An Economist Looks at Tyria: GW2 Prices and Deflation

[Rauderi.8706]

@mauried.5608 said:The NPC merchants are a bit of a problem to the economy.Firstly they will always buy your junk regardless of how much of the same junk previous players have sold to them, and the gold they pay you for the junk comes from thin air.Secondly, they resemble a cartel, in that every merchant , regardless of where they are always gives the same amount of gold as all the others.It would interesting to know how much gold enters the game everyday from merchant sales, as compared with the amount of gold removed from the game from TP sales.If TP prices dip too low, then the 15% tax thats applied on sales also gets lower, so the TP removes less gold from the game with every transaction, but the amount of gold entering the game from the merchants either stays the same or goes up, as items which could be sold previously on the TP now cant as there are no buyers.Id like to see some kind of rudimentary supply / demand formula for the merchants, so when too much of the same stuff has been sold to them, they refuse to buy any more, for a random time period.

Not to say I get a lot of gold from vendors, but I'm doing less salvaging lately. My greens are going straight to the pocket vendor (yay for merchant contracts), but I'm not playing super-long, so I get maybe 20s per day from it. If I were playing more heavily, I could probably get 50s-1g of pure gold generation, on top of the 2g generated from dailies.If the salvaged materials would be worth something, I'd be funneling those efforts into the trading post instead, exchanging gold instead of generating it.

[Psientist.6437]

@Tanner Blackfeather.6509 said:

@zerorogue.9410 said:

@Sojourner.4621 said:There is definitely a maximum and minimum exchange rate, and those playing the market since launch have seen both... It is VERY unlikely that it will ever create gold, but in the VERY unlikely scenario that the exchange did somehow run out (people completely stop trading one way or the other) ANet would not simply stop allowing players to make the exchange, and would add a new starting pool to the economy. Additionally when the game launched the pool was independently created gold for this specific purpose. I can say we haven't hit anywhere close to the height of the exchange rate in a long time, and in fact have sat on the low end for years, so as they stated the only way for this to happen would be... basically no one ever exchanging gold for gems ever again. It's a hypothetical state where it could create new gold in to the economy, and only a technicality.There really isn't a maximum, rather the system is designed to never have either pool empty entirely. Let me put this to example. (disclaimer: I'm not an anet dev nor do I know the formulas, but this is a basic way of doing this.)

buying 1 gem = goldPool / gemPool

standardValue

0.85whereasgemPool goldPool = number of gems or gold in their respective pools.standardValue = a base value of gems when they are equalthe 0.85 is the 15% tax on all purchases in the exchange.

With this formula as the pools empty the value of the item skyrockets.

buying 1 gem = 500 / 500

1g

0.85 = 85 silverbuying 1 gem = 500 / 300

1g

0.85 = 1 gold 42 silverbuying 1 gem = 500 / 100

1g

0.85 = 4 gold 25 silver

This means as the gem pool empties the value of selling gems for gold rises and people refill the pool.conversely as the gold pool empties the value of buying gems lowers more people buy gems, and the gold pool refills.

The real formula for this will likely have a bit of tweaking, but should have the same principal.

This is precisely how I've understood it to function (obviously with more involved calculations etc). This should make it

• Practically impossible to afford the last few scraps out of either pool unless
  both
  pools are much smaller than now (like at launch)
• Very
  improbable
  that we'll ever get down to those last few scraps, as the conversion rate becomes far too enticing in the opposite direction; again unless both pools are much diminished.

You have it mostly right, except that both pools can never be equally depleted at the same time. Depleting one pool requires filling the other pool. The exchange won't run out of gems because Arenanet will always be willing to sell gems and if the exchange ever got down to one gem, that gem would cost more gold than any player could have access to unless that player had infinite time.

That being said, I do not think it is completely accurate to say that the gem exchange does not increase the supply of gold in the BLTP marketplace or in a marketplace that encompasses both the BLTP and the gem shop. Since players are responsible for creating gold, anything that motivates players to create gold or affects how they earn will have an impact on the quantity of gold. This includes the gem shop and the exchange. However, this does not mean the gem exchange causes inflation, because an increase in the supply of currency is not the equivalent of inflation. Since income from play is mostly in materials, players motivated by the gem shop and gem exchange will create more materials than new gold, helping to keep inflation in check.

[Ayrilana.1396]

@"Daddicus.6128" said:Not quite. Trading gold for gems (or vice-versa) is indeed not an increase or decrease.

However, whenever a player spends real money to buy gems, that causes "gold" to flow into the system

Could you clarify this statement? I only ask because buying gems has zero impact on the exchange until you go to convert them to gold. Your statement comes off as if that’s untrue or at least that’s my interpretation.

[Psientist.6437]

I am not a full time economist but I do think there is a riddle about whether an economist is an economist if no one pays them for their economic analysis.

M(currency supply)V(currency velocity)=P(average price level)Q(quantity of goods sold) is the Fisher equation that describes the quantity theory of money. Imo, because the Tyrian marketplace is an opt-in economy with goods that have no inherent frequency of consumption (monthly rent, bills; daily food etc.), V and Q will fluctuate more in Tyria than in the real world, especially V. The griffon mount would have had an immediate impact on currency velocity and currency supply. If the GW2 Efficiency data you linked to is accurate (it is likely skewed towards the wealthy but that reinforces my point) then the griffon mount would have wiped out many player's savings, making them much less likely to spend gold after the purchase. Making mount skins gem shop exclusives also would decrease velocity, as it requires players to save for singular, high priced goods with no material requirements.

Obviously, we do not need to put much thought into what is occurring with prices and how much work we apply to understanding what is going on should be proportional to that need but I think with better data we could puzzle it out. Imo, tracking the cost of maintaining/achieving Tyrian standards of living would help us see where and when trends start, giving us insight into cause.

[Daddicus.6128]

@Ayrilana.1396 said:

@"Daddicus.6128" said:Not quite. Trading gold for gems (or vice-versa) is indeed not an increase or decrease.

However, whenever a player spends real money to buy gems, that causes "gold" to flow into the system

Could you clarify this statement? I only ask because buying gems has zero impact on the exchange until you go to convert them to gold. Your statement comes off as if that’s untrue or at least that’s my interpretation.

Sure:For the moment, assume I'm buying gold with those gems. They're coming from other players, but I'm paying for it from outside the game. So, net inflow.

Now, if I'm only buying other stuff, whatever I buy that has an in-game advantage (like bag slots or garden plots) has a gold value. Probably impossible to calculate an exact amount, but it has some value. (In fact, their value in-game is probably way less than it might appear. But, it's non-zero.)

So, again, I'm adding gold to the economy.

NOTE: This is not a bad thing. And, it's nowhere near what players get from simple farming. But, it is a source of currency to the economy.

2nd NOTE: It's NEVER 100% of the value I buy with it. There's the 15% for buying the gold. And, the other items are hardly appropriately priced.

[Ringlin.1863]

I'm back after being away last week, and I see a lot of the debate here has been on gold-gem exchange. I don't know if any of the patch changes affect demand for gems. I'll catch up.

@"zerorogue.9410" said:extra credits(a youtube series about game design) made a few really good videos on this.

Those are thoughtful and fun, thanks. Reserve currencies and inflation don't work quite the way they cite for the real world, but their game analysis is spot-on. Good stuff.

@Ensign.2189 said:

@"Ringlin.1863" said:I'm carefully trying to avoid politics, but I should point out that taxes get spent on salaries and purchases. Governments don't 'save' the way some households do (and can't, actually, but that's for another discussion).

From a certain perspective, the only point of taxes in a modern currency regime is to keep inflation in check, as the government in no sense needs to 'raise' money from taxes to pay for spending. So in that sense TP taxes are identical to real world taxes - they keep inflation in check.

I'll tread lightly here, because it's almost impossible to talk about taxes without opening Pandora's-Box-of-Politics, but economists now generally lean away from saying taxes can be used to check inflation. There are exceptions, of course, but this Fed paper (from 1980) gives a good summary of the change in views as economists saw no inflation from the sharp tax cuts in the 1960s. The basic idea is that since governments spend the money they collect (geek note: they have to, as governments actually can't save, not in their own currency), they fill the drop in consumer demand (undera balanced budget).

In any case, you're right that the TP reduces the money supply in Tyria. Unlike real-world bureaucrats, Evon Gnashblade doesn't spend his cut.

@"Psientist.6437" said:M(currency supply)V(currency velocity)=P(average price level)Q(quantity of goods sold) is the Fisher equation that describes the quantity theory of money.

I like that equation (and Fisher in general), and I agree that V and Q can vary more in Tyria than in the real world.

Generally, economists don't talk about direct attempts to change the Velocity of money isn't measured directly, since it's calculated as whatever value makes the equation work, changing when the other factors do. James Hamilton has a good discussion Velocity changes, along with the fact that inflation results from more than changes in the money supply.

If the GW2 Efficiency data you linked to is accurate... then the griffon mount would have wiped out many player's savings, making them much less likely to spend gold after the purchase.

I would've liked to see the data before and after introduction of the mount. If we knew how much gold players had initially, we could see if they started 'working' more to earn additional gold. Did the mount prod players toward more fractal runs? Or did it just reduce the average gold in players' wallets?

[Samnang.1879]

it's definitely the HoT and pof maps combined that give tons of easy loots.

i hate that exotics are as cheap as 20s now... before it was at least 1g.

[mauried.5608]

Nothing in the game gives tons of easy loot, with the possible exception of logging in.All of the rest of the loot is only obtainable as a reward for doing something that consumes your time.You cant get loot by simply standing around doing nothing.So the issue is what gives the most loot for the least time invested, and is that activity something thats been recently added.Also what has to be considered is that as the value of loot falls because the supply increases, the value of doing something for the sole purpose of getting loot also falls.The economy will eventually equalise itself as TP prices keep falling until it wont be worth selling stuff on the TP, as it will become more profitable to directly sell your stuff to vendors as they give a stable guaranteed price and dont charge a selling or listing fee.