<div style='font: 12pt ; text-align: left; '>Algorithm is one of my interests so the economies of MMORPG actually interest me greatly, since they are basically a different type of the Online Auction problem. The Online Auction problem can be roughly defined as: Given an infinite supply of goods (i.e. MP3s), how are you supposed to sell them to a finite number of buyers who each may have different amounts they're willing pay for so that you have an optimal return. This problem is believed to be not computationally solveable, and thus this is why MMORPG economy, at the end, are destined to be unfair.
Of course, when I say infinite, I don't mean you really have an infinite number of Chain Mail +2 or Fire Crystals or whatever items you use in Final Fantasy 11. Infinite here means that the cost of obtaining more supply is very negligible. I have never played FF11, but I'll go out on a limb to say that the stuff you commonly buy in the auction houses of your game isn't something that'd take months of playing just to get. If you didn't buy your new armor from the auction house I'd guess that your character will still see that armor on sale again pretty soon.
Given finite supply, any good will reach an equilibrium as dictated by basic economics, so this part doesn't apply to things where people know are in limited quantity, i.e. that godly sword of slaughtering that drops once every 3 months will certainly retain its proper value. However, for most goods that are traded in MMORPG, they can be considered as an infinite supply good.
Given any economy, it is necessary to know what the demand is, because it is not possible to have a fair economy if no one even knows what's the right price to sell at.
Suppose I am willing to pay 3 times of the *market price* as dictated by the recent selling history of an item to outfit my new character. However, I know that this armor isn't going to disappear anytime soon. If I don't buy it now someone else will still be selling it elsewhere. From what I gather the AH has bids, but certainly if I was bidding, I wouldn't start bidding at 3X the market value. Assuming no selling scandals to drive up prices, it can be reasonably expected that I end up buying my items at a price roughly equal to the *market price* (possibly higher). This means, no matter how desperate someone wants something, the market price never actually goes up significantly, if at all. Note that me here paying the market price is actually fair. I shouldn't expect to have to pay 3X market price on something that has no shortage of, even though I am willing to pay 3X. This system works fine for people who are willing to pay more than the market price because they will end up getting the market price.
Now suppose I want the item but I don't want to pay the market price. Once again, I am aware that there's a lot of people selling this thing. Further, as all MMORPG tend to make items have very little resale value to merchants to encourage economic activity, I also know that you do not have an easy way to convert your armor to the *market price*. Since your item sold to a merchant is probably worth a trivial amount of money, you will, in theory, be happy with any price that's more than what the merchant pays for. Assuming I do not have a dire need of this item (and I probably do not, since I am not willing to pay what the last 10 guys paid for), I can offer you a price below the market price, and eventually, one of the seller will decide that since I can't sell this at the old price anyway, and it's not easily convertable to any other form of currency, they will sell at the new, lower price.
So, in this economy, we see that I have a lot to gain if I lie about how much I'm willing to pay, for the buyer cannot tell the difference whether I am really only willing to buy something if it's at a certain price, or if I am merely pretending. Even if I was willing to pay 3X the market price, as long as I am willing to wait a bit, I can pay a lot less if I pretend I don't even want to pay at the market price. Essentially, this is an economy where the buyers can gain by lying about what their demand is. Any solution that is based on this false demand is not going to be fair, because the buyers can lie arbitrarily about what they're willing to pay for.
So here is why this problem is not solveable. There is no poly-time (i.e. solution that can be executed in realistic time) algorithm to get people to tell the truth. Actually, it is not clear if such an algorithm even exists. It'd certainly be one amazing algorithm to get everyone to tell the truth in an environment where lying has very visible gains, and no possible consequence for lying (because lying about what I'm willing to pay for an item isn't illegal).
Depending on your player demographics (you could have a lot of totally honest people playing, or you could be dealing with the Diablo 2 trading channel people) and supply availability (less supply lowers the incentive to lying, since if you believe the supply will run out you won't lie as much due to fear of items running out), the time it takes everyone to realize that lying helps them get lower price goods may vary significantly. But ultimately, people will figure out that lying helps them in such an economy, and when that happens there is no possible way you can undo this. If you have an economy of liars, it cannot possibly be fair because you don't know what people are willing to pay for.
The current cutting edge solution (after all, this also describes the market of selling MP3s, and that is certainly a market eveyone wants to make some money from) is to sell everything so cheaply that people will not have incentive to lie. There is actually an algorithm that can figure out what price to sell it so that it's cheap enough most of the buyers you're interested will figure your prices aren't going to get any lower so might as well buy it. Note that you're still taking a huge loss here because you've to drop your price so low so that most of your customers will stop trying to drive it down further (and for those who do, you just ignore them). It's basically like say I'm running a car dealership and all my cars are priced 1/3rd of the normal price but no haggling is allowed. Sure some jerks out there probably still want it for even less than that, but most people will figure that's good enough. Interesting enough, the ~$1 figure people charge for MP3s is derived by this kind of analysis. Someone actually figured out the ~$1 figure is the price you should charge MP3s so that the people who actually want this stuff but wasn't going to actually go out and buy a CD for it will be willing to pay this price, and anyone who isn't willing to pay that much is not worth lowering your price to get.
The EQ economy, being one of the oldest MMORPG around, actually resembles this solution quite closely. Although certainly the people selling the items didn't do this mathematical analysis, prices eventually swing to the point where it's cheap enough that people have no incentive to pretend they're not interested.</div>
Of course, when I say infinite, I don't mean you really have an infinite number of Chain Mail +2 or Fire Crystals or whatever items you use in Final Fantasy 11. Infinite here means that the cost of obtaining more supply is very negligible. I have never played FF11, but I'll go out on a limb to say that the stuff you commonly buy in the auction houses of your game isn't something that'd take months of playing just to get. If you didn't buy your new armor from the auction house I'd guess that your character will still see that armor on sale again pretty soon.
Given finite supply, any good will reach an equilibrium as dictated by basic economics, so this part doesn't apply to things where people know are in limited quantity, i.e. that godly sword of slaughtering that drops once every 3 months will certainly retain its proper value. However, for most goods that are traded in MMORPG, they can be considered as an infinite supply good.
Given any economy, it is necessary to know what the demand is, because it is not possible to have a fair economy if no one even knows what's the right price to sell at.
Suppose I am willing to pay 3 times of the *market price* as dictated by the recent selling history of an item to outfit my new character. However, I know that this armor isn't going to disappear anytime soon. If I don't buy it now someone else will still be selling it elsewhere. From what I gather the AH has bids, but certainly if I was bidding, I wouldn't start bidding at 3X the market value. Assuming no selling scandals to drive up prices, it can be reasonably expected that I end up buying my items at a price roughly equal to the *market price* (possibly higher). This means, no matter how desperate someone wants something, the market price never actually goes up significantly, if at all. Note that me here paying the market price is actually fair. I shouldn't expect to have to pay 3X market price on something that has no shortage of, even though I am willing to pay 3X. This system works fine for people who are willing to pay more than the market price because they will end up getting the market price.
Now suppose I want the item but I don't want to pay the market price. Once again, I am aware that there's a lot of people selling this thing. Further, as all MMORPG tend to make items have very little resale value to merchants to encourage economic activity, I also know that you do not have an easy way to convert your armor to the *market price*. Since your item sold to a merchant is probably worth a trivial amount of money, you will, in theory, be happy with any price that's more than what the merchant pays for. Assuming I do not have a dire need of this item (and I probably do not, since I am not willing to pay what the last 10 guys paid for), I can offer you a price below the market price, and eventually, one of the seller will decide that since I can't sell this at the old price anyway, and it's not easily convertable to any other form of currency, they will sell at the new, lower price.
So, in this economy, we see that I have a lot to gain if I lie about how much I'm willing to pay, for the buyer cannot tell the difference whether I am really only willing to buy something if it's at a certain price, or if I am merely pretending. Even if I was willing to pay 3X the market price, as long as I am willing to wait a bit, I can pay a lot less if I pretend I don't even want to pay at the market price. Essentially, this is an economy where the buyers can gain by lying about what their demand is. Any solution that is based on this false demand is not going to be fair, because the buyers can lie arbitrarily about what they're willing to pay for.
So here is why this problem is not solveable. There is no poly-time (i.e. solution that can be executed in realistic time) algorithm to get people to tell the truth. Actually, it is not clear if such an algorithm even exists. It'd certainly be one amazing algorithm to get everyone to tell the truth in an environment where lying has very visible gains, and no possible consequence for lying (because lying about what I'm willing to pay for an item isn't illegal).
Depending on your player demographics (you could have a lot of totally honest people playing, or you could be dealing with the Diablo 2 trading channel people) and supply availability (less supply lowers the incentive to lying, since if you believe the supply will run out you won't lie as much due to fear of items running out), the time it takes everyone to realize that lying helps them get lower price goods may vary significantly. But ultimately, people will figure out that lying helps them in such an economy, and when that happens there is no possible way you can undo this. If you have an economy of liars, it cannot possibly be fair because you don't know what people are willing to pay for.
The current cutting edge solution (after all, this also describes the market of selling MP3s, and that is certainly a market eveyone wants to make some money from) is to sell everything so cheaply that people will not have incentive to lie. There is actually an algorithm that can figure out what price to sell it so that it's cheap enough most of the buyers you're interested will figure your prices aren't going to get any lower so might as well buy it. Note that you're still taking a huge loss here because you've to drop your price so low so that most of your customers will stop trying to drive it down further (and for those who do, you just ignore them). It's basically like say I'm running a car dealership and all my cars are priced 1/3rd of the normal price but no haggling is allowed. Sure some jerks out there probably still want it for even less than that, but most people will figure that's good enough. Interesting enough, the ~$1 figure people charge for MP3s is derived by this kind of analysis. Someone actually figured out the ~$1 figure is the price you should charge MP3s so that the people who actually want this stuff but wasn't going to actually go out and buy a CD for it will be willing to pay this price, and anyone who isn't willing to pay that much is not worth lowering your price to get.
The EQ economy, being one of the oldest MMORPG around, actually resembles this solution quite closely. Although certainly the people selling the items didn't do this mathematical analysis, prices eventually swing to the point where it's cheap enough that people have no incentive to pretend they're not interested.</div>
