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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

Economic Theory and MMOGs

AGDC – September 7, 2006

Sam Lewis

what is this about
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
Who Am I?

Sam Lewis

  • Currently Lead Designer Cartoon Network
  • Senior and Lead Designer SOE
  • Designer and Producer Kesmai
  • BA and MBA in Economics
what is economics
What is Economics?

The study of how the forces of supply and demand allocate scare resources in a society.

why use economics
Why Use Economics?
  • MMOGs are Social Games
  • Analyze Current Phenomena
  • Make Design Decisions
price movements
Price Movements

Thanks to Dan Speed – EVE Online

natural market places
Natural Market Places

Thanks to Ahn Sang Hoon - Seal Online

final reason
Final Reason

“You can’t screw it up any worst than it already is.”

- Gordon Walton

the money supply
The Money Supply


  • Sufficient cash for the economy
  • Avoid monetary collapse
  • New players aren’t “poor”
monetary collapse
Monetary Collapse

Could be Considered Fun

Plan for Commodity Currency

  • Divisible
  • Uniform
  • Storable
  • Durable
  • Compact (High Value/Weight)
quantity theory
Quantity Theory


  • P = price level
  • M = cash in circulation
  • Q = quantity of goods
  • V= the velocity of money
quantity theory12
Quantity Theory


  • Healthy
    • Holding cash maintains wealth.
  • Hyper-inflation
    • Holding cash loses wealth.
  • Depression
    • Holding cash increases wealth.
quantity theory13
Quantity Theory


  • Control Price via Money Supply
  • “Poor” Players via Market Prices
faucets and drains
Faucets and Drains

Player-to-Game Exchanges

  • Faucet – Player selling to the game
  • Drain – Player buying from the game
faucets and drains15
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

Tie the Drain to Price Level

  • NPC Prices rise and fall
  • Auction
  • Transaction Tax
transaction tax example
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
poor player issue
“Poor” Player Issue

Because Prices Increase-

  • Value of starting cash declines
  • Faucet stream “too” small
  • Can’t buy good stuff
  • Makes new players dissatisfied

Non-inflationary Solutions –

  • Have NPCs provide basics
  • Make elder players dependant on a starting commodity or service
market structure
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
market structures23
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


Perfect Market

few sellers
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
many buyers
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
substitute goods
Substitute Goods

Differentiate Goods Based on -

  • Effectiveness Tradeoffs
  • Esthetics/Fashion
  • Scarcity
barriers to entry
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.
imperfect information
Imperfect Information

In conflict with few Sellers/Many Buyers

  • Create Arbitrage Opportunities
    • WoW market tracking software
  • Future Economic Events
    • There players working payroll cycle
transaction cost
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
security and division
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
industrial organization
Industrial Organization
  • Study of Industrial Structures
    • Market Structure
    • Manufacturing Chain
    • Competitive Practices
industrial organization32
Industrial Organization
  • Typical MMOG Relationship
    • Adventurers Sells Raw Materials
    • Others Supply Sub-components
    • Crafter creates Final Product
    • Sells Adventurers Items
industrial structure
Industrial Structure

Design Issues

  • Manufacturing Chain
  • Over Production
  • Elder Dominance
chain solutions
Chain Solutions
  • No Independent Crafters
    • Make sub-components
    • Make final products
  • Competition on 4 Ps
    • Price
    • Product
    • Place
    • Promotion
    • (Predation)
over production
Over Production

Caused by Oligopsony Structure

  • Advancement Independent of Manufacturing
  • Destroy Overproducing Factories
  • Make Items Consumable
elder dominance
Elder Dominance

Caused By Natural Monopoly Structure

  • High Fixed Costs
  • First In Advantage
  • Constantly Declining Marginal Costs
declining marginal cost
Declining Marginal Cost
  • Cost to Produce Always Cheaper
  • First–In Always Under-Cut
overproduction solutions
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
  • Simple Economic Theory Provides Insights to Design Decisions
  • Terra Nova
  • Flying Scythe Monkey
  • Eve Developer Blog (Dan Speed)
  • Synthetic Worlds
    • Edward Castronova