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Virtual Economic Theory: How MMOs Really Work

November 16, 2010 Article Start Previous Page 5 of 5
 

A Case Study in Doing It Wrong: Final Fantasy XIV

Now that I've said all this about markets, let me make a few broad presuppositions about typical players. For the most part, when players engage in the market they want these things:

  • To feel like they're getting a fair price for anything they buy or sell
  • To be able to sell things promptly
  • To know what is available for sale and, if something's available, buy it promptly
  • To be doing all this with the least amount of time, money, and effort as possible
  • To not have to resort to using external systems to engage in the game's market is they can avoid it (they will do so if they feel it gives them a competitive advantage in the marketplace)
  • Finally, players do not want to be advertised-to or be "spammed" by people shouting about what they want to sell.

Final Fantasy XIV's market system is based on the "bazaar" system seen in many Asian MMORPGs, including its predecessor, Final Fantasy XI. The bazaar allows players to place a number of items (in FFXIV, 10) for sale at a listed price.

Once created, players with a bazaar bear an icon next to their name indicating the presence of a bazaar. Other players can click on that player and chose "browse" from the list of player interactions (along with trade, invite to party, and so forth). This opens a window just like an NPC store with the items for sale and their price.

The purchasing player conducts the transaction just as they would with an NPC merchant: selecting items and quantity and, if they have enough money for the transaction, they get the items and the bazaar-bearing player gets their coin (minus a transaction fee, of course).

Square Enix has declared that it wanted to rely on this system because it encourages "creative selling" and makes players feel personally engaged in market transactions. This is all ridiculous head-in-clouds dreaming, of course.

The actual reality is to find areas crowded with AFK players all sitting around with their bazaar icons up, and other players browsing the crowd in the hopes of finding an interesting item for sale.

This has two negative consequences: the crowding of player areas, which causes lag and increases server overhead for the game operators, and it irks players who would rather be playing the game instead of standing around trying to sell stuff.

In its effort to really drive the bazaar system into peoples' hearts, Square Enix introduced Retainers and the Market Wards. Retainers act as a player's personal storage in FFXIV. Just like the player, the retainer also has a bazaar of 10 items, set up in just the same way.

However, retainers can only be seen by other players (and, thus, sell items) when they are placed within Market Wards, special marketplace-esque instances in each major city. There are a number of wards, each featuring a category of item to be sold, however players need not obey these directions and they do nothing to help players trying to sell multiple categorically different items.

Unfortunately, it works rather poorly, especially since the game can only render a very limited number of NPCs at a time. And it doesn't stop players from doing the AFK bazaar thing too. Why limit yourself to an NPC no one will check, when you can also go AFK and bazaar in the streets?

In a nutshell, the Market Ward system is broken. Players don't feel like they're getting a fair price because they have no idea what the prices are: they have to manually check every NPC and player bazaar in order to find out what the prices for items are. Moreover, they can only see prices for items currently being offered by NPCs. If a particular item happens to be sold out by everyone, there's no way to gauge its price.

On the topic of something not being sold, there's no way to know if a particular item is actually being sold or not until you find it on an NPC. If you never find it, it might actually be for sale... you just didn't find it! So, huge time and effort involvement with doing even a small scan of NPCs for available items and price comparison, which all has to be done manually, of course.

And, heaven forbid you actually decide to go back and buy something from a previously seen price list: if you can't remember which NPC it was on or if you can't get that NPC to render... you're out of luck! Incidentally, you can "technically" set up a buy order, but you can only buy what you already have (if you want to buy four healing potions, you have to have four healing potions) and buying takes up more space than selling (both the item you're buying and the money you're offering take up separate spaces that could have been used for two sell orders).


Final Fantasy XIV

What about the provision about external systems? It's happening in FFXIV. Some websites have helpfully designed marketplace systems that, quite honestly, should have been implemented in the game itself. They allow players to list the items on their retainer or in their personal bazaar, list a location for each, and even place purchase orders should anyone feel like filling it.

Sadly, with no API from the game for the sites to draw upon, the information on the website can quickly become dated and inaccurate. It is not at all uncommon to see a listing on the website, only to futilely search to find the retainer in the market ward after that retainer has been removed, or find the retainer without the item in question. Also, external tools like these are only as effective as the players that use them: if only a tiny portion of the player base uses the tools to list their items, they serve a very limited use in finding items for sale.

There's another reason I started with the story about Asheron's Call. AC's economy did quite fine despite the absence of any market system, so why does FFXIV suffer so? It's primarily because of the sheer number of items in FFXIV and the importance of crafting in the game. In AC, there wasn't much to trade; in FFXIV, there's probably several thousand items, and 4 versions (regular, +1, +2, +3) of each.

Because of the complexity of crafting and the inter-craft dependence (it can take 16 components made by five crafters to make even a basic item) players need a rich, robust market system to exchange all these myriad items with one another. This is further reinforced by the limits to inventory space: players can only hold a tiny portion of the available items at one time, thus are forced to sell the majority of what they acquire, either to other players or to vendors.

The Conclusion: A Viable Alternative

So what should Square Enix have done? It should have set up a comprehensive market system that allowed players to set both buy and sell orders, just like EVE Online. Moreover, this should be a single, unified market accessible from all three major cities. In FFXIV, players can instantly teleport from one city to another, meaning that setting up three isolated markets accomplishes nothing beneficial at all and merely inconveniences players by forcing them to ask someone in another city to check the prices there and teleport if market conditions are more favorable.

Players should be able to list more than 10 items, and the market system should allow players to simultaneously place orders for equivalent items (for example: you can set an order that buys all items, including the +1, +2, and +3 versions, either for the same price, or for four prices). Finally, this market system should show historical transactions, ideally dating back for a full year (as in EVE Online) but even the last few transactions (as in FFXI) would be acceptable for players to make an informed decision based on both current market brackets and past market performance.

In conclusion, there are a number of valuable lessons all MMORPG designers should take into consideration when developing their virtual economy. First and foremost, give players the tools they need to be an active participant in the game economy without undue burden or stress.

Secondly, ensure that all types of players ("market players", casual players, and everything in between) feel like the market works for them.

Thirdly, make sure to balance all your opportunity costs: don't let the MIMO trickle cause too much inflation. Continual money-out outlets like Player Housing are a fantastic way to keep your economy in check. Finally, remember that you're making a game. It should be fun to play. Empower your players, not just with sword and powerful magic, but with the chance to make dreams of riches on the market a reality too!


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Comments


Jan Koschel
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Thank you for this article and introduction on virtual world economics. While I agree with a large portion of your assessment, the ideal conditions for a working market you suggest do not, from my point of view, take one very important factor into account: the effect of goldfarming activities on virtual world economies, which greatly alter supply and demand of goods and currency as well as overall market interaction between players.



Online worlds with a free market trade system are very susceptible to those illicit and - game operations wise - very cost-intensive external party activities as they increase customer service costs as well as player retention expenditures. The goal for an optimal economic / trade design for an online world should give players as much freedom as possible without allowing for undesirable activities by external third parties.



This can be accomplished by means external to the online world (like the free-to-play business model) as well as by means internal to the online world via building robust goldfarming-proof trade mechanics and systems.



An article I wrote based on my thesis that addresses the "internal to the online world" option can be found at http://virtual-economy.org/blog/resolving_goldfarming_through_

Adam Bishop
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I liked the article, but while Simon focusses here primarily on auction houses, I think it's interesting to contrast that to the rest of the in-game economy, which is primarily NPC vendor-based. Mr. Ludgate says that these auction house systems are liable to work as capitalist marketplaces much better than some real-life capitalist marketplaces, I think something interesting to note is that the NPC vendor portion of the economy has much more in common with a socialist marketplace.



NPC vendor economies actually make up the bulk of the economy (at least, they did when I played WoW a few years back), and they are characterised by something that most people scoff at in the real world - price controls. The price of all necessary items in MMOs tends to be fixed at a specific point, partly to drain a controllable amount of resources out of the in-game economy, and partly because it feels more fair to players. Unlike in the real world, where price controls inevitably fail because goods are scarce and black markets emerge, MMO creators can effortlessly keep prices level because supplies are infinite.



Generally speaking, MMO economies are designed so that they feel fair, but more importantly so that they are fun. I think the main reason for this is that, despite what many economic theorists like to believe, most people actually are not profit maximizers. When I play an MMO, I'm not looking to amass the most amount of gold or resources in the least amount of time, I'm looking to have as much fun as possible, regardless of the other consequences. And while I know it's dangerous to extrapolate too much from your personal experiences, I suspect that my attitude is pretty common (outside of EVE, at any rate).

Ardney Carter
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"And while I know it's dangerous to extrapolate too much from your personal experiences, I suspect that my attitude is pretty common (outside of EVE, at any rate)."



No, that attitude is pretty common in EVE as well. A sizable part of the population is interested solely in PvP. But due to the fact that engaging in PvP actually carries significant risks to your ability to do so in the future (it's kind of hard to fight with no ship, after all) everyone has to be at least aware of the market.



But thanks to the tools provided, that's easy for anyone to do and as a result, you know exactly what you're risking whenever you get into an engagement. Knowing precisely how much you need to have onhand to replace your losses should things go bad is actually very handy.

Michael Wenk
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I think that an AH or Eve Online Market has its place in an MMO, so does a bazaar. I started out with MMOs with UO and UO has a completely different economy. Its based on the shop concept, like the bazaar. Players had housing that they placed, and in that housing they placed vendors. Within the vendors you placed items. It may have had an "auction house" as well, I stopped playing quite a few years ago, having consumed all the content I wanted from that game.



You marketed your items by making your housing stand out. It was difficult to find items, that is true, and this is a flaw, but in essence it rewards those that are willing to go out and look. And honestly it was fun to go out and check out people's houses, especially after they put into place the custom housing tool.



I think that MMOs cater way too much to the people that play for the economy and to get items. I bet over two thirds of the players that level to 80 never leave the cities after they hit 80 with the possible exception of events, and possibly wintergrasp. They use the LFG tool to get into instances and get summoned to their raids. In my opinion, you could cut the actual land in WoW by at least 50% and few would notice, and fewer of the ones that do notice would care.



Now imagine if WoW had player housing and shops. You now have empowered the players to put a lasting mark on the world. Other players are motivated to look at interesting things, and to go out and find deals for items. No longer do you have lag filled towns full of players. If you spread the housing around, then you spread the majority of the players around. This would make for interesting game play.

Aaron Truehitt
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Ultima Online didn't have a ton of different things to buy though, since a lot of it was basic. Plus you'd lose things fast in that world as well. So it worked out in Ultima. In others like FFXIV, its cumbersome to just try and find a level 11 robe you want for one class you are working on. NPC Shops in FFXIV don't even have armor for you to use or rarely. WoW has to many items as well to make player made shops work efficiently.

Simon Ludgate
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@Jan, I agree that RMT adds a whole new dynamic to the topic of virtual economies. I've touched on this topic in the past (see my two-part study of EVE Online and RMT here:



http://www.gamasutra.com/blogs/SimonLudgate/20090825/2826/EVEs_Se
lfUNcontained_Economy.php

http://www.gamasutra.com/blogs/SimonLudgate/20090828/2844/Sell_Yo
ur_Money.php



) and I've been researching and studying the issue in the year since. The issue of RMT itself is multi-faceted: it can disrupt the game economy, it can disrupt gameplay, it can lead to criminal activity (eg: account hacking), and it can put tremendous strain on the technological and human resources of a company. There are equally many ways to combat it, and I am not in a position to talk about the legal and technical side of counter-RMT strategies. However, I can write about how RMT can be reduced through game design choices, and would be happy to write a follow-up article discussing these issues.





@Adam, actually on page 2 of my article, I do touch specifically on the issue that NPC merchants and their fixed prices mean that "gold" isn't actually a fiat currency. At the same time, I would counter-argue that most players do not buy much from NPCs and that, in WoW in particular, NPCs don't sell any gear worth buying. This is not true of "badge" gear, which is worthwhile, but because badges cannot be traded this isn't really part of the economic model of the game. Thus, of the things that are economic merchandise in WoW (eg: crafting materials, consumables, and BoE loot), none of these things can be purchased from NPC vendors with gold. "Content-gates" such as training are another issue entirely and part of the MIMO equation (second half of page 2) rather than the virtual economy.



In regards to the "socialism" aspect, this is present in games, but it is not, as you incorrectly assumed, tied to the NPC vendors. It is, in fact, tied to the production of resources in the game world itself: every player can gather every good directly without actual or imposed limitations (such as limited farmland or a monopoly consortium) preventing their acquisition of goods. It is these infinite supplies that ensure a stable economy, rather than the supplies obtained from NPC vendors.



On your other point, I do know many players who do not amass fortunes in online games. I know many people who spend their gold as soon as they get it. But this ties in strongly to the opportunity cost theory of economics. Whenever a player is presented with the need to obtain something, they can either earn the gold to buy it or obtain the item directly. I would argue that most players, even those who are not value maximizers, still weigh the value of these two choices (along with their personal preferences of how they want to play) in deciding whether to obtain gold and buy the item or obtain the item itself.





@Ardney, you bring up a good point in EVE Online that many players don't like having to "farm isk." I always thought that the most interesting possible correlation of this would be if PVPers could protect "carebears" in nullsec, allowing the carebears to get much more money than if they mined or ratted in high security space and provide the pvpers with "protection money" for their time. However, it has been my experience that other technical limitations in the game, primarily in controlling space and providing 24/7 overwatch, effectively renders this possible symbiotic relationship impossible. Still, it's an interesting design consideration that future MMORPG creators should keep in mind when designing a pvp-centric game.





@Michael, while I agree that the idea of player marketing seems appealing, it rarely works out this way in the actual game. The economic structure of the game (ie: what items are available for sale) also plays a huge role in whether or not such a model can be viable. I did point out that a market was not needed in Asheron's Call, but that there were also very few items worth buying or selling. In my FFXIV case study I point out that players have many thousands of items to sell and 10 slots on their retainer to sell them. Moreover, many items are needed to craft something: a Bronze Haubergeon takes over 20 unique components to create. There's also no means to make your retainer stand out - you can purchase a stall in the market wards, but these are generally ignored by players who have come to expect outrageously high prices in stall retainers.



All of these factors make a more comprehensive market all the more necessary in that particular game. Instead, most players with whom I have spoken in FFXIV refuse to browse market wards entirely. They either buy directly from friends - such as through a Linkshell - or they browse the Yellow Gremlin market system: effectively, looking for a searchable market when the game failed to provide one.

J Calton
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@ Simon

Bear in mind that buy orders wouldn't work for random game items. Or, rather, implementation would rapidly scale up with the amount of variables/statistics involved in each item.



Your magicless crossbow example from Asheron's Call isn't really the sort of thing that happens nowadays, but in such a case, you could put in a buy order for a crossbow with +50 damage (or whatever) and implementation would be viable.



I'm imagining games in the vein of Diablo or Borderlands where the randomly-generated items ARE the game as the worst-case scenario. Of course, even Diablo II had popular set items and so forth (anyone remember Stone of Jordan?) and it would work for those items.



Regarding this paragraph: "factors of production tend to be highly mobile in most games (once you can craft something, you can do so anywhere, at any time, without an investment in capital); products are homogeneous (all healing potions are exactly the same; all crafted Scorpion Harnesses are identical); "



Classic Star Wars galaxies had buy/sell orders for raw materials and components, but middle components and final products such as weapons did not always come out the same. There was no such thing as a standard "Mark V Blaster" or even the "Widget Level 2". You could craft for free only in town, but those crafting stations were sub-par. The best crafting came from the best crafting stations, which were made from the best crafters using the best components made using the best raw materials.

Also in that game, resources were randomly generated. If you needed "space iron," sometimes the world got good space iron and sometimes it didn't. I remember on my server there was a category of metal needed for a type of medium armor that never generated on any planet, ever, in the first 12 months of the game. I wrote Sony about it and they replied "try to buy it at auction from another player" which was obviously impossible. A better answer would have been "Keep subscribing--maybe it will appear tomorrow."



I also think if you're going into detail about MMO market economies, you have to at least mention cash games, particularly Entropia Universe (holds multiple records for in-game cash transactions--currently over half a million dollars). Real world money for online goods is not a secondary market--it *is* the in-game market. It is a MIMO on a huge scale, because they *have* to cause more M.O. than M.I. or else the company will go bankrupt; but if there is too much MO, nobody will play it. Every action in that game has not only an opportunity cost, but an *actual* cost as well. Going out to harvest or use skills or fight involves the loss of equipment durability, which can be expressed directly in real-world dollars. The game really makes each person a small-business owner in their free time, even straight-up Club types. If you want to fight something that pays on average $5.00 an hour, which deals fire damage and your armor decays at the rate of $6.00 an hour against fire damage, then you are paying $1.00 an hour to fight those things. So maybe you pay $20 for fire-resistant armor, but then you have to farm for X hours to get your money back (99% of the time you will never get 100% of your money back or else the company would collapse). And meanwhile, make sure you don't fight any NON-fire creatures on the way to and from your farming or else they will cost you even more money.

Of course putting pressure on the marketplace was an obvious way to make real-world money. Buy up all of Product X to drive up the price, create demand (or scarcity), then re-sell it for a profit. Cash out. What prevented you from doing this? Simple market forces: competition desiring to do the same thing made monopolies impossible, just like the ideal real-world market.

Stephen Chin
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Very nice article; I'd love to see a more focused indepth look from you on Eve in particular.

Zoran Iovanovici
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One of the best articles I've ever read on the subject! My thanks to you for such an informative and well written piece.


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