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Virtual Economic Theory: How MMOs Really Work

November 16, 2010 Article Start Previous Page 3 of 5 Next

Pocket Change

MIMO also tends to be a "drippy faucet" problem. Players tend to continually gather incidental money while playing an MMORPG. As long as that money keeps dripping into their pocket faster than it leaks out from incidental expenses (e.g. repairs), they'll face lower opportunity costs when making purchasing decisions from other players.

Consider two players with identical play styles and spending personalities; however, one has been playing for a year longer than the other and has accumulated an extra 10,000 gold in MIMO drip. When an item goes on sale on the market, the longer-term player faces a 10,000 opportunity cost discount, merely on account of having been playing longer.

Thankfully, MIMO problems aren't the inflationary beasts that most players make them out to be. For one thing, once that 10,000 gold is spent, the opportunity cost discount is gone. The person who has collected the money does not face a 10,000 gold opportunity cost discount; they paid for that gold in opportunity cost from the item the sold.

Again, consider WoW's daily quests: once players are actually doing them for the gold, rather than for some other reason and getting the gold as an incidental reward, then these are not part of the MIMO equation.

At that point, the gold earned from the daily quest directly represents the opportunity cost of the time it took to do the quest. Even when players are "just doing them because I always do them" they're still paying their opportunity cost specifically to get the gold reward.

One very notable game to be examined for MIMO would be EVE Online, a game without MIMO. EVE Online has a strong, powerful market, and is considered by many to be a shining example of a stable virtual economy. One of the primary reasons for its stability is the lack of MIMO in EVE.

EVE's MIMO Solution

In EVE, players tend not to gain much, if any, money from activities that are not purposefully money-gathering. In fact, most of the time players incur significant monetary losses from non-money-gathering activities.

EVE's activities can basically be split into two broad categories: getting ISK (currency) and PVP. Although there are occasionally "loot bonanzas" when engaging in PVP, these are quite counterbalanced by the common occurrence of losing one's ship and possibly one's life (clone) at the hands of other players. Some players have turned piracy PVP into a profitable activity, but for the majority PVP is operated at a monetary loss in order to facilitate higher profit money-gathering activities. By eliminating the "pocket change" effect, players always calculate the opportunity cost when making purchases.

The examination of EVE also brings the final and major topic to my discussion: the actual virtual economic system designed into a game and the economic ideal of perfect information. Asheron's Call had none; players could only trade and had to use methods beyond the game system to organize those trades.

Most mainstream MMOs have "brokers" or "auction houses" which allow players to list items for sale, and other players can view the list and chose items to buy. EVE Online's market system is the most comprehensive and will be the focus of my examination of an idealized MMO market system.

EVE Online

Recall the notion I presented earlier about perfect information. In an idealized economic setting, a player will know all the prices for all items. If we put aside EVE's physically separated markets (which are meaningful within that game due to the risk of travel, but not meaningful in many other games) then the EVE market provides players with perfect information (at least for the items that can be traded on the market itself).

EVE's market functions as a bi-transactional order market: players can place both buy orders and sell orders for any given item. This is a crucial difference from most Auction House-style markets, where players can only place sell orders for items they have and want to sell. In most other games, players cannot declare their intention to buy an item through the game designed marketplace.

In a market with only sell orders, buyers have no power to influence the price point of items. Their only actions are to buy or not to buy, and not-buying does not indicate a desire to buy at a lower price any more than it indicates a desire not to buy at all. Prices in these markets are purely supply-driven. As a result, if there is insufficient exchange to drive the price of an item down to its opportunity cost, buyers either suffer unfairly high prices or the market stagnates and transactions fail to go through.

By enabling both buy and sell orders, buyers compete to make the lowest highest offer and sellers compete to offer the highest lowest price. Yes, you read that correctly, and no, it's not as confusing as it sounds. Buyers want to pay the lowest price possible, but must offer a higher price than other buyers in order to make a successful transaction (otherwise the transaction will go to a higher bid). Likewise, sellers want to get the highest price possible, but must offer a lower price than other sellers.

These markets are both supply- and demand-driven. When both buyers and sellers compete within the same marketplace, any entrant to the market can see both the upper and lower bounds for transactions within that market. They can (presumably) make as much money as the lowest seller or pay as much money as the highest buyer should they wish to compete in that market. However, most players don't want to compete in the market: they just want to make their fair transaction and get on with the game. This is another point where a dual market really shows its strength.

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