I really loved playing SWG - not so much for the game, but for the ‘business’ aspects of it. Whilst not as successful as the OP, I made thousands of $US from the game by being part of a oligopoly.
One of the game mechanics was the concept of ‘buffs’ - basically chemical stimulants your character could consume to temporarily boost critical stats which aided in combat. They were an essential item in PvP (player vs player) combat if you wanted to have that edge and so were in high demand. Buffs could only be made by the ‘doctor’ class and only by the top level doctors. Another critical game mechanic was that the quality of the buff affected how much of a boost you could receive to your stats, and the quality of the buffs was affected by the quality of the raw materials you sourced to make the buff (every resource had a variety of stats - this game was a real minmax-ers delight). The highest quality buffs were the only one that people were interested in buying.
Most of the resources required for the buffs were reasonably easy to find - but there was one which was rare - avian meat. The highest quality avian meat, harvested by killing particular birds, only appeared (real-time) once a month for a few days. Without this avian meat, you could not produce the highest quality buffs.
The first time I made buffs - I happened to time it during the HQ (high quality) avian meat period. I spent hours killing the birds to collect meat. I made my buffs, had a shop near Coronet (the main trading city in the game) and sold out within a few days. And I noticed that all the doctors sold out within days too - and that the last few that had some stock could request extortion prices for their stock. That gave me an idea …
The next month when the avian meat spawned, I parked my character in the main spaceport and keyed up a macro (the game had an in-game macro system). All my macro did was cause my character to shout out every minute “Buying avian meat @ Z credits/piece - sell to my vendor at coords X,Y”. I basically bankrupted myself buying up as much avian meat as I could whilst it was available.
I made up a batch of buffs and started selling them - I ran out after 20 days - but I was now substantially more wealthy! I figured - heck I’m on a good thing - let’s do that the next month. Of course, no good thing goes unnoticed …
The next month, there were three other doctors in the spaceport shouting out that they were buying avian meat. Well this simply would not do! So I basically upped the price I was offering to purchase avian meat above theirs - heck - I was flush with funds from last month so I figured I could out buy them. It turns out I was right - I was able to purchase even more avian meat than the last month and I was able to produce enough HQ buffs to just last the month. Then the third month - this is when the market dynamics got interesting …
By now, several people had noticed that avian meat was in hot demand once a month. In the third month, there were several ‘shouters’ when the HQ avian meat started spawning. Like last month, I upped the price I was willing to offer to price them out of the market - a bidding war erupted, but with my bankroll, I could outbid anyone (although I was cringing how fast I was going through my credits). Like any market, with the prices rising so quick, it changed behaviours - suddenly many of the ‘hunters’ in the game were out killing birds to collect meat. I effectively had my own contractor workforce out hunting avian meat!
By the end of the third HQ avian meat season, I had more meat than I ever had before. I realised I almost had complete control of the buff market on my server so I changed my selling tactics. I made my batch of buffs and started selling them, but I jacked the price up (100% increase) - this time I wanted to be able to continuously sell my buffs to last the full month. Other buff sellers kept selling them at the going rate … so I did the rounds of the cities each night and bought up any HQ buffs which were under my price and added them to my stockpile. By the end of the first week, I was bankrupt although I had a huge stockpile of HQ buffs - but most importantly, virtually every buff vendor was empty … except mine. I jacked my price up even further and did a roaring trade.
Over the next few cycles I cemented my reputation as one of the few reliable buff vendors who could consistently offer the highest quality buffs month-round. With the constant trade and monopoly prices, I was able to further entrench my dominant position each month by continuing to out bid any other doctor who tried to purchase avian meat. There were two other doctors on the server who managed to offer buffs for most of the month, and whilst I never talked to them, I noticed that they never went below whatever price I set. Our little oligopoly had a total lock on the buff market - it was a golden age!
When I quit the game a couple of months later, I had millions in credits which I sold for a few thousand $US. SWG let me play out my monopolistic capitalistic fantasies - how I loved that game :D
I've done some business in EVE Online for a while, and it's as much fun as you describe, but a somewhat more mature market. Any competent EVE trader would have squeezed into your market quite easily, and even have a choice of two methods.
The "Chinese gold farmer" way is to be in the spaceport all the time and keep outbidding you minimal amounts. At the end of the month, your resource stocks would be bought at the same price, and their quantities proportional to the relative time amounts each of you has spent in the spaceport. So they can sell at the same price as you, or even lower if they value their time less and would accept less profit.
The "lazy" way (my favorite) requires very little capital and very little time. The idea is to seriously outbid you but only offer to buy small quantities. You will only be able to match this bidding war up to a limit, since you're paying very inflated prices and buying a hundred times more than I do. (If you miscalculate, you'll end up with a huge stock of finished products that you can only sell profitably at ten times the previous price, and people will simply not buy.) Once you've reached this limit, you have to allow me into the market, and I'm buying and selling at pretty much the same prices as you do.
Both excellent techniques. I think the reason I didn't suffer from these techniques was:
Chinese Gold Farmer method: You needed as large a bankroll as myself and you needed to buy enough avian meat to last the month. My first mover advantage on this market insulated me from any casual gamer - none had the bankroll (or were willing to invest it the way I was) and I guess I was lucky that a 'professional' CGF didn't appear :)
Lazy method: Because you needed such huge quantities to last the month, I tended to ignore the 'casual' buyers of avian meat - the ones who would offer prices above mine, but in small quantities. I didn't mind people selling buffs in small quantities because I knew they would run out after a few days whereas I could sell continuously through the whole month - and once the other vendors started running out, I jacked my prices up again further building my bankroll and cementing my position for the next cycle.
And some people argue laissez-faire capitalism does not naturally lead to concentration of capital and oligopolies/monopolies. I guess they should play MMOs ;)
This particular anecdote relies upon incompetent competition:
> Other buff sellers kept selling them at the going rate … so I did the rounds of the cities each night and bought up any HQ buffs which were under my price and added them to my stockpile.
As well as high barriers to entry:
> Buffs could only be made by the ‘doctor’ class and only by the top level doctors.
Basically there is massive demand for buffs, but the supply is restricted by the avian meat availability. Thus a huge demand for avian meat with low supply. The price should go up, and this guy brought the market price in line by outbidding everyone else.
He corners the market, and like any cornerer, he has to overbid the "market price" to shut everyone else out. Now he is in a weak and vulnerable position, to any of his competition. He has a large supply of capital goods that he overpaid for.
The overbidding for avian meat should induce more "mining" (hunting) of the avian meat -- it should be wildly profitable relative to effort invested. This should tend to raise supply, making the overbidding market cornerer's job even harder.
Anyone with half a brain should mine some avian meat and then offer to sell it for (pinky to lower lip) 1 billion dollars (or whatever). The market cornerer will either pay the asking price or relinquish some control of the market.
Since there is no monopoly on buff producers (per the anecdote), the meat miner can lower the price until it sells to a buff producer (whether the cornerer or not). The miner extracts the profit, and the buff producer, with such high input costs, should have smaller margins on the finished product.
> Anyone with half a brain should mine some avian meat and then offer to sell it for (pinky to lower lip) 1 billion dollars (or whatever). The market cornerer will either pay the asking price or relinquish some control of the market.
What prevented this from happening is that supplying a months worth of buffs required a lot of avian meat. And avian meat was a pain in the arse to harvest - you had to roam all over the map looking for the changing spawn points and if I remember correctly, you would only have maybe 20 pieces of the resource for every hour hunting - it was seriously time consuming. So I never encountered a hunter who was selling bulk amounts of avian meat - they all sold in dribs and drabs and so had no negotiating power with me. The small amounts they potentially could individually withheld would have almost no impact to my manufacturing -the only way to affect me was if they ganged up, which would have required substantial coordination.
I was also very dynamic with my pricing - the amount I set was based on what other vendors offered. With my huge bankroll (thanks to first mover advantage), I trumped any bid and scared other doctors away - they simply knew they couldn't compete. As soon as they gave up, I reduced my prices.
Ah, makes sense. I would still tell this story in terms of a first-mover advantage, as well as one of innovation. The point is, in a market economy, it is nearly impossible to maintain a monopoly (or oligarchy) over time. Your margins will get squeezed by new competition enticed by your margins. It seems like you got lucky in discouraging your competition, but I don't think that's a reliable tactic. A determined competitor could severely damage you and open up the market by forcing you to overbid.
I think innovation is baked into your assumption, which doesn't necessarily hold true.
On a separate note Video games are some of the best laboratories we have to allow us to test economics - and iirc papers have been done to test and learn from these environments. I doubt I can dig any up, if I can, I will post it.
No one has pointed out that the whole business ends up increasing market efficiency--the end result was that the price for buffs stabilized over the course of the month.
>The overbidding for avian meat should induce more "mining" (hunting) of the avian meat -- it should be wildly profitable relative to effort invested. This should tend to raise supply, making the overbidding market cornerer's job even harder.
I believe in this story, there was a limited supply of meat - it couldn't be infinitely mined.
If I understand correctly, two things enabled (the flippin’ brilliant) tobtoh to maintain his oligopoly:
1. An artificial, rigid caste system that allowed only a tiny pool of players to produce the best buffs
2. An artificial, rigid "ingredients" system that ensured the best buff could only be made from one extremely rare material (and no amount of innovation could escape this)
Anarchists would argue that those types of market restrictions are bound to cause oligopolies to form!
That said, even with his oligopoly, it sounds like he nearly single-handedly created a huge market for that avian meat, and that market enriched a lot of other players.
He didnt create a market - left to normal dynamics in video games, the resources would have been distributed normally, probably more efficiently on average as well.
Check WoW out for example - the analysis on the spreads, ideal prices to sell ores, gold, are at OCD levels of accuracy.
Addons scan the auction house for undervalued goods, undertake pricing strategies, hold historical data on those goods and allow people to know whether an item is under or over valued.
Websites are dedicated to identifying prices across all the servers and that leads to people doing cross server arbitrage.
He didn't improve the market, he just made a monopoly. A pretty cool one at that.
I was the same, except I targeted a different portion of the economy. I became a resource dealer.
The resource spawning system drew my attention, and I ended up spending countless hours developing tracking systems outside the game to both keep track of the current and past spawns as well as keep track of my harvester fleet. I knew almost immediately when the best Rhodium Steel for a particular weapon spawned and would drop every harvester on the strongest vein I could find.
For those unfamiliar with the resource mechanics of SWG, there was a fixed hierarchy of resource types that different crafting recipes required. The more advanced the recipe, the more specific the resource requirement (e.g., Rhodium Steel instead of just Metal). Every couple weeks the current spawn of a given type would dry up and a new one would come along to take its place with different stats. These stats ultimately determined the final stats of items crafted with the resource.
Resources also spawned in "veins" similar to how they're found in real life. The closer to the center of the spawn you were, the more yield your harvesters produced. It was possible to effectively block out any competition by placing enough harvesters on a vein, and this is exactly what I did.
At one point I even started doing "contract" work for the high-end crafters. They would give me a quantity of a resource they wanted and I would deliver it daily as the harvesters collected.
At the end (sometime around when the Jedi questing was introduced) I had amassed enough credits that I was within the top 5-10 on the server I played. I sold it all on eBay and more than paid for my time playing.
It's amusing that even in universes built specifically to fulfill people's power fantasies, the biggest power is usually achieved by people who do shady business :-)
People are doing this - iirc the economist who did research on everquest for a lark, realized that the ingame economy was actually outperforming some third world countries.
Other research has continued on this as well - pretty sure game theory systems have been tested here.
Its always been a hope of mine that at some point, blizzard open sources their trading and economy data for people in the academic community.
The best labs to test human group behavior to changing incentives is probably video games. They've already established that in a world where everyone is created equal, you end up with only a small fraction cornering most of the resources/gold.
When I was in high school with plenty of time on my hands I turned my hobby of playing Everquest into a pretty lucrative business (especially for a 17yr old). I found it amazing what people would pay for items to help advance their characters, especially those who were older and had limited time, and thus wanted to minimize time-sinks.
Comments
I really loved playing SWG - not so much for the game, but for the ‘business’ aspects of it. Whilst not as successful as the OP, I made thousands of $US from the game by being part of a oligopoly.
One of the game mechanics was the concept of ‘buffs’ - basically chemical stimulants your character could consume to temporarily boost critical stats which aided in combat. They were an essential item in PvP (player vs player) combat if you wanted to have that edge and so were in high demand. Buffs could only be made by the ‘doctor’ class and only by the top level doctors. Another critical game mechanic was that the quality of the buff affected how much of a boost you could receive to your stats, and the quality of the buffs was affected by the quality of the raw materials you sourced to make the buff (every resource had a variety of stats - this game was a real minmax-ers delight). The highest quality buffs were the only one that people were interested in buying.
Most of the resources required for the buffs were reasonably easy to find - but there was one which was rare - avian meat. The highest quality avian meat, harvested by killing particular birds, only appeared (real-time) once a month for a few days. Without this avian meat, you could not produce the highest quality buffs.
The first time I made buffs - I happened to time it during the HQ (high quality) avian meat period. I spent hours killing the birds to collect meat. I made my buffs, had a shop near Coronet (the main trading city in the game) and sold out within a few days. And I noticed that all the doctors sold out within days too - and that the last few that had some stock could request extortion prices for their stock. That gave me an idea …
The next month when the avian meat spawned, I parked my character in the main spaceport and keyed up a macro (the game had an in-game macro system). All my macro did was cause my character to shout out every minute “Buying avian meat @ Z credits/piece - sell to my vendor at coords X,Y”. I basically bankrupted myself buying up as much avian meat as I could whilst it was available.
I made up a batch of buffs and started selling them - I ran out after 20 days - but I was now substantially more wealthy! I figured - heck I’m on a good thing - let’s do that the next month. Of course, no good thing goes unnoticed …
The next month, there were three other doctors in the spaceport shouting out that they were buying avian meat. Well this simply would not do! So I basically upped the price I was offering to purchase avian meat above theirs - heck - I was flush with funds from last month so I figured I could out buy them. It turns out I was right - I was able to purchase even more avian meat than the last month and I was able to produce enough HQ buffs to just last the month. Then the third month - this is when the market dynamics got interesting …
By now, several people had noticed that avian meat was in hot demand once a month. In the third month, there were several ‘shouters’ when the HQ avian meat started spawning. Like last month, I upped the price I was willing to offer to price them out of the market - a bidding war erupted, but with my bankroll, I could outbid anyone (although I was cringing how fast I was going through my credits). Like any market, with the prices rising so quick, it changed behaviours - suddenly many of the ‘hunters’ in the game were out killing birds to collect meat. I effectively had my own contractor workforce out hunting avian meat!
By the end of the third HQ avian meat season, I had more meat than I ever had before. I realised I almost had complete control of the buff market on my server so I changed my selling tactics. I made my batch of buffs and started selling them, but I jacked the price up (100% increase) - this time I wanted to be able to continuously sell my buffs to last the full month. Other buff sellers kept selling them at the going rate … so I did the rounds of the cities each night and bought up any HQ buffs which were under my price and added them to my stockpile. By the end of the first week, I was bankrupt although I had a huge stockpile of HQ buffs - but most importantly, virtually every buff vendor was empty … except mine. I jacked my price up even further and did a roaring trade.
Over the next few cycles I cemented my reputation as one of the few reliable buff vendors who could consistently offer the highest quality buffs month-round. With the constant trade and monopoly prices, I was able to further entrench my dominant position each month by continuing to out bid any other doctor who tried to purchase avian meat. There were two other doctors on the server who managed to offer buffs for most of the month, and whilst I never talked to them, I noticed that they never went below whatever price I set. Our little oligopoly had a total lock on the buff market - it was a golden age!
When I quit the game a couple of months later, I had millions in credits which I sold for a few thousand $US. SWG let me play out my monopolistic capitalistic fantasies - how I loved that game :D
I've done some business in EVE Online for a while, and it's as much fun as you describe, but a somewhat more mature market. Any competent EVE trader would have squeezed into your market quite easily, and even have a choice of two methods.
The "Chinese gold farmer" way is to be in the spaceport all the time and keep outbidding you minimal amounts. At the end of the month, your resource stocks would be bought at the same price, and their quantities proportional to the relative time amounts each of you has spent in the spaceport. So they can sell at the same price as you, or even lower if they value their time less and would accept less profit.
The "lazy" way (my favorite) requires very little capital and very little time. The idea is to seriously outbid you but only offer to buy small quantities. You will only be able to match this bidding war up to a limit, since you're paying very inflated prices and buying a hundred times more than I do. (If you miscalculate, you'll end up with a huge stock of finished products that you can only sell profitably at ten times the previous price, and people will simply not buy.) Once you've reached this limit, you have to allow me into the market, and I'm buying and selling at pretty much the same prices as you do.
Both excellent techniques. I think the reason I didn't suffer from these techniques was:
Chinese Gold Farmer method: You needed as large a bankroll as myself and you needed to buy enough avian meat to last the month. My first mover advantage on this market insulated me from any casual gamer - none had the bankroll (or were willing to invest it the way I was) and I guess I was lucky that a 'professional' CGF didn't appear :)
Lazy method: Because you needed such huge quantities to last the month, I tended to ignore the 'casual' buyers of avian meat - the ones who would offer prices above mine, but in small quantities. I didn't mind people selling buffs in small quantities because I knew they would run out after a few days whereas I could sell continuously through the whole month - and once the other vendors started running out, I jacked my prices up again further building my bankroll and cementing my position for the next cycle.
And some people argue laissez-faire capitalism does not naturally lead to concentration of capital and oligopolies/monopolies. I guess they should play MMOs ;)
This particular anecdote relies upon incompetent competition:
> Other buff sellers kept selling them at the going rate … so I did the rounds of the cities each night and bought up any HQ buffs which were under my price and added them to my stockpile.
As well as high barriers to entry:
> Buffs could only be made by the ‘doctor’ class and only by the top level doctors.
Basically there is massive demand for buffs, but the supply is restricted by the avian meat availability. Thus a huge demand for avian meat with low supply. The price should go up, and this guy brought the market price in line by outbidding everyone else.
He corners the market, and like any cornerer, he has to overbid the "market price" to shut everyone else out. Now he is in a weak and vulnerable position, to any of his competition. He has a large supply of capital goods that he overpaid for.
The overbidding for avian meat should induce more "mining" (hunting) of the avian meat -- it should be wildly profitable relative to effort invested. This should tend to raise supply, making the overbidding market cornerer's job even harder.
Anyone with half a brain should mine some avian meat and then offer to sell it for (pinky to lower lip) 1 billion dollars (or whatever). The market cornerer will either pay the asking price or relinquish some control of the market.
Since there is no monopoly on buff producers (per the anecdote), the meat miner can lower the price until it sells to a buff producer (whether the cornerer or not). The miner extracts the profit, and the buff producer, with such high input costs, should have smaller margins on the finished product.
> Anyone with half a brain should mine some avian meat and then offer to sell it for (pinky to lower lip) 1 billion dollars (or whatever). The market cornerer will either pay the asking price or relinquish some control of the market.
What prevented this from happening is that supplying a months worth of buffs required a lot of avian meat. And avian meat was a pain in the arse to harvest - you had to roam all over the map looking for the changing spawn points and if I remember correctly, you would only have maybe 20 pieces of the resource for every hour hunting - it was seriously time consuming. So I never encountered a hunter who was selling bulk amounts of avian meat - they all sold in dribs and drabs and so had no negotiating power with me. The small amounts they potentially could individually withheld would have almost no impact to my manufacturing -the only way to affect me was if they ganged up, which would have required substantial coordination.
I was also very dynamic with my pricing - the amount I set was based on what other vendors offered. With my huge bankroll (thanks to first mover advantage), I trumped any bid and scared other doctors away - they simply knew they couldn't compete. As soon as they gave up, I reduced my prices.
Ah, makes sense. I would still tell this story in terms of a first-mover advantage, as well as one of innovation. The point is, in a market economy, it is nearly impossible to maintain a monopoly (or oligarchy) over time. Your margins will get squeezed by new competition enticed by your margins. It seems like you got lucky in discouraging your competition, but I don't think that's a reliable tactic. A determined competitor could severely damage you and open up the market by forcing you to overbid.
I think innovation is baked into your assumption, which doesn't necessarily hold true.
On a separate note Video games are some of the best laboratories we have to allow us to test economics - and iirc papers have been done to test and learn from these environments. I doubt I can dig any up, if I can, I will post it.
No one has pointed out that the whole business ends up increasing market efficiency--the end result was that the price for buffs stabilized over the course of the month.
>The overbidding for avian meat should induce more "mining" (hunting) of the avian meat -- it should be wildly profitable relative to effort invested. This should tend to raise supply, making the overbidding market cornerer's job even harder.
I believe in this story, there was a limited supply of meat - it couldn't be infinitely mined.
If I understand correctly, two things enabled (the flippin’ brilliant) tobtoh to maintain his oligopoly:
1. An artificial, rigid caste system that allowed only a tiny pool of players to produce the best buffs
2. An artificial, rigid "ingredients" system that ensured the best buff could only be made from one extremely rare material (and no amount of innovation could escape this)
Anarchists would argue that those types of market restrictions are bound to cause oligopolies to form!
That said, even with his oligopoly, it sounds like he nearly single-handedly created a huge market for that avian meat, and that market enriched a lot of other players.
I might be misreading the story, though!
He didnt create a market - left to normal dynamics in video games, the resources would have been distributed normally, probably more efficiently on average as well.
Check WoW out for example - the analysis on the spreads, ideal prices to sell ores, gold, are at OCD levels of accuracy.
Addons scan the auction house for undervalued goods, undertake pricing strategies, hold historical data on those goods and allow people to know whether an item is under or over valued.
Websites are dedicated to identifying prices across all the servers and that leads to people doing cross server arbitrage.
He didn't improve the market, he just made a monopoly. A pretty cool one at that.
I was the same, except I targeted a different portion of the economy. I became a resource dealer.
The resource spawning system drew my attention, and I ended up spending countless hours developing tracking systems outside the game to both keep track of the current and past spawns as well as keep track of my harvester fleet. I knew almost immediately when the best Rhodium Steel for a particular weapon spawned and would drop every harvester on the strongest vein I could find.
For those unfamiliar with the resource mechanics of SWG, there was a fixed hierarchy of resource types that different crafting recipes required. The more advanced the recipe, the more specific the resource requirement (e.g., Rhodium Steel instead of just Metal). Every couple weeks the current spawn of a given type would dry up and a new one would come along to take its place with different stats. These stats ultimately determined the final stats of items crafted with the resource.
Resources also spawned in "veins" similar to how they're found in real life. The closer to the center of the spawn you were, the more yield your harvesters produced. It was possible to effectively block out any competition by placing enough harvesters on a vein, and this is exactly what I did.
At one point I even started doing "contract" work for the high-end crafters. They would give me a quantity of a resource they wanted and I would deliver it daily as the harvesters collected.
At the end (sometime around when the Jedi questing was introduced) I had amassed enough credits that I was within the top 5-10 on the server I played. I sold it all on eBay and more than paid for my time playing.
It's amusing that even in universes built specifically to fulfill people's power fantasies, the biggest power is usually achieved by people who do shady business :-)
http://en.wikipedia.org/wiki/Cornering_the_market
I wonder what a formalized game theory representation of this would look like. Might make for interesting study.
People are doing this - iirc the economist who did research on everquest for a lark, realized that the ingame economy was actually outperforming some third world countries.
Other research has continued on this as well - pretty sure game theory systems have been tested here.
Its always been a hope of mine that at some point, blizzard open sources their trading and economy data for people in the academic community.
The best labs to test human group behavior to changing incentives is probably video games. They've already established that in a world where everyone is created equal, you end up with only a small fraction cornering most of the resources/gold.
Yup that's correct. Check out Ed Castronova's paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=294828
When I was in high school with plenty of time on my hands I turned my hobby of playing Everquest into a pretty lucrative business (especially for a 17yr old). I found it amazing what people would pay for items to help advance their characters, especially those who were older and had limited time, and thus wanted to minimize time-sinks.