economic theory and mmogs agdc – september 7, 2006 sam lewis
TRANSCRIPT
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Economic Theory and MMOGs
AGDC – September 7, 2006
Sam Lewis
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What is this about?
Summary of 2 GDC Roundtables
• Monetary Policy – managing the money supply
• Market Structure – creating a trading structure
• Industrial Organization – creating crafting/business relationships
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Who Am I?
Sam Lewis
• Currently Lead Designer Cartoon Network
• Senior and Lead Designer SOE
• Designer and Producer Kesmai
• BA and MBA in Economics
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What is Economics?
The study of how the forces of supply and demand allocate scare resources in a society.
Price
Quality
Supply
Demand
Price
Quality
Supply
Demand 1
Demand 2
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Why Use Economics?
• MMOGs are Social Games
• Analyze Current Phenomena
• Make Design Decisions
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Price Movements
Thanks to Dan Speed – EVE Online
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Natural Market Places
Thanks to Ahn Sang Hoon - Seal Online
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Final Reason
“You can’t screw it up any worst than it already is.”
- Gordon Walton
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The Money Supply
Objectives
• Sufficient cash for the
economy
• Avoid monetary collapse
• New players aren’t “poor”
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Monetary Collapse
Could be Considered Fun
Plan for Commodity Currency
• Divisible
• Uniform
• Storable
• Durable
• Compact (High Value/Weight)
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P= MV/Q
• P = price level
• M = cash in circulation
• Q = quantity of goods
• V= the velocity of money
Hyper-inflation
Depression
Healthy
Quantity Theory
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Quantity Theory
P= MV/Q)• Healthy
– Holding cash maintains wealth.
• Hyper-inflation
– Holding cash loses wealth.
• Depression
– Holding cash increases wealth.
Hyper-inflation
Depression
Healthy
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Quantity Theory
P= MV/Q• Control Price via Money Supply
• “Poor” Players via Market Prices
Hyper-inflation
Depression
Healthy
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Faucets and Drains
Player-to-Game Exchanges
• Faucet – Player selling to the game
• Drain – Player buying from the game $
Faucet Player Control
DrainGame Control
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Faucets and Drains
• Players control cash creation– If they need more cash they open up
the faucets
• Drains are fixed– They stay the same size regardless
of the Price Level
• It will become Hyper-inflated– Its just a matter of when
$
Faucet Player Control
DrainGame Control
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Solutions
Tie the Drain to Price Level
• NPC Prices rise and fall
• Auction
• Transaction Tax$
Faucet Player Control
DrainGame Control
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Transaction Tax Example
Two Player Economy
• Adventurer needs bullets to kill mobs to get cash
• Crafter makes bullets
• Crafter sets price based on demand
• Crafter pays both a fix offer charge and percentage sales commission
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Transaction Tax
Money Supply
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
Time Period
Money Supply
Adventurer Cash
Crafter Cash
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“Poor” Player Issue
Because Prices Increase-
• Value of starting cash declines
• Faucet stream “too” small
• Can’t buy good stuff
• Makes new players dissatisfied
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Solutions
Non-inflationary Solutions –
• Have NPCs provide basics
• Make elder players dependant
on a starting commodity or
service
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Market Structure
What Market Structure should be used?
• Real World Economy Objective – Pareto-optimality – resources optimally allocated– Perfect Market
• Game World Economy Objective– Fun – players are engaged and can win– Oligopoly
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Market Structures
Perfect EconomyOligopolyMonopolyBarter
Structures Approach Perfection
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Market Structures
• Numerous Buyers/Sellers
• Homogeneity of Product
• Freedom of Entry and Exit
• Perfect Information
• No/Low Transaction costs
• Secure Transactions
• Infinity Divisible Goods
• Few Sellers, Many Buyers
• Substitute goods
• Barriers to Entry and Exit
• Imperfect Information
• Transaction costs
• Secure Transactions
• Infinity Divisible Goods
Perfect Market Oligopolies
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Few Sellers
• Fragment the Sellers by Location
– EQ one Auction House
– EQII two Auction Houses
– WoW three Auction Houses
– SWG one planetary commodity/many player
vendors
• Fragment the Sellers by Time
– EQ must be logged in
– WoW offers for limited time period
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Many Buyers
• NPC Vendor of Last Resort
• Consolidate the Buyers by Location– SWG commodity auction info was server wide, but
you had to go and pick it up– EQII buyers view other auction info and purchase
for a higher price
• Consolidate the Buyers by Time– Posting offers to buy
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Substitute Goods
Differentiate Goods Based on -
• Effectiveness Tradeoffs
• Esthetics/Fashion
• Scarcity
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Barriers to Entry
• High Fixed Costs– SWG shop investment (house, tools, location)– EQ and EQII significant time investment
• Specialization– WoW one resource and one manufacturing skill,
but need 3 or 4 to make an item.– SWG (old) max two crafting skills, but need 3 or 4
to make an item.
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Imperfect Information
In conflict with few Sellers/Many Buyers
• Create Arbitrage Opportunities– WoW market tracking software
• Future Economic Events– There players working payroll cycle
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Transaction Cost
Player’s Currency is Their Time
• Make it Expensive to Change Vendors– SWG - have to pick up – WoW – time to get to the other locations– Makes location based competition valid
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Security and Division
• Allowing players to cheat on a deal causes more customer service problems than it is worth
• Making goods indivisible means getting rid of cash
• Play with these at the risk of destroying the business game
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Industrial Organization
Study of Industrial Structures
•Market Structure
•Manufacturing Chain
•Competitive PracticesConsumables
Equipment
CrafterAdventurer
Key components
Resources
Crafter
Crafter
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Industrial Organization
Consumables
Equipment
CrafterAdventurer
Key components
Resources
Crafter
Crafter
Typical MMOG Relationship
•Adventurers Sells Raw Materials
•Others Supply Sub-components
•Crafter creates Final Product
•Sells Adventurers Items
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Industrial Structure
Design Issues
• Manufacturing Chain
• Over Production
• Elder Dominance
Consumables
Equipment
CrafterAdventurer
Key components
Resources
Crafter
Crafter
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Chain Solutions
• No Independent Crafters– Make sub-components– Make final products
• Competition on 4 Ps– Price– Product– Place– Promotion– (Predation)
Consumables
Equipment
CrafterAdventurer
Key components
Resources
Crafter
Crafter
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Over Production
Caused by Oligopsony Structure
• Advancement Independent of Manufacturing
• Destroy Overproducing Factories
• Make Items Consumable
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Elder Dominance
Caused By Natural Monopoly Structure
• High Fixed Costs
• First In Advantage
• Constantly Declining Marginal Costs
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Declining Marginal Cost
• Cost to Produce Always Cheaper
• First–In Always Under-Cut
$
Quantity
Marginal Cost Curve
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Overproduction Solutions
• Cap Quality– Elders make the same quality item
• Cap Cost– Elders cost the same, including wastage
• Use Comparative Advantage– Elders move on to supply their market
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Conclusion
• Simple Economic Theory Provides Insights to Design Decisions
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References
• Terra Nova
– http://terranova.blogs.com
• Flying Scythe Monkey– http://www.flyingscythemonkey.com/
• Eve Developer Blog (Dan Speed)– https://myeve.eve-online.com/
• Synthetic Worlds– Edward Castronova