Read the full economic report here.

EVE Online’s economist, Dr. Eyjólfur Guðmundsson, has issued a second macroeconomic report of the game, this time for Q4 2007. After reading through the report, it seems like there are some neat things being researched at CCP regarding various indicators of economic performance and growth. Much of the report’s analysis focuses on the impact of the introduction of the latest EVE expansion, Trinity.

The most notable addition in this second economic report is the introduction and explanation of a macroeconomic indicator for player production within the online economy. Called GUP (Gross User Product), this indicator measures the value of all goods and services produced in a period of time, minus the goods and services consumed by that production. Analyzing GUP, much like its GDP (Gross Domestic Product) counterpart in the “real” world, may give us some insights into the amount of growth an entire economy is undergoing. The explanation of where that growth is coming from and the means by which it may be maintained, however, are not necessarily illuminated by such a number. Hopefully future reports will illuminate more component-based (rather than aggregate) data on capital supply and depreciation rates so that some of the more popular growth models may be applied to the growing EVE market. The more detailed charts near the end of the report are great starts, but it would be nice to have even finer detail. Considering that this gentleman has access to everything, the marginal cost of producing such data should be low after the initial investment of researching the proper formulae.

One of the things I find most silly about this economic report is the fact that there is “a practical difficulty of not being able to reliably discern between a newly produced good sold on the market, and an old good re-sold on the market”. This is definitely a problem in real world economics; in online games, however, I have trouble rationalizing why this would be a problem. Presumably, every good possesses some form of unique identification (if for nothing else than to easily recover from a duping scheme). Well, if it possesses unique identification, why shouldn’t it also possess a relative timestamp or sale counter? Surely there is room in the database for at least one of these fields. That seems like a relatively simple solution to so great a problem. Regardless of whether such a feature was originally implemented in the game world, I doubt that it would be hard to add such a feature to all goods in the future.

In the introduction to the report, there is extensive commentary on what effect the struggling global markets will have on virtual world markets:

Will an economic recession cause decreased participation in the online world, or will the reduction in work hours (voluntarily or not) encourage people to spend more time producing virtual items in their online environment?

Excellent questions, but the following contains assertions that I do not completely agree with.

In the case of fixed monthly subscriptions, the marginal cost of spending another minute in an online environment is zero when measured in monetary terms. Hence, people with more time on their hands might contribute more towards their online environment, stimulating growth in virtual economies.

It is indisputably true that when a fixed monthly charge is incurred, the marginal cost of another minute is zero. It is also indisputably true that when marginal cost is zero, rational agents will consume until their marginal benefit is equal to their marginal cost. What’s not so clear, however, is that the opportunity cost that this agent faces for one unit of his time is zero.

Put another way: the monetary cost of an additional unit of play is zero, but the true cost may be far greater than that. A rational agent will play until his marginal benefit of additional unit is equal to his marginal cost. Thus, if we agree with the implicit assumption that struggling global markets lead to a recession, which in turn reduces the opportunity cost of everyone’s time, which in turn causes people to substitute toward the now relatively cheaper additional unit of play, we might agree that a struggling global economy will necessarily lead to a booming virtual economy.

In some respects, if recession is characterized by higher unemployment, then this might well be true. It’s still too early, however, to conclude anything.

Read the full economic report here.

Citing an increasingly complex economy as well as the wants of major in-game corporations and the need for growth and long-term prosperity for all within the game world, CCP (the company who produces EVE Online) has recently hired a full-time in-game economist.

The mission of this economist, a one Dr. Eyjólfur Guðmundsson of the University of Akureyri, Iceland, is to implement his talents as an experimental economist and provide the gaming community at large with economic reports on such factors as inflation, economic growth, and price trends.

In the real world, economic information is the cornerstone for our daily business; everyone takes note when news on inflation, production and interest rates are announced and traders try to predict beforehand what the news will be. There is a constant game between the market and authorities on predicting each other’s move and for that everyone needs information. Though EVE is a virtual world, the basic needs are the same. Players, designers and the company leaders at CCP will all benefit from having a central figure to monitor inflation and trends and provide a focused insight into what is happening within that virtual world so that everyone can make better decisions.

Furthermore, EVE’s economist lists among his duties “coordinating research cooperation with academic institutions as the academic world has expressed quite an interest in doing research on this phenomenon.”

So, he’s there to provide services analogous to those of the Chairman of the Board of Governers of the United States Federal Reserve. It seems like this is a very good indication of what we can expect to see of MMO producers in the future. Listing a full-time or on-board economist in the credits of your next favorite MMO doesn’t seem to be a very far-fetched notion any longer.

EVE has a larger persistent world, often housing over 25 thousand players at a time on one server, but would other games with many servers and smaller populations on each find need for a person specializing in providing information services regarding the state of monetary affairs within the game’s economy? This is a question that will have to be left for time to tell.

CPP Dr. EyjoG’s first blog entry on the EVE Online website can be read here.

This is a follow-up post to the Money and banking in online games article from yesterday:

After heavy traffic and mixed feelings from Digg, I’d just like to summarize what the main benefits and detriments of having a banking system in a game are, as well as emphasize certain points that were lost on many people.

First: These ideas have little to do with World of Warcraft

These ideas (or rather, these suggestions) were not meant to be retrofitted into any of the games that are out there right now. They’re meant to be addressed by game designers for future games, and it looks like some game designers have already considered something like this to a degree.

Personally, while writing the article I had imagined what the effects on the economy of my EverQuest II server would be, as that is the community with which I’m most familiar. I’ve come to the conclusion that putting a system such as this into a game which has been thriving for any amount of time is completely unfair and pointless. These ideas are for new games only.

For anyone who would like to see what something like this banking system looks like in action, please consider the following games which have been suggested to me:

• Entropia Universe, which looks interesting, although the emphasis seems to be on transferring money between the real- and online worlds.
• Carnageblender 2: I can’t vouch for personally as I’ve never played it. It was suggested that many of the implements discussed in the article are currently in place in this game.
• Second Life
• EVE: Online, a very general sci-fi rpg in which a large-scale banking system run by players was attempted and eventually robbed.
• The Universal: This game reportedly has a system of banks whose interest rates depend on the owner of the planet. I’ve never played it, though.

I’ve personally only played EVE: Online, and found myself joining the game too late into its life cycle to really accomplish anything new or daring.

Second: The banking and financial systems ought to be designer-controlled, not player-controlled.

Those who read through the article in its entirety will notice that there is a large section near the end where I talk about how a system like this, while still flawed, could be implemented.

A basic principle in macroeconomics is that output equals input, so though monsters drop coins that players pick up, players spend those coins on repairs, mounts, and in-game items which effectively destroys that portion of the currency. Picking up where this leaves off, the game designers have full creative license to implement a system of banks and finances which use the information regarding coin drops and destructive sales (repairs, etc, mentioned above) to tweak not only coin drop rates in the wild, but interest and other factors in the banks themselves. Furthermore, what’s to say that a future game with these features doesn’t have a far more interactive social environment in which there are things to invest in?

Third: Much like the currency of the world’s nations, online currency is not backed by any commodity

This was the most common, as well as the most frustrating, complaint that the article received. Most people apparently do not know a thing about the currency in their own country:

Fiat Currency means “fake money”. Read about it. Your United States have been relying on this system since the 1970s.

Fourth: There is absolutely no mention of crossing over between real US dollars and online currencies.

The article was not about gold farming, not about moving assets from the real world to the online world, not about selling your soul to chinese farmers. There’s nothing anywhere in the article to even suggest that. However, that is another topic for another day, and is equally as important. Maybe if there were growth measures in place, investing in an online currency money market would be more lucrative than investing in a real currency money market.

The effect of this kind of investment would not only serve to make the online currency more stable, but also legitimize the fact that anything people are willing to trade with is considered currency, as long as both parties believe that others will accept it as such. Again, fiat currency.

I’m interested to see how the Entropia Universe unfolds, and I’m equally curious to find out how the Carnageblender economy is doing as a whole.

I’ve read the article about the valiantly attempted EVE: Online bank and its failure. However, this article is dealing with a bank controlled not by the players but by the game designers. Everyone has stories of guild banks being robbed by those trusted most with the money.

Anyone who’s ever played a roleplaying game for any amount of time will tell you stories about their money. Maybe it’s how they had to grind 500 sewer rats to pay for their new wooden sword, or maybe they were up for 9 days solid in some obscure part of the world where “no one’s ever been” collecting a rare harvested material to price gouge in the marketplace to fund that new mount. Whatever the details are, it becomes very obvious that people treat their in-game money just as defensively (or even more defensively for the younger age groups who don’t have as much experience with earned “real”-life currency) as they treat the money they earn in their real jobs. Many players don’t even realize that they’re actively contributing to an economy that lives, breaths, and behaves just as one would expect under “real”-world conditions; they just want that new piece of gear, or to repair the gear that they’ve been fighting in for the last 12 hours solid.

Virtual money, just like the currencies used to fund nations in the “real” world, can be explained using extremely rudimentary economic concepts. The models of markets, of supply and demand shocks, of counterfeiters and others can all be used with some accuracy to predict (with varying accuracy) fluctuations in the economic conditions of a game world. However, there are several things which are markedly missing from today’s role-playing environments that any real, sustainable, thriving economy should have, and this does much to undermine the day-to-day reality of the game itself.

The most obvious thing that the roleplaying and other massively multiplayer games are missing are banks and other financial institutions. Banks in today’s games are a joke: most of the time they’re simply a geographically separated version of your wallet. Some games opt to not even offer this wallet service and instead find it O.K. to specialize only in providing a lock-box service for in-game items.

The ironic part of this whole mess is that even in the time periods during which some of these games are taking place (think: medieval, feudal) there were strong banking implements in place. Why is it that we have an auction-house or a broker that will take a certain percentage of your profits, but we don’t have a bank or money market that will pay a nominal rate of interest? Why is there magic, and the ability to have thriving cities and metropolitan areas in some of these worlds, but yet we have no means through which to invest our hard-earned money? Clearly there are people playing these games who have enough time invested such that their banking contributions would be non-negligible; for every workaholic you show me, I can show you a gamer who spends just as much time in front of their character.

Think of these possibilities: Guild, faction, or city banks. Guilds, factions, businesses and individuals within a city or region need natural resources to grow their empire. Buildings need wood, castles need bricks and mortar, and these two things need tools with which to be built. Who will provide this for them? Why not set up a faction banking system? Members of the guild deposit their funds in the short- or long-term to fund the project at a certain interest rate (a fair market rate of return based on what marginal value the newly funded resource will bring), the faction can use the funds in the interim for their benefit, and then will have to pay back the principal and the interest when the term expires. It works every day in real life, why not in the role-playing world? The entire financial infrastructure could be implemented on the server side (meaning that players wouldn’t have to keep track of what it is that they owed) and would have no less chance of failure than today’s modern auctioning systems.

Currently, the primary way to expand one’s own resources is to lend to other players (and collect interest), which may or may not work since online worlds are distinctly lacking legal systems as well (another day, another topic). Another way is to perform arbitrage within regional markets: that is, to buy something from someone low in one area, and sell it to someone else high without adding any value to it somewhere else. This is the meat-and-potatoes of the entire World of Warcraft economy, and it’s no secret. A third way, popular mostly to those with rare patterns, etc, is to buy the materials or required ingredients for a low price, craft them into usable resources (thereby adding value to the items) and reselling them for more than the sum of their parts.

Furthermore, a good financial intermediation system could allow new players to get up and running more quickly. Imagine being able to deposit your funds in a bank as an experienced player. This benefits you, as you’re now earning a nominal amount of interest on your money, rather than just keeping it in your inventory. Now, say Mr. Newbie comes along, and he really wants to buy that horse. He’s just the slightest bit short. So, he takes out a loan from the bank, buys the horse, and pays back the money he borrowed plus a little bit of interested when things are going better for him. Now we have three parties benefiting from this situation: First, the lender is earning interest on his money, so he’s happy. Second, the bank is earning interest on the money they loan out, so they’re happy. Third, Mr. Newbie gets his horse (because he’s willing to pay the bank back), so he’s happy. Without a good financial intermediation system like a bank, this situation would never arise. Simple in-game implementations of this could include taking a percentage of every unit of currency Mr. Newbie makes until his loan is paid off, as well as giving our original lender (the one earning interest by depositing in the bank) a slightly increased amount of money for each kill he makes.

Now, there’s nothing here that says the banks themselves have to be completely controlled by the players; that would leave to extremely ill-founded practices in some instances (praying on new players, among other things). It seems like it would be a safe assumption to say that the game designers, or the controllers of the game itself would have very in-depth knowledge of the inner-workings of their game’s monetary system. Even now, when dupes are found with currency, the problems are retracted relatively quickly. This hints at a monetary system which is at least somewhat secure (or, if not secure, prepared for the worst). Why not expand this?

Consider the scenario where the player above defaults on his loan. Well, in the real world, the bank would be out the money. The original investor would be shielded from this event by the bank and the FDIC, so the bank would take the hit. However, game companies are very good at filling out the details of certain situations. We now have extremely complicated PvP systems, extremely detailed and complicated raid zones for drones of mindless raiders to waste away in at night. Could not some of this energy be applied to creating a strong financial system? If done in a black-box fashion, a defaulted loan could simply result in a lower interest rate for future investors (in the short run), causing the bank to recoup its losses in a relatively quick manner (though there would likely be many defaults and thus many interest rate fluctuations in a given time period).

Of course even then there are downsides to all of this, but: aren’t there downsides to any aspect of any game? A simple implementation of this kind in a future game could set a trend that would make it a norm in online games. Money could grow, and it could encourage new players and the younger masses to not only use it to their advantage, but, in so doing, teach them valuable lessons about money and banking. That way, next time Mr. Newbie’s mom is screaming at him to get off of the computer and go to bed, instead of screaming back he can say “O.K., mom, just let me make this last deposit!”

According to this article at Bloomberg, Nintendo’s market share rose to 6.57 Trillion Yen today, topping Sony’s struggling , pathetic market value of 6.48 Trillion Yen.

From the article:

Sony, which overtook Nintendo as the world’s biggest console maker after PlayStation 2’s introduction in 2000, suffered production delays and slow sales at its latest player. Wii’s lower price and a wand-like controller that players swing like a sword or tennis racquet helped Nintendo widen its sales lead over the PlayStation 3 in Japan last month.

Reasons cited as the cause of the fluctuation? The increasing popularity domestically (and internationally) of Nintendo’s DS Lite, which is taking PSP by the balls.

Its two-year-old handheld DS player, Nintendo’s best-selling game machine ever, uses a stylus instead of button controls, making it easier for users to play Frisbee with their virtual pets, practice calligraphy and draw pictures. Nintendo is also looking to capture an older audience with a “brain-training” game and tutorials for cooking and languages.

While this doesn’t really actually mean anything, maybe it’s a testament to the fact that sometimes more fun is better than more pixels. Then again, nothing really matters unless it’s in dollars anyway, so we’re right back to square one.

Source

All of the current-generation consoles (with the exception of the Wii, but that’s no surprise) are capable of producing an HDTV-quality video signal, helping to promote High-def in all of it’s un-standardized glory. This means bleeding-edge corpse explosions, pixel-by-pixel cleavage, and of course, extremely realistic terrain of a caliber previously unavailable. Or, at least that’s what they hope you’ll think so you go out and buy that $2,000 HDTV you’ve “had your eye on” for the last 7 minutes at Best Buy. Of course the image quality will be better on a High-definition TV; there’s no question that a Blu-Ray or HD-DVD will look better with twice (or higher) the resolution of your standard TV. The question is: With a $600 gaming console, and at 50% or higher prices on these High-definition DVDs, is the amount of extra money you’re paying for those pixels really giving you any advantage or status? Further, how much of the demand for High-definition entertainment equipment comes from “your buds” who need to see those extra pixels with their NFL Sunday-Ticket package versus gamers who want some illustrious “competitive edge” supposedly offered by being able to see an opponent from farther away?

Clearly this is a blog article and not an academic paper, so I don’t have the necessary data to back up my claims, but most people reading this article can likely understand where I’m coming from. We all know people who’ve gone out and dropped ridiculous amounts of money in order to make their games look better, to make their gaming experience more immersive. Everyone has a friend who found a “great deal” on some multiple-thousand dollar piece of equipment which still cost multiple-thousands of dollars. The tech industry must be loving it. If they aren’t already, there are a ton of ways these industries could capitalize off of the fleeting needs of the average gamer.

First: Re-release a High-def TV with one new feature and label it the “ultimate Halo 3 experience”. Mom’s basement would love another one of these, and there must be millions of kids nationwide who’d do anything for that new LCD screen with the 1ms-lower refresh rate.

Second: Re-release all of your old, poorly-rated (are there even any good movies that have been released on Blu-Ray/HDDVD? I think maybe the closest I’ve seen was Blue Crush or X-Men 12) movies with slightly higher quality and charge 50% more for them. This is the perfect match to step number 1, and will be highly complemented by the audio equipment you can get from step number 3.

Third: Take out some features from your $20,000 theater-quality speakers and audio subsystem and sell them in a premium audio store (since they’ve still got the brand name) for a large discount. For some reason, hearing Dolby 5.1 from five-thousand dollar speakers in 2007 sounds better than listening to Dolby 5.1 from five-hundred dollar speakers in 2000 when they introduced it. Has audio recording technology improved much since then?

While it’s hard to be sure what the actual percent of demand for these new technologies is, it’s a safe bet to say that a non-negligible portion of it is coming from today’s up-and-coming gamer generation. As long as you can make someone think that a technology will make them a little bit better playing their video games, or if you can convince them that going way past the marginal optimal spending levels for these technologies is a good then, then, well, I guess there’s no new information here.