Virtual Economics for Dummies

[Pyromagnium]

First off, I’d like to introduce myself. I’m Joey, a current 1st year econ major at UVa (UVa students, or anyone for that matter, add me ign: Pyromagnium) and in my (limited) free time I like to play soccer and MMOs. I stumbled across Arcane Legends about a month ago and was fascinated at the disruptive innovation Spacetime Studios has developed. They’re the pioneers of the pocket mmo. I absolutely love the fact that I can play on my tablet and laptop

Anyway, what’s this post all about? Well there’s one thing that has always intrigued me -- virtual economies. The first thing I noticed was that all classes in AL are dependent on potions. I also noticed many players disagreed with this overall dependency on purchasing these potions. The point is, why must we use so many potions?
An important aspect of developing an MMO is the development of the market structure. How are players going to acquire, trade, and sell items they loot to get the items they want? It seems to me STS has decided the market structure to be auction house based. I support this market structure although there are some quirks to it, which I may get to in a future post.

But we can’t buy or sell potions on the open market, Pyro?

You are correct, which leads me to my first point: money in, money out. MIMO, as it is abbreviated, is simply the concept of a videogame producing and consuming the in-game currency. Players regularly get lots of little bits of money from performing dailies, looting monsters and selling vendor trash. This slowly increases their gold stash without really putting any specific focused effort into getting money. This pocket money can have a strong influence on the decision to purchase items as well as the inflationary effects on the overall economy. Money in.

Developers often use MIMO as a part of their content gating system. In the case of Arcane Legends, your excess profits usually fund your mystery chests, auction house commissions, pets purchasable with gold (The pets you didn't start the game with), and potion usage. Money out.

A big challenge to balancing a virtual economy in an MMORPG is balancing the MIMO to prevent the accumulation of excess currency, due to the "faucet and drain" problem. Players tend to continually gather money they didn't work for while playing an MMORPG. As long as that money keeps dripping into their pocket faster than it leaks out from incidental expenses (e.g. potions), they'll face lower opportunity costs when making purchasing decisions from other players. Many players mistakenly think that the mere presence of money in a market leads to pocket-change-caused inflation. However, it isn't actually the amount of money itself that leads to this kind of inflation, but a problem in the MIMO balance.

But Pyro, the currency in Arcane Legends does in fact have worth despite this inflation, right?

Right again, my inquisitive reader. What gives our gold its worth? Why, it’s the in-game NPCs that purchase and sell items in exchange for our gold of course. If 25 Mana potions cost 380 gold then 380 gold will always be worth 25 Mana potions. This will remain true no matter the in-game market conditions. Another point; the value of gold is the same as the value of any other item: it's derived from the opportunity cost in time to acquire it. Say you want a weapon that costs 50,000 gold. You can determine its value by comparing the time it would cost you to accumulate 50,000 gold versus the time it would take you to acquire the weapon.

In other words, gold in a game isn't actually currency at all; at least, not a fiat currency in the sense of the money we use in real life. A fiat currency is something that has no intrinsic worth; you can only trade it to other people who are willing to accept it.

Back on topic; the potion issue is somewhat mandatory as a hedge against in-game inflation. Actually, I'd argue there aren't enough content gates to pour our excess money out. The following list suggests a few solutions:

1. Birgit should accept gold for her style changing service.
2. There should be more pets purchasable with gold at a reasonable price
3. Perhaps temporary boosts purchasable with gold for CTF?
4. Skill potions in general. (Not homogeneous with elixirs, ex; Potion that gives %10 mana for 20 minutes)
5. Crafting skills <--- with NPCs that sell equipment used to gather the resources as well as to craft the equipment in any given profession.
6. Guild banks, guild banners, guild goodies, ect.

Pyro, if you're suggesting to socialize the game even further, my decision to friend you has been annuled.

Woah there, before you make any hasty decisions, hear me out. I agree that the NPC vendor portion of the economy has much more in common with a socialist marketplace. NPC vendor economies are characterized by something that most capitalists 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 gold 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 developers can effortlessly keep prices level because the supply remains infinite.

I may add a TL;DR section later. But I have 5+ hours of homework staring at me in the face. Questions? Comments? Concerns? I'd love to hear them. Thanks for reading.