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  1. #1
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    The Artisan/Bag gold sink fallacy

    Over the first year, Diablo 3 will probably sell about three million copies, with just a trickle after that. So that's the box sales income. But this game has a micro-transaction model built in that will continue to generate revenue for as long as people play the game. So continued popularity is in this case clearly a profitable enterprise.

    So we have a player base measured in millions, who during their initial week of play will buy the Artisan upgrades and bag upgrades. And then they will be done buying upgrades, because they have them all. Then what? They are still generating billions of gold pieces every hour.

    The artisan and bag upgrade processes consume a finite amount of gold from an infinite stream of gold.

    The solution to an infinite outpouring is an infinite sink.



  2. #2
    IncGamers Member Azzure's Avatar
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    Re: The Artisan/Bag gold sink fallacy

    Quote Originally Posted by AngleWyrm View Post
    Over the first year, Diablo 3 will probably sell about three million copies, with just a trickle after that. So that's the box sales income. But this game has a micro-transaction model built in that will continue to generate revenue for as long as people play the game. So continued popularity is in this case clearly a profitable enterprise.

    So we have a player base measured in millions, who during their initial week of play will buy the Artisan upgrades and bag upgrades. And then they will be done buying upgrades, because they have them all. Then what? They are still generating billions of gold pieces every hour.

    The artisan and bag upgrade processes consume a finite amount of gold from an infinite stream of gold.

    The solution to an infinite outpouring is an infinite sink.
    Few things, the game will sell probably closer to 5 million units in the first year.

    Artisans are designed to consume gold and materials indefinitely, they cannot be "completed" by any means. I think you are probably referring to leveling them up to maximum level.
    That's not the primary gold-sink for Artisans. Crafting endless combinations of items is the Gold-sink. Due to the affix system, it is nearly impossible to get the "perfect" item that would cause you to not need to continue using the Artisan for that slot. This is because the chance of getting "perfect stats and stat combinations" is one in billions.

    The only gold-sink we know about that CAN be completed, is the Stash. Artisans offer near-infinite usage.



  3. #3
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    Re: The Artisan/Bag gold sink fallacy

    Your vote "closer to five million in a year" my vote "about three million in a year". Blizzard's business volume just got interesting.

    On the topic of gamble crafting, is the output a net loss? How much material and gold goes into one attempt, and what does the average created item sell for on the auction houses?


    Last edited by AngleWyrm; 19-10-2011 at 05:26.

  4. #4
    IncGamers Member Frostlion's Avatar
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    Re: The Artisan/Bag gold sink fallacy

    An important thing to remember about things possibly selling on the AH is that it is in itself a gold sink. Namely, the transaction fee looks to be 15% on a successful sale, on top of some other nominal fees. Assuming people keep finding upgrades for a long time, an item can easily switch owners ten times, meaning by that time the fees have actually been higher than the value of the item.

    A second thing to remember is that Blizzard doesn't need to keep the economy balanced infinitely, they only need to keep it balanced until the next expansion. At that point, there will be such an influx of new items, content, gold sinks etc. that it's almost an economy reset. Now I don't think buying stash slots will carry us over for the (at least) 2 years until the expansion comes out, but if it takes most people 3 months to get their stash maxed out, that's over 10% of the required time bridged. A non-permanent gold sink is not the only thing required, but it's a good start.




  5. #5
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    Re: The Artisan/Bag gold sink fallacy

    Quote Originally Posted by Frostlion View Post
    An important thing to remember about things possibly selling on the AH is that it is in itself a gold sink. Namely, the transaction fee looks to be 15% on a successful sale, on top of some other nominal fees.
    A percentage based GAH fee is all that is required to prevent infinite Gold inflation. There cannot be long term inflation. Gold prices will... eventually... stabilize.
    tl:dr explanation...
    As Gold Auction House prices rise the amount of gold destroyed also rises.
    *********
    Prices rising infinitely would cause GAH fees to rise infinitely.
    Player income (the average gold earned per hour) will stabilize.
    Player income won't allow players to afford an infinite fee.
    At some point GAH fees cannot be afforded by players.
    That point will be created when player income stagnates.
    At that point GAH prices will no longer rise due to inflation.
    *********

    Assuming...
    1) There is a percentage based fee on the Gold Auction House
    2) The Gold Auction House is frequently used by players
    3) At some point the average player income stagnates or falls

    then...
    There cannot be long term inflation. Gold prices will... eventually... stabilize.

    I won't bother explain nor debate assumptions #1 and #2. Simply take those arguendo. The third assumption is simply referring to the point in time where the "average" player income stabilizes. At some point in time a portion of the playerbase will reach level 60, playstyles will no longer vastly increase in productivity, and game changes will not significantly increase gold income. I'm assuming this point will be reached and has been reached. When the game is first released player income will rise as player's characters level rise and their ability to kill stuff and find gold increases.

    At the point in time when income stagnates and the percentage fee Gold Auction House is regularly used... Gold inflation will cease. This ceasing of inflation occurs because the auction house fee cannot rise above a point where players cannot afford.

    Here's a very long-winded example with Economics jargon thrown in:
    Legendary Crafting Materials.
    I assume that buyers will want as many as possible and sellers can only find them so fast. Players want more Legendary Crafting Materials than is possible to exist. Legendary Crafting Materials are "scarce". If we all shared all of our Legendary Crafting Materials we all couldn't get as many as we wanted. I want a billion of them. There aren't that many. That's scarcity.

    The supply of Legendary Crafting Materials is relatively inelastic. Inelastic Supply means that as price increases the amount willing and able to be sold does not increase nor decrease. In Diablo 3 terms "inelastic supply" means that players are only going to find so many junk Legendaries they are willing to turn into scrap and sell. Even if the price of Legendary craftables rises or falls the amount of Legendaries turned into scrap won't change that much (but it likely will change some).

    Let's make up some simple numbers out of thin air to demonstrate the concept . These numbers are in no way intended to be accurate. Demonstration purposes only. Roll with my assumptions. If you need more assumptions add them in yourself.

    100 Players in Diablo 3.
    Average Income 5,000 Gold per hour
    1 Legendary item willing to be scrapped every 10 hours.
    Averager player plays 3 hours per week.

    Week 1:
    100 players * 5,000 gold * 3 hours = 1.5M Gold created per week
    100 players * .1 Legendary * 3 hours = 30 Legendary craftables.

    Some people won't use the Gold Auction House. Some people will use the item themselves. Lots of possibilities. But we'll pretend that...
    10 Legendary craftables are sold on the Gold Auction House in week 1.
    Average Price (totally made up): 10,000 gold.
    at a 15% fee this means that 10 items* 10,000 gold * .15 fee = 15,000 gold destroyed.

    15,000 gold destroyed.
    1,500,000 gold created.

    RAMPANT INFLATION. DOOM OMG LOL BLIZ YOU IDIOTS....

    Some food for thought: Each person only made on average 15,000 Gold in total. A player can only bid what he has. That number isn't very high.

    Week 2:
    Starting World Gold suppy: 1,485,000 (1.5M - 15k)
    +1.5M Gold Found
    +30 Legendary craftables.

    Let's say this week that 15 legendaries hit the market. Ten new ones found this week and 5 carried over from last week.

    Market Price of Legendaries: 20,000. Players made, on average, 30,000 Gold. There's 100 players and 15 legendaries for sale. Some of the rich ones came out and bought.

    So updating the money totals...
    1,485,000 + 1,500,000 = 2,985,000 Gold
    minus 20,000 price * 15 sold * .15 fee = 45,000
    Total Gold = 2,940,000
    ZOMG LOL INFLATION. Smurphy you so stupid. Peoples makin' millions of gold and only thousands getting destroyed.

    Let's fast forward many many weeks of outrageous inflation. Totally made up huge numbers. Cause dude... we got rampant inflation. Money grows on trees baby. We all rich as Santa Clause.

    Total Gold Supply: 152,521,321,519
    Average per player: 152,521,321 -- We're all rich mofos!
    Items sold per week: 20
    Price per item: 13,231,310. Sure, I'll drop 13M yo. I got 152 million. What do I care? I want my legendary craftables.

    Gold created: 1.5M still. Income is stagnant.
    20 sold * 13,231,310 price * .15 fee = 39,693,930
    39 Million Gold destroyed. Sweet baby jeebus. Only 1 and 1/2 million created. Deflation is a *****.

    Infinite inflation cannot occur because, at some point, players income will not keep up with Auction house fees. This point is somewhere above a price of 15,000 and somewhere below a price of 13M in my totally made up scenario.

    The moral of the story is that Gold Prices will stabilize somewhere. Also keep in mind that the more money flowing through the system that faster it is destroyed. You may find an item and sell it for gold. Then, you make take that gold and purchase another item. The person who sold that item will then take the gold and purchase something he wants. The same money may flow through the system very rapidly.

    Gold Inflation won't exist forever with a fee based Gold Auction House. When the "average income" stagnates then Inflation stops.

    Some side comments:
    Individual item prices will rise and fall due to changing supply and demand. Due not mistake and individual items price rising for "Inflation".
    Player income will change based on a ton of factors. These factors will include leveling up, getting gold find items, increased player skill, some awesome build that everyone uses that kills everything, or Blizzard changing the game and simply turning up the gold rate.
    An individuals quest for personal wealth will lead at least some people to use the Gold Auction house. I want Gold. I have junk. Some people will give me Gold for junk. The auction house is where it will occur. As long as SOME people are using the Gold Auction house inflation will not be infinite.
    I am NOT saying that the stabilization point won't be outrageously high. That could be the case. I think it unlikely.
    Simply because there no longer is inflation doesn't mean that the amount of gold in the Diablo 3 eceonomy is not "too high". Who wants to figure out if they bid 2 billion or 2 trillion gold for a potion? If prices stabilize there I would consider that "bad".




  6. #6
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    Re: The Artisan/Bag gold sink fallacy

    Quote Originally Posted by AngleWyrm View Post
    On the topic of gamble crafting, is the output a net loss? How much material and gold goes into one attempt, and what does the average created item sell for on the auction houses?
    If the output is a net loss, people wouldn't do it. But the value of the output is what will help determine the value of gold. A person will decide between buying on AH or crafting based on this and the prices will move because of players' choices. An item's AH price will be influenced by the gold value of the items required to craft it on average.

    This (and lots of economic theory) of course assumes players make rational, informed decisions. This is rarely the case and there is a whole field of econmics/psychology dealing with modifying theories based on the knowledge that most people don't act rationally in markets. A good example of this is that it would make sense to have a few artisan specialists that everyone uses. But nearly everyone is going to level their own artisans, this happens in every game that has crafting.



  7. #7
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    Re: The Artisan/Bag gold sink fallacy

    People leveling their own artisans can be rationally explained - time is a resource, and collaboration carries a risk of loss. If the calculated cost of leveling your artisans on your own translates to less than the time cost involved in muling items over to a partnership artisan over a period plus the perceived risk of loss on whatever you would have to invest in a partnership "owned" artisan; you would rationally make the choice to do it yourself.

    It does seem somewhat likely that at least while gold and market information is scarce that people will specialize. Focusing the investment of materials and resources into one specific artisan and trading the benefits of that focused investment in the marketplace (or even between complementarily invested friends). I'm interested to see if that approach will stay viable as the markets mature or not.



  8. #8
    IncGamers Member Frostlion's Avatar
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    Re: The Artisan/Bag gold sink fallacy

    Smurphys, thanks for a great analysis and solid examples.

    I think the main risk is in your assumption #2: "The Gold Auction House is frequently used by players". If inflation is rampant for a long period of time, people will stop wanting gold. Why? Because the gold they got this week will only be worth half as much next week. They'd rather have items that keep their value. So you'll see more people starting to trade in different ways, using the RMAH, doing direct trades or using any different kind of value system like in Diablo 2.

    When people talk about infinite inflation, what they're really referring to is inflation that is so large and long lasting that it will destroy the current economic system and have people scrambling for an alternative. After that, prices may stabilize for the people left, but it will be a slow and painful process to get everyone back into the gold system at that point.

    In that sense, the real question is: will prices stabilize before the market breaks down?




  9. #9
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    Re: The Artisan/Bag gold sink fallacy

    Quote Originally Posted by Marloe View Post
    People leveling their own artisans can be rationally explained - time is a resource, and collaboration carries a risk of loss. If the calculated cost of leveling your artisans on your own translates to less than the time cost involved in muling items over to a partnership artisan over a period plus the perceived risk of loss on whatever you would have to invest in a partnership "owned" artisan; you would rationally make the choice to do it yourself.

    It does seem somewhat likely that at least while gold and market information is scarce that people will specialize. Focusing the investment of materials and resources into one specific artisan and trading the benefits of that focused investment in the marketplace (or even between complementarily invested friends). I'm interested to see if that approach will stay viable as the markets mature or not.
    I was suggesting that a few folks with artisans could supply the market instead of collaboration. I totally agree with you about just about everything you said. There is room in the market for folks to advertise their services, plus I'd imagine the items that folks will be interested in will be a subset of what the artisans are capable of. They will just continually manufacture items and put them on the AH and it would be cheaper to shop than to level.

    I think that folks will just find it fun to level their artisans and that is a fine reason to do it. I'll probably do that as well but I'll do it knowing that it isn't cost-effective.



  10. #10
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    Re: The Artisan/Bag gold sink fallacy

    I have never seen any "gold sink" system that was done "right" and the only ones I've seen that worked "right" have been the ones with constant tweaking going on... I think something like a gold-sink mechanic needs to be dynamic, you can't go putting in so many gold sinks at the start that nobody can even function but on the other side of that same coin too few at the start and their effect becomes insignificant at later levels... They need a system that scales with not only the player base but with seasonal activity as well, a gold sink that works well for Xmas traffic might totally dry up the market over the summer months.

    In any game I've seen with a well balanced gold system the basic gold sink for crafting and repairs is just the base line, it's like your resting breath, you need your breath to stay healthy but you don't need your lungs to process the same volume of oxygen when you are resting as you do when you are exerting yourself so your "passive" breath is much lighter and not really "good" for anything besides keeping you alive. When you turn up the heat and need more oxygen your lungs start working harder to get oxygen and that same basic principal should be applied to the markets to keep them healthy, you don't need passive gold sinks hemorrhaging gold, you just need them to maintain a steady flow... If a situation should arise where there is a need to "bleed" the market that needs to be handled via more proactive intervention, the passive system is just there for basic life support.


    Last edited by Concupisco Quaestus; 28-10-2011 at 22:55.

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