Greedy Goblin

Tuesday, May 2, 2017

Hedging against inflation is bad enough

One thing people use to support premium currency speculation (you buy premium currency for game currency to resell it later), is that it allows players to hedge their not used wealth against inflation. This is completely wrong, both for in-game and game design reasons.

The in-game reason is that players are motivated to sell everything they don't use instantly because it will lose value compared to premium currency. If you sold your EVE ship 3 years ago and bought PLEX from its price, now you can buy 2 ships from the same PLEX. This causes very little buffer against market swings. If a thing goes out of "flavor of the month", suddenly lots of people want to sell it, trashing its price, causing even more people panic-sell it. If something becomes flavor of the month, since people have no stockpiles, the production can't keep up and price skyrockets - unless of course connected players knew in advance what will be the next flavor of the month. So because of premium currency speculation, item speculation becomes possible. If people would just keep whatever item they have unless they need money now, they could just pull it out of the mothball when needed.

The game design reason is more important. While the price of premium currency (vs in game currency) can swing due to real life holidays, paydays, patches and speculation, the long term average price depends on one thing: the time of making the two currencies for the average player. If you can make real money faster than you can farm the game currency at the current price, you are better off buying premium from the shop, increasing the premium supply, decreasing the price. Without a global crisis, it's unlikely that average real life earning power of the playerbase would swing, so with a little simplification we can say that the price change of premium currency depends on the changes in the farming power of the average player.

Therefore by converting your in-game wealth into premium and then back, you keep up with the average. If you had average in-game wealth when you quit, you'll still have average in-game wealth when you return if you stored all your wealth in premium currency, despite the average changed during your absence. With the above EVE example, you had one ship back then and now you have two, despite you didn't even play, just because that's the new average. Getting in-game wealth without playing or even paying in the shop (supporting the company) is obviously bad. So players hedging against inflation alone is enough to make sure that players can't speculate with premium. If an offline player is able to keep up with the average, the average and below average players are better off simply not playing!

There is an industry standard to prevent it, implemented in WoW: you can only sell premium currency you got for real money. If you got your premium currency on the player market, you can only use it, not resell it.


Anonymous said...

Hmph, think I might be doing better than average than.
1000+ plex off market in 2011, 320m each.
Still have 954 of them...........

It is a lot like having Walmart Stock.


Gevlon said...

No, you are not. The value of the PLEX-es is the same $ and the same % of the total EVE wealth. Someone with a 2011 ship stockpile is doing badly.

Provi Miner said...

I think you are forgetting tolerance. not unlike boiling a frog slowly you/the game can ignore tolerance. However huge swings in price often cause backlash.

Pirate faction ships in eve is a good example when they were priced high due to stagnation and moon income people flew them for specific reasons. However since the eviction of goons, and the Russian civli war the price of faction ships has nosed dived with exception of primary rat ships they have held their value nicely.

Halycon said...

Um. Different types of investing Gevlon. The Eve Market is sort of a commodities market. PLEX is more of a bonds market.

If I had X amount of wealth in 2011 and had to leave Eve but knew I'd be back, I would not invest all my ISK into ships and stuff. Who knows what state each item on the market will be in 2012 or 2017. What I invested in may have gone up, but it may have gone down. But PLEX historically has a slight rise in value year over year. I know when I get back that while I may not be able to convert my PLEX for fabulous prizes on massive gains, I will be able to sell my PLEX and get somewhere around the same value after inflation that I put into it.

PLEX is a long term hedge against ruin, and there are perfectly good reasons for doing it if one is playing the long game. PLEX will never make you the the money shorter term buy/sell will on the commodities market, but if you want a long term stable backstop of assets, PLEX it is. PLEX will cover the inflation losses from just hording ISK and keep value over the long term.

Pashko Zpc said...

There was always an empiric rule of eve - plex price equals a 7 hour income of a level 4 mission farmer / anom ratter.