Economists View of PatchFollow

There are coinciding circumstances which will determine whether raising the Auction House tariffs will eliminate or boost inflation. My hypothesis is that by raising the fee for auction house postings, that not only will this cause deflation but also lower prices across the board except on select items (which will always hold value due to rarity).

First of all, one must assume that the demand for goods previous to the auction house adjustment was lower than the price suggests. On this premise, we must conclude that people who sold the overcamped/botted/undersupplied*/overpriced had to relist their goods on auction multiple times before making a sale. The snag here is that while American players have brought forth numerous complaints that items were overpriced the plurality of server population remains Japanese. Whether or not the Japanese players have brought forth the same concerns remains to be seen or spoken for. For the sake of argument we will assume that since the Japanese have played longer than us that they are already supplied with said items and thus the demand for these items is lower among that segment of the population. This would negate or diminish the effect of the Japanese gil supply to server economies.

Supply has remained steady for highly valuable (arguably crucial) items while price has risen. This is normally attributed to normal supply and demand factors however in the real world there are many factors that contribute to the price of a product one of which is transportation fees as well as management costs. Herein lies the problem and the basis of the recent rash of complaints towards players or botters monopolizing certain items. If one player or group of players has a cornered market on a good, then they can set price regardless of supply or demand. In essence, when such a monopoly exists, demand is artificially increased by lack of competition and thus we create inflation for not only implied goods but also all related goods and the effect spreads. The spread of inflation results from the fact that there is little to no sink in the supply due to lack of transportation and management fees. The cost of maintaining an item for sale indefinitely is negligable and thus the monopoly will continue to do so. In other words, the auction house has served as a cost effective means of warehousing excess supply. So, with this foundation laid down let me go into the effects of the patch.

The patch punishes monopoly! Why does it accomplish this great feat? It's very simple, ingeniously so in fact! For a monopoly to exist, the cost of running said monopoly must negligable compared to the profitability. By posting and reposting the auctions for a staple good that has been cornered the operation costs have been arbitrary at best. However, by raising the operation cost significantly it becomes less profitable to do so. In fact, this has a double ended effect on the botters and monopolizers. First of all, by auctioning and reauctioning goods the monopoly will suffer in profitability and discourage the practice. Secondly, and much more importantly, this greatly increases the chance of reasonable pricing to move the merchandise faster and reduce the cost of auctioning the good. By absorbing the inflated price with the cost of auctioning and reauctioning a good until it sells it will discourage raised pricing by rewarding competitive pricing (even among the botters themselves who will be forced to find competitive pricing strategies to circumvent the raised "tarriff").

My conclusion is that not only will this deflate the economy, but it will also promote competition among players to sell items quickly as opposed to trying to get the most gil as possible with the least effort. The results remained to be seen, however. If demand for the "overpriced" items is high then they were never overpriced to begin with and the results will be detrimental to lower level players who will simply be paying higher tariffs for no advantage. However, if the demand for the items has been lower than the market value of the items suggest then SE just scored an A+ in economics and made a grand slam against the gil sellers, botters, and monopolizers. Add on top of this a (perhaps) more hawkish view among the GMs towards the botters and gil sellers... We might just have a game economy that works better than real life ones.

Edited, Wed Dec 8 18:43:01 2004 by Lefein

I agree with the above posters..it was confusing at point but I understand what you are saying and disagree with ya..I think it will drive the prices higher IMO....so the botters or gilsellers raise the price by 100K and they will get thier profit back from the 2% fee plus some.....of course we all can put our opinion on what is going to happen but we wont know till it happens..I really hope you are right but only time will tell

What you are going to see is an army of mules blocking the mog house entrance with names like "Archersrings" "xArchersringsx" Theifknifeforsale" etc. Furthermore, items like the Thief's Knife, Kraken Club, etc. will now be harder to find, and the sellers will take longer to sell them thus the value of the item will rise and instead of paying 15 million for my Theif's Knife I'm now going to have to shell out 30 million or more. (and I will have to, endgame THF is a TH ***** and if you wanna get picked over other THFs for HNM fights you better have all the +TH gear)

The only flaw is the AH isn't an economy by itself. People could just simply put items in bazaars of several mules to circumvent the increased tax cost. I know I'm not using the AH in Jueno anymore, I'll simply plop my character down in Lower Jeuno for the night to sell my items. All this tax does IMO is promote the use of more 24/7 Bazaar characters that eat up server bandwidth and cause lag in the heavily populated areas. I think Square, by trying to solve one problem is going to create another. Actually, maybe Square sees it as a chance to make more money. Since you can't camp/mine/farm at the same time as sitting in as a bazaar in Jueno, these gilsellers will be forced to open more accounts to sell their stuff more efficiently.

Not being a full-fledged master in the workings of economy, I'm wondering about one thing.

Yes it's true that this will be a big hit to those who have to repost items that say, might only cost 500 gil to put on auction, while they sell for 2 million gil. So having a set percent, and assuming it might take several relistings will force people to lower price sales depending on whether or not they have to relist often before a sale is made. This will hurt bad for those who monopolize items and use that as a sole means of income.

But I'm wondering about this scenario:

We all know that certain items are monopolized by individuals or groups which will attempt to keep everyone to get said items, either by a) MPK, b) keeping claim on a mob without killing it or c) just being better at claiming it each and every time it spawns.

Now say that this group does not sell the items it gets, or only does so once the pool of items has dropped so low that the usual sales per day will be made before they have to relist. If they find they have to relist, they don't, instead with-holding the products from the AH, and creating a low supply from it.

I might be missing something but won't that make it so that prices won't drop, and will continue the cycle of monopoly and inflation we've been seeing on some items? (like the morion tathlum on Unicorn I bought at 30k...now 80k and upwards)

If I am missing something, I'd be glad to know what so I can be less hesitant to trust this is going to solve all problems except help getting more gil out of the economy, thereby making it so people will hesitate paying as much for products, making sellers lower their prices. (which basically makes it work still, but on a slower rate)

--edit-- Typos... probably still are some ~_~

Edited, Wed Dec 8 16:20:41 2004 by Rumiko

if you guys havent noticed, the tax is on 2% of the ASKING price, not the sale price. for instanc if i post leaping boots on the AH for 1 gil, i wll have no tax at all but the item will still sell for 400-500k because every other one in the price history has sold for the same and the person will bid that amount

You're critizing the OP and you don't even know what the new tax rate is? It's 2% not 5. Remind me never to hire you as my accountant . . .

Yea, and people who think they are "outsmarting the system" like that tend to fell like asses when they end up with a 1 gil delivery. Even noticed the posts where people are estatic over getting something incredibly cheap? Whenever io buy a high price item i bid low first and move up in intervals, so i get the best price.

I would like to point out that you are correct - as long as players have gil. Once you reduce the amount of player gil, then this no longer becomes true.

One fact that I think some people are missing is that this AH tax will help drain gil out of the economy. Without regard to how this affects item profitability, what we can say difinitively is that the amount of gil taken out of circulation per player is going to increase on average.

Think of what players spend on NPC's: Chocobos, airships, boat rides, Outpost warps, Crafting items bought from NPC's.

Add to that list the AH tax, and we will see a much larger amount of gil leaving circulation.

The decrease in gil will cause more players to have less money. When players have less money, they tend to be more frugal in their spending. They may not buy crystals for 3600 gil, and decide to wait for them to drop to 3000 gil. I presume the same thing will happen for higher priced items.

Several resulting scenarios I see:
1) gil will become very difficult to retain, and more people will resort to gil buying to fund their purchases, resulting in no dramatic affect on AH prices. No fudging with the AH can help punish gil-BUYERS. The only thing to do here is ban the user for violation of the ToS. We all know how effective this has been up to this point.

2) gil will become slightly difficult to retain, and players will beccome more frugal with their gil. This will force sellers to be realistic when pricing their items, since the threat of a no-sale is actually a serious possiblity. Multiple tax payments due to repeated AH postings will be a good deterrent, and a players failing to buy an overpriced item will be an even better deterrent.

3) players will still accumulate gil much much faster than it is removed from the economy, causing no significant dent in inflation. Prices will remain the same or rise to compensate for the tax, and no one will care how much they pay because money is still easily obtained.

Honestly, I think the result - after much spastic AH pricing and player complaining - will be some hybrid of 1 & 2. Some players, frustrated with an apparent "gimp" to their farming-method-of-choice, will turn to gil buying.

Rare item prices, even with an influx of alternatives items/sources will still be reasonably rare, and prices will most likely stabilize, but not dramatically drop. (No one will see Leaping Boots for 20k).

Regular items, crafting items, etc, will probably drop slightly and stabilize somewhat, since as the risk of putting an item up on the AH, fewer sellers will want to venture the risk of asking an overly-inflated price.

Just my thoughts.

A 10% tarriff would be userous. There would be no low level equipment at the AH anymore because you'd make more money selling to NPCs.. Yee gads man!

exactly what Reolstan said. The largest problem right now is too much currency in circulation. This will help to curve the rate of inflation due to gil being taken out of the economy.

First of 5% was an example not a fact. It was just to show how an outrageous consignment rate can stop people from being able to sell their goods.



We don't know how this gonna work yet, regardless it has always been the person who puts their item up the cheapest sells it first. If I take a pluto's staff and put it up for 1 gil it will inevitably sell first no matter how many are up for sale, but the fact is I risk someone coming along and offering 1 gil. Someone could also come along and bid 99 million either way I get the money first. There's always undercutting and loss of profit will force people to mark up.

Let's take that same pluto staff and examine the 2% consignment rate that is assessed to reserve price you set. The staff can has gone from 400k to 500k on my server in the past month. If I sell low at 400k to get rid of it faster I will be assessed and 8k surcharge. This leaves me with a 392k coming in and subtract my cost I end up making 280k. Now if I sell it at 500k I'm assessed a 10k surcharge which leaves after cost 378k. How exactly are prices going to be driven down by that 2%?

Oh and ahhh, look at the gas prices if you don't believe me. I mean those barrels at 36 dollars a peice are just really driving prices down.

I assume that what was meant is that if you keep selling for 500k, and people are not buying, you end up paying a 2% re-list fee everytime you put it back. So your net profit will suffer if you relist often.

People also paying more to list items will have less gil to spend, since more gil goes out of the economy (I'm just stating a preferred personal view here, not an economist for a living, please be indulgent ;-) ) . Having less gil will mean you'll be intent on buying cheaper.

So if you sell for 400k instead of 500, your profit is less, but you run the chance of selling faster, thereby avoiding re-listing fees.

In an ideal world it'd be this simple to lower prices of an item through the 2% AH rate... but I'm sure there will be complications and other aspects I'm simply not seeing or able to elaborate on right now.