Controlling Inflation in Social MMOs

Despite being virtual, MMOs’ economies suffer the same problems as real economies. In games like World of Warcraft (WOW), Runescape and Second Life, deflation and hyper-inflation are real problems for the developers to solve. These general problems apply to the newest generation of social MMOs springing up inside social networks.

Sam Lewis, former Systems Lead on Star Wars: Galaxies, has spoken about tackling in-game inflation and has also published a white paper on the subject (originally found by Siqi Chen via Jeremy Liew). He states that most MMOs tend towards hyper-inflation because they are designed to keep enough currency in the market for the business elements of the game to run smoothly. Eventually though, items will become ridiculously expensive.

Sam describes an example that helps keep hyper-inflation in check.

A simple simulation of a two-person (Adventurer and Crafter) economy illustrates this point. The simulation makes the following assumptions and was done in Excel.
We have an Adventurer who goes out into the world to finish a cash creation mission that is worth $100. He operates under the following restrictions –

  • He must fire 100 bullets from his gun to get the newly created $100.
  • He will not go out to kill the beast if he loses money in the process.
  • As a new character he starts with $300.

The second actor is a Crafter who can make bullets and sells them to the Adventurer. He operates under the following restrictions –

  • The Crafter sets his prices as he will and at the start will sell 100 bullets for $75.
  • The crafter will adjust the price based on the general money supply in circulation and whether or not he made a sale last period.
  • The Crafter also has to pay a sales commission tax on each (variable drain) transaction and a fixed license fee for doing business (fixed drain). Conceptually this can be a Vendor who makes a salary and gets a sales commission, but can also be charges for posting on an auction site.
  • The Crafter sells everything through his Vendor or this auction site.
  • The crafter does not pay any NPC for components needed to make the bullets, and for this simulation makes the bullets on demand.

In this case the simulation indicates that the money supply naturally stabilizes…

From this example he derives a set of useful bullet points as a guide to controlling inflation.

  • Consumables are important in creating new Cash – If large amounts of new cash can be created without consumables, then there is no economic brake on cash creation.
  • Players set the prices of Consumable – This is the other side of the coin, since only player set prices can legitimately respond to changes in the money supply. Attempting to do this programmatically in such a diverse economy as a typical MMO is to invite failure. National governments have not been able to do this.
  • Fixed drains need to be in place – This provides a mechanism to remove a Crafter who is economically irrational from the business game, as well as to provide equilibrium in prices and money supply. Thus a regular fixed cash fee for doing business is required, and set by the game.
  • Variable Drains via percentage commission of the sale need to be in place – This provides a damper that mitigates wild swings in the money supply. Fictionally Sales commissions provide this damper. The percentage is set by the game, on Facility Type basis.

In truth, this is how most MMO’s manage their economies, but developers have tools to help ensure that the problems associated with inflation do not get too out of hand. The most simple of these is using price caps – most MMOs will have price caps in place on all their commodities and items so that if inflation does set in the items will never reach an unaffordable price tag.

(As a brief aside, the standard for MMOs is often to have the much of the economic activity, such as trading and quest assignment, carried out through non-player characters (NPCs), i.e. characters that are controlled by the game. That way the developers can control the money flow more simply.)

One MMO that has taken a different approach is EVE Online. CCP, the developers, have been uncompromising in their desire to create a single sustainable environment for the game to exist in. They have also left the players to their own devices and have let them lead the development of the game. The result has been that the game, now with a population of over 245,000 players playing on a single server (up to 50,000 playing at any one time), has developed its own economic dynamics.

EVE has quite complex trading structures between the various corporations and factions that the players have created in the game. Since EVE Online went live, the economy has gone from strength to strength and much of the systems that CCP set up to be NPC controlled such as the corporations and ship sellers are now run by the players. Consequently, with so little NPC interaction CCP have needed to take a radically different approach. In the end, they did nothing and just watched how the players dealt with their economy. They even removed the price caps as an experiment to see how the markets would react.

Dr Eyjólfur Guðmundsson, CCP’s Chief Economist, tracked the results and found some fascinating information. “I’ve been looking at the mineral markets in EVE, and it’s quite obvious that the markets operate just like Adam Smith predicted 200 years ago: The market succeeds without interference.” The figures showing the performance of EVE’s economy can be found in the game’s Quarterly Economic Newsletter.

The remarkable results seen with EVE Online show that an MMO’s economy can succeed without controls. However the nature of EVE means that a large portion of the game’s draw is the opportunity to engage in commerce and the players all contribute to ensure the economy stays healthy. With more traditional MMOs like WOW where trading is more of a means to an end rather than a major element to the game play, it is necessary to employ methods like Sam Lewis has suggested.

In order to decide how to control inflation in the economy the best approach is to think about how much of the gameplay will be taken up by trading. The example EVE has set shows that if trading is the name of the game the players will control inflation so the code doesn’t have to.