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Economic Theory and MMOGs

Economic Theory and MMOGs . AGDC – September 7, 2006 Sam Lewis. 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. Who Am I?.

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Economic Theory and MMOGs

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  1. Economic Theory and MMOGs AGDC – September 7, 2006 Sam Lewis

  2. 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

  3. Who Am I? Sam Lewis • Currently Lead Designer Cartoon Network • Senior and Lead Designer SOE • Designer and Producer Kesmai • BA and MBA in Economics

  4. What is Economics? The study of how the forces of supply and demand allocate scare resources in a society.

  5. Why Use Economics? • MMOGs are Social Games • Analyze Current Phenomena • Make Design Decisions

  6. Price Movements Thanks to Dan Speed – EVE Online

  7. Natural Market Places Thanks to Ahn Sang Hoon - Seal Online

  8. Final Reason “You can’t screw it up any worst than it already is.” - Gordon Walton

  9. The Money Supply Objectives • Sufficient cash for the economy • Avoid monetary collapse • New players aren’t “poor”

  10. Monetary Collapse Could be Considered Fun Plan for Commodity Currency • Divisible • Uniform • Storable • Durable • Compact (High Value/Weight)

  11. Quantity Theory P= MV/Q • P = price level • M = cash in circulation • Q = quantity of goods • V= the velocity of money

  12. Quantity Theory DP= D(MV/Q) • Healthy • Holding cash maintains wealth. • Hyper-inflation • Holding cash loses wealth. • Depression • Holding cash increases wealth.

  13. Quantity Theory P= MV/Q • Control Price via Money Supply • “Poor” Players via Market Prices

  14. Faucets and Drains Player-to-Game Exchanges • Faucet – Player selling to the game • Drain – Player buying from the game

  15. 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

  16. Solutions Tie the Drain to Price Level • NPC Prices rise and fall • Auction • Transaction Tax

  17. 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

  18. Transaction Tax

  19. “Poor” Player Issue Because Prices Increase- • Value of starting cash declines • Faucet stream “too” small • Can’t buy good stuff • Makes new players dissatisfied

  20. Solutions Non-inflationary Solutions – • Have NPCs provide basics • Make elder players dependant on a starting commodity or service

  21. 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

  22. Market Structures

  23. 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 Market Structures Oligopolies Perfect Market

  24. 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

  25. 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

  26. Substitute Goods Differentiate Goods Based on - • Effectiveness Tradeoffs • Esthetics/Fashion • Scarcity

  27. 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.

  28. Imperfect Information In conflict with few Sellers/Many Buyers • Create Arbitrage Opportunities • WoW market tracking software • Future Economic Events • There players working payroll cycle

  29. 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

  30. 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

  31. Industrial Organization • Study of Industrial Structures • Market Structure • Manufacturing Chain • Competitive Practices

  32. Industrial Organization • Typical MMOG Relationship • Adventurers Sells Raw Materials • Others Supply Sub-components • Crafter creates Final Product • Sells Adventurers Items

  33. Industrial Structure Design Issues • Manufacturing Chain • Over Production • Elder Dominance

  34. Chain Solutions • No Independent Crafters • Make sub-components • Make final products • Competition on 4 Ps • Price • Product • Place • Promotion • (Predation)

  35. Over Production Caused by Oligopsony Structure • Advancement Independent of Manufacturing • Destroy Overproducing Factories • Make Items Consumable

  36. Elder Dominance Caused By Natural Monopoly Structure • High Fixed Costs • First In Advantage • Constantly Declining Marginal Costs

  37. Declining Marginal Cost • Cost to Produce Always Cheaper • First–In Always Under-Cut

  38. 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

  39. Conclusion • Simple Economic Theory Provides Insights to Design Decisions

  40. 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

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