cost to obtain the goods in the first place (only the the cost of the pick, or sickle, etc.), this loss is an opportunity cost that the player is either ignorant of or willing to accept for convenience.
Heh, So Much for "Brief"
Psychochild commented on my other post that this perfect competition isn't "fun," at least not for those that are inclined to to play off market inequalities and thereby make gobs of in-game currency. I can only say this game is not for them. We may as well complain that the spaceship combat of GW2 is somewhat lacking. It is simply not that sort of game.

Something that we haven't discussed is how this market of almost pure competition is somewhat immune to the inflationary pressures introduced by the Real Money Transactions of the Gem Store. But that would be a whole 'nother post. 


  1. Is it a bad thing that I saw the 1st pic and immediately thought it was Bingham Canyon, then moused over it and discovered I was correct?

    On-topic: I used to do this in EQ2 all the time when the brokers were still broken out faction-wise. Sure there was the black-market, but the higher broker fee often made it not worth it to use. But yeah.... buy the cheap item from one faction, mail it to an alt, then resell for a much higher price on the other one. Worked well, but was kinda time consuming so I didn't do it often.

    1. Hehe, good eye. I was reading about the landslide from earlier this year. I've been fascinated by Bingham Canyon and the enormous machinery used there ever since visiting the mine as a young boy with my Grandpa.

      I don't really play GW2 anymore, but I loved going to the TP and finding inexpensive stuff when I needed it. Contrast that with the extortionist pricing on the WoW auction house, which worsened every year I played because max-level players had nothing better to spend their gold on.

  2. I'm hideously behind on my blog reading, but a few quick notes, for historical sake if nothing else.

    Yeah, GW2's trading post are awesome if you're going to pick up equipment for your new character, especially with a few gold pieces handed down from a friend or a main. But, what happens when that character gets to max level? Well, since nobody else had to spend a lot of money on gear, it means that they have a ton of money to spend on acquiring high demand items. That means that people who are better at grinding will always have an advantage. (Or people willing to buy gems to trade for gold, as I mentioned in my previous comment.)

    The reason why inefficiency is fun is because it allows you to make a profit in other ways besides grinding. Arbitrage is one way, but so are things like lucky rare drops that are in high demand. Getting a rare world drop that you can sell for good money on the AH is fun for everyone, not just people who are engaging in market manipulation. (In fact, I rarely manipulate markets, I just like to sell stuff at some sort of a profit.)

    Your worry about losing your shirt is unfounded, because if nothing else someone can go out and grind monsters for drops to sell to vendors. Unlike the offline world, there's no theoretical limit to the monetary supply in a game, so losing every cent you have is not really a problem in a game because there's an infinite supply out there for you to regain.

    And, it's interesting to note that arbitrage still happens in GW2 (I did some myself to test out the economy), but window for doing so is so much smaller. In fact, this is where it's likely for you to "lose your shirt" if you over-invest in a particular opportunity and are left holding inventory.

    I have experience with a lot of economies in games, and GW2's was by far the least interesting. I rank REALLY low on Achiever motivation, so I really don't like grinding to get what I want. But, I've not played GW2 in several weeks and, honestly, I don't find myself missing it. So, perhaps you're right, it's simply not the game for me.

    1. That "Barriers to Entry" post has some serious legs to it that I can't quite explain. I am not sure why I find GW2's economy so fascinating, especially since I lost interest in the game itself several months ago. But it's partly because it is so different from other games, and seems to cause so much angst among players (and would-be players).

      Arbitrage in the real world is very short lived, as well, thanks to modern information technology. You may be right that GW2 focuses on the grind; though that can be circumvented by the workday grind, if you so choose. But I have little sympathy for someone whose idea of fun is to profit from the ignorance of their fellow players, and who complain when the system works to remedy that ignorance. And the economy certainly doesn't preclude the possibility of turning a profit on rare world drops, which I will return to below.

      There seems to be this idea among gamers (and devs) that there have to be money sinks in the game world to prevent runaway inflation. But the inflation happens anyway, especially at the lower level range of items, because rich characters find it easier to spend gobs of money they've earned elsewhere on copper ore (for example) than to go out and mine it themselves. This is great for low-level characters/players who produce those goods, but horrible for low-level, poor characters who need to buy them. Without a sugar daddy, they have to do without, because the rich players with money to burn have caused the prices to climb.

      The opposite is the case in GW2. Lower-level goods are extremely inexpensive on the trading post. You, yourself, pointed out that it is cheaper to replace gear—even at fairly high levels—than to repair it. In today's (American) economy, this is actually the norm. When was the last time you had a shirt repaired instead of just buying a new one? Or even a television set?

      My understanding is that those high demand (and high-priced) items you mention are almost all vanity pieces; not really any better than what is commonly available, just more rare. Fancier. You might even call them luxury items.

      I guess in the end, my contention is not that the GW2 player economy is better than that of other games, but that it is at least not worse. It is simply different. Maybe GW2 isn't the game for you. As I mentioned, it's not really the game for me either, though for completely different reasons.

      Thank you very much for your comments. It's always great to have a stimulating discussion, and to hear from someone with the developer's perspective.

    2. No problem about commenting. It's a topic I'm interested in for both personal and professional reasons. I read a ton of blogs, I just don't have a lot of time for lengthy comments anymore.

      High money supply causes inflation. As I wrote on my own blog (http://psychochild.org/?p=1179), most players want to see their stock of currency increase to feel a sense of progress. This leads to inflation, but that's fine as most basic needs handled by NPCs are set prices. Adding significant drains to the economy does help to reduce supply, but that's mostly a short-term solution.

      The bigger issue is the velocity of money: how often is money spent and how much? This is the primary function of an auction house, to allow players to trade between themselves easier and increase velocity. In gameplay terms, this enhances the meaning of accumulating a lot of money; having a million gold pieces is better when you can spend it on stuff easily by visiting a place in town rather than having to catch someone selling something you want when they're online.

      Another important concept is distribution. In a typical game where you accumulate money as you go along, you'll get more money the more you play, so people who have played longer will have more money. New players going into the economy will want a way to increase their currency quickly, otherwise they will never be able to compete with experienced people; having a way to allow experienced players to pay new players to do something helps with money velocity and it increases the number of economically capable actors in the economy.

      As I stated before, in WoW a new player can sell starter crafting materials for sizable profits. Established players might want to start crafting (maybe on an alt) without having to run through a low level zone and gather themselves. The new player can then use their new currency to purchase their own upgrades, maintenance, etc.

      What happens if we didn't have the AH? Well, the experienced player would still have the currency, and would have to spend time gathering materials and have that same amount of money. They then compete with others to purchase items of interest to higher level players, increasing the costs for higher level items. The lower level player doesn't get the funds, which means they have to earn money slower through gameplay means; this probably means grinding.

      What happens in GW2? Because of the downward pressures on prices and the vast supply, it's hard if not impossible for a low level character to make money. However, and this is the kicker, the high level character still gets their supply, cheaply. And, it's entirely possible they're paying money to an inactive account, which means that money has no continuing velocity.

      And, this is why I find the GW2 economy to be boring. There's velocity, but in very small amounts. The trading post design has a pronounced downward pressure on prices. This means that the experienced players have a lot of money to spend which inflates the economy, and new players have no meaningful way to take part in that economic activity; there's nothing a new player can find that an experienced player might want that doesn't already exist in high supply and low price on the trading post.

      As I said before, great if you're one of the people who can play a lot and doesn't mind grinding money, because you get all the stuff you might want cheap. But, it excludes new players and doesn't give them a way to get on equal footing with other active players. I think this problem will only be exacerbated as new players enter the game and get frustrated with their inability to participate in the economic portion of the game. Given that MMOs traditionally rely on their newbie supply to keep the game going, this could be a huge problem for the game down the line.

    3. Now you have me at a loss, because I exited the game without feeling the need to purchase the expensive vanity gear (even from vendors), and never felt cash-poor during the time I was leveling. Nor did I consider the normal playing of the game to be a grind, at least as it related to earning cash.

      What I did feel, after having no real competition for resources in TSW or GW2, was a higher sense of cooperation with other players. Contrast that with the almost instant irritation I felt competing with other players for mob kills and resource mining upon returning to WoW, trying out the MoP starting area for a day.

    4. Well, it's not just vanity gear, by which I assume you mean the legendary weapons that take a ton to create. Crafting takes a lot of grinding for drops or a lot of money; although you said you didn't like crafting. Someone without ability to buy gems might want to make some gold to trade for gems. Or, as they add more gold sinks, the new players will have no meaningful chance to participate, unless they have events where lots of money drops, which will just help the higher level characters accumulate more money, which makes inflation more of a problem.

      As I said, it's not a tremendous problem now, but I predict it'll become more of a problem as the game gets older.

    5. Yes, the vast majority of crafting systems I've seen implemented (granted that I have limited experience) are simple variations on "have the right materials in your inventory and click the recipe from a list." GW2's only varies in the method of "learning recipes." I find that interesting only in what can be produced, which for most games falls short of what can be looted at any given level. That is, to be able to craft stuff that is good for me, I have to devote more time and resources (from the AH?) to crafting that I want to. More fun to do quests and get my stuff through adventuring.

      Crafting with assembly windows is a bit better. I like TSW's system, for instance. I am looking forward to EQN Landmark, as well, for the landscape "crafting."

    6. Well, this gets a bit off the topic of the post, but the benefit of crafting is control. Drops are random,but if I really, REALLY want a ring with specific stats, I can go craft one if I have the right profession. In GW2, crafting also gave you adventuring experience, so there was some benefit to making the item compared to just hoping for a drop or buying it off the trading post.

      But, GW2's crafting fell apart for me because I don't like to grind. The rare material (scales, blood, etc.) didn't drop frequently enough so you had to grind specific monsters. As I said, I hate grinding. But, to buy the items of the AH required me to grind money since making money off the AH was very tough. In the end, even without a more interesting design, crafting just wasn't as interesting to me (except jewelcrafting and cooking, which didn't require those rare drops) so I didn't participate in it much.

      Anyway, great discussion. :) Now to catchup on more recent posts on here. ;)