This is the report on the roundtable
that I moderated at GDC in 2005. It was incredibly fun and I
learned a lot. We had about 150 game designers overall
attend the sessions. A Word version of the report can be
This roundtable was a discussion about MMO economies and the
design elements that support business games. The roundtable used
classic economic principles and challenged the participants to
think about how these principles can used to create challenging
The objective of the roundtable was for the participants to
learn to think critically about how to incorporate more
advanced economic elements into their game.
Each session started with a definition of economics, and the
objective of a real world economy. The participants where then
asked to define the objective of a game economy, as well as the
player’s goal, or victory condition. After that, each session
explored a different aspect of business game design. The focus
of each session was determined by the participants and the
moderators used basic economic principles to guide the
Session 1 (March 9, 2005)
– Monetary Policy/Role of Government
Session 2 (
March 10, 2005)
– Industrial Structure
Session 3 (March 11, 2005) – Marketplace Structure
The sessions were well attended, and discussion was lively. The
major issue (other than the noise problems) was that the subject
was so broad that not all the issues could be discussed. For
example the round table did not discuss tie-ins with real world
economies (i.e. buying and selling in-game assets with real
world currencies), though many people expressed interest in
discussing those issues. Excellent commentary on these issues
can be found at
Each session started with some basic definitions
Economics – The study of how supply and demand allocates scarce
goods and services in a society. Economics is typically broken
into two fields of study
behavior and decision making of individual firms and consumers.
behavior of the economy in the aggregate, focusing on nation
production, inflation, unemployment and the role of government.
Government – the governing authority. In MMO terms the
government is the game developers. The NPCs within the game are
Manufacturer – characters that make consumable and
durable goods. In most games these are known as crafters.
MMO Business Game – a game where the players are both
consumer and producer of goods and services. Some
markets might be served by NPC agents, but for this discussion
an MMO business game is primarily a Play vs. Player game.
Pareto Optimality –
This is the standard that most economics
use to measure the effectiveness of any economy. When an economy
is Pareto Optimal then no redistribution of goods or services
can make someone better off without making someone else worst
Goal of Real World Economy – Achieve Pareto Optimality.
This was the first question we tackled in all sessions. This is
the standard by which MMO economics should be judged.
Goal of MMO Economy – Support a “Fun” business game. The game
involves the selling and buying of goods and services between
The goal of a MMO economy is not the same as the goal for a real
world economy. Thus economic structures that are traditionally
considered “bad” by economists (natural monopolies, government
restrictions on free markets, oligopoly behaviors, stock fraud,
etc.) might be good for a “fun” business game.
For example a business game that allows you to build a ruthless
monopoly that blows up competitor’s factories, commits stock
swindles, defrauds the public and exploits workers can be as
exciting as playing Halo. In the real world both the
business and combat behaviors would land you in jail.
Players need to know that they have won, or achieved some sort
of goal, when playing a game. This is a fundamental principle of
most games. The goal can be either defined within the game
(kill the most orcs) or by the players themselves (make the
highest quality purple and chrome blaster possible).
The participants discussed what the player goal or victory
condition should be for an MMO business game. The three sessions
came up with the following goal (in multiple variations)-
– Players want to be on the top of the heap, therefore in a
business game they want more cash/stuff than anyone else. This
was expanded to include a comparison of assets, and liabilities,
in effect a balance sheet.
you let others know you won?
MMO communities are very status oriented. It is important that
the players are able to let others know how successful they are
in playing the game.
How to display success to others was then discussed.
Participants came up with the following solutions:
Conspicuous Consumption – Allow the players to purchase and
display luxury goods (houses, clothing, pets, NPC followers).
Many of these goods should not have an impact on actual game
success. They just show others that the character has “money to
burn”. Note that this solution not limited to displaying success
in a business game. It is a typical means of displaying success
in MMORPGs (I got this rubber chicken hat from this difficult
quest, I am a level 65 Paladin, I can afford to dye my armor
Balance Sheets/Net Worth statements
– allow players to see the financial health of the character
though some form of an income/balance sheet statement. This
should be set up so that the player’s economic standing can
“sliced and diced” like a traditional leader board (I am the 2nd
wealthiest flizz producer on the shard). Again this is similar
to how MMORPG leader boards work.
for an example).
The first session participants wanted to discuss macroeconomics,
particularly how to control hyperinflation.
We first assumed that an MMO business game needed to have
players buying and selling with each other, as well as setting
their own prices for goods and services. Having all prices fixed
by the government (the developers), would not make for an
interesting business game.
To set the ground work, money was defined:
- Money greases the wheels of exchange and thus makes the whole
economy more productive.
Most participants understood that money is not a commodity in
itself. They also understood that the money supply needed to
grow and contract based on the game economy's need for
liquidity. Finally, they understood the strong relationship
between growth in the money supply and inflation. Only
Hyper-inflation and Depression were concerns. No one supported
the idea of a fixed money supply.
A brief and simplistic explanation of how the government
controls the money supply through manipulation of banking
was then given. When the Fed decides that the money supply is
too large, reserve requirements are raised (indirectly),
reducing the money supply, effectively destroying the excess
cash. When the Fed wants the money supply to be larger, they
lower the reserve requirements creating more cash.
Cash is created through player-to-game exchanges. In an MMORPG this is done by doing
quests, killing mobs, taking their stuff and selling it to NPC
vendors, or by direct payment to the player for quest
completion. It is not created by player-to-player exchanges.
Cash is destroyed when players pay the game for a service or
Examples are housing rents, purchases of items from an NPC,
fines for carrying contraband goods, etc. The MMO term for such
destruction of cash is a “drain”, so named because they drain
cash from the world.
The issue is that most drains are fixed in magnitude, and cash
creation is in the hands of the players. Players, acting in
their own self interest, will create enough cash to allow them
to purchase goods and services from the NPCs and other players.
It is easy to see how this will result in an inflow of cash that
will overwhelm the fixed drains, resulting in an inflating, and
eventually a hyper-inflated MMO economy and a poor business
The example of Asheron Call’s hyper-inflation was
discussed. There were no drains removing cash from the economy.
Eventually the economy was flooded with cash and the in-game
currency abandoned by the players. The players then started to
use treasure chest keys as a substitute currency. The group
noted that the attributes of these keys fit the definition of a
good commodity currency.
The key is to develop cash drains that vary with the general
price level in the game. As the economy heats up and inflation
sets in, money is destroyed at a faster rate. Some suggested
systems to accomplish this were:
Transaction Tax – the game takes some fixed percentage of
any player-to-player transaction. Fictionally this can be a
broker fee, or a delivery fee, or just a business tax. As the
price level for goods increase, more and more cash is
destroyed. EQII broker fees are an example of this. Note
that fixed charges for registering an item on a broker does not
create a variable drain (SWG and WoW have fixed
prices for putting goods up on a broker). Some form of a
transaction tax is the most direct viable drain. It runs
constantly and is very responsive to the general price level and
intensity of economic activity.
– A very interesting idea, though not directly tied to
economic activity, it is tied to the general price levels in the
game. Some limited game resource is periodically auctioned to
the player community. As the money supply and price levels
increase, the players will bid more for these scarce resources.
As the money supply shrinks the price level falls and the
players will not bid as much. Some example activities (based
primarily on MMORPG game settings) include
Resource spawn leases –
The location where raw resources are spawned are leased to the
player for a limited time (North Slope drilling rights anyone?).
Note that creating resources for the business game does not
create money in the economy, as long as the NPCs do not purchase
the raw materials.
GM Special Events –
the players can rent GM’s to run special events for their guild
(hire Darth Vader for your guild party).
Urban renewal – A set number of city blocks can be
upgraded or maintained each game cycle. The players/guild with
the highest bid will get their streets cleaned, and their
“public services” upgraded. The other areas are allowed to
decay. Fictionally this can be presented as bribing the Alderman
to get the potholes fixed, or some variation of that theme.
– only a limited number of insurance policies against “natural”
disasters are available. If you don’t get one, some of your
assets might suffer an accident (a shame if that tank caught
fire won’t it captain?).
While dependant on the MMO game, it is
easy to see how auctions could work, and provide cash drains
that vary based on the general price level.
State Run Gambling –
the game allows for player characters to
gamble their cash (with typical casino odds). The higher the
general price level the more likely a player will “spin the
wheel”. Even more indirect than the auction schemes, but a
variable drain never-the-less.
NPC Prices raise and fall –
Some participants thought an
algorithm could be made so that the prices that the game offered
for player goods and services would vary based on the price
level. We did not get to discuss the pros and cons of this in
detail. It would require the developers to make decisions on how
much cash was “enough”. [A personal note – I am philosophically
not in favor of such direct intervention into a game’s market
We did discuss setting up banks, either by chartering player
characters to create banks, or setting up an NPC bank. Here the
government (developers) regulates reserve rates and enforce loan
contracts, like in real life. Thus they directly control the
size of the money supply in the same manner as the Fed.
While many thought good game play could be achieved out of
creating player chartered banks, we did not find a good solution
to the fraud and embezzlement issues.
A simple fraud example is that player A takes out a loan and
then gives the money to player B (overly tipping a Star War’s
dancer, to get the dancer’s attention was the specific example).
Player A then cancels their account and the loan is in default.
Player B can not be held accountable, and so the bank loses
One solution, and one used on There, was suggested the
next day. The loan is secured by collateral that is held in
escrow. The borrower has use of the asset, but can not transfer
it. If the loan is not repaid then the collateral is used to pay
off the loan.
If player-run banks accept player deposits and make loans (a
requirement if we are to use bank reserves to control the money
supply) then the embezzlement problem has to be solved as well.
It is unlikely that a player can put up enough assets to cover
embezzlement of all of the funds in a bank. No good solution to
the embezzlement problem was given by the participants.
It is possible for game run banks to loan money, accept
deposits, and pay interest. The fraud problem is still there,
but the game developers have direct control of the money supply
by deciding how much money they will loan out. How difficult it
would be for the developers to control the money supply in this
way remains to be seen.
We can allow for player to player loans if a collateral scheme
is in place. All it really requires is for the developers to
create escrow systems to hold the collateral.
In the second session, the participants wanted to deal with how
goods and services are produced and brought to market. In the
end this discussion revolved around natural monopolies and the
structures that were needed to avoid them.
We also discussed how to the keep an economy constantly
producing so that it does not run out of steam.
Of interesting note was the large number of participants who
proposed heavy government intervention (production limitations,
price floors and ceilings, limit the number of manufacturers,
etc.) to solve these problems.
In most MMOs the crafter (industrialist) creates goods through
processing raw materials, and sub-components, though some game
mechanic. There is a progression of goods that they can create,
as they become more proficient.
In an MMO, as the crafter produces more goods, they become
capable of creating better quality versions of the good, and
learn to make more valuable high-end goods. Their cost for
manufacturing declines in some manner, normally through less
wastage, or faster production times.
This manufacturing processes results in an industrial structure
that mimic those of natural monopolies –
Constantly Declining Marginal Costs
– the cost of manufacturing one more item is less than the cost
of manufacturing the pervious item.
High Fixed Costs
– the cost of getting into the business is
very high. In MMORPG terms the cost of getting the skill of the
crafter (human capital) up to competitive levels is high or very
First In Advantage
– the first crafters in a market are able
to sell goods at monopoly prices as they level up, lowering the
cost of their investment in human capital as they advance. Other
crafters coming into the market don’t have that advantage.
This naturally results in the starting crafter not being able to
compete with elder crafter. They have to invest more time and
effort to get their skills and facilities up to standards of the
elder crafter. Thus they face high fixed costs.
Not surprisingly new players entering the game can not compete
with established crafters and they don’t participate in the
business game and so don’t have any fun. .
The round table participants came up with the following
solutions to this problem.
Comparative Advantage - this solution is to trust an economic
principle to solve the problem. Under this principle the elder
crafters will abandon the markets for low end goods, so that
they can concentrate on producing higher profit high-end goods.
If the market has enough demand for all of the high-end goods
that can be produced by elder crafters, then this might work.
However, in most cases, the market can not absorb all of the
goods and so the elder crafters go to the lower end markets to
make their profit. For example Docs in SWG regularly
compete in the stim-B pack market, which are a low-end good that
ought to support a lower end player, but because them is not
enough demand for stim-C packs the Doctors compete in the stim-B
– make it possible for a new crafter to
compete with a elder crafter by capping the quality of the goods
produced at a level that the new crafter can easily attain (the
CDEF pistol made by a starting crafter is the same as the CDEF
pistol made by an elder crafter). This will give more incentive
to the elder crafter to compete in high end goods, leaving the
low-end good market to the new crafter.
Government purchases of low end goods
–this solution with have the game NPCs purchase low end goods,
providing a price floor for low end goods (hopefully at the cost
of manufacturing). This way the new crafters have the fixed cost
of getting into the business lowered, and they can get their
skills up to par with the elder crafters quickly. The problem is
if the crafter can make a profit they will use this mechanism to
over produce goods, to sell to the government. This will
artificially drive up the cost of raw materials and
sub-components and create cash. Depending on how much
profit a crafter can make selling items to the government, this
might become the prime means of creating cash for the players.
(This was the primary money making scheme in Asheron's Call
for many years. Applesauce making is a fond memory for many
Faster crafting advancement for non-production
– this solution attacks the problem from the other cost the
player faces when entering the market, the actual time it takes
to raise the skill levels of a starting crafter. The game gives
the crafter additional experience for not producing a final
product (farm subsidies anyone?). SWG does this.
Have low end goods be subcomponents for high end goods
– The new crafters become suppliers for the high end crafters,
effectively becoming part of a vertically integrated industry.This was tried in SWG, but failed because
the subcomponents made by masters are better than those made by
- this solution has the lower quality
good, manufactured by the new crafter, be a close substitute for
the high quality version of the good. This will only work if the
high quality version has a higher marginal cost to manufacture
than the lower quality version. This can be done by requiring
the high quality version use a high cost sub-component.
One of the major problems facing a playerrun MMO business game is market saturation. There
are only so many consumers for pristine cedar bows. Once all of
those players have one, the market vanishes. Each time a crafter
makes a sell he destroys a customer. If that customer can sell
the good himself once he outgrows it, then the crafter kills not
just one, but a chain of potential customers. These secondary
markets for used goods can destroy the market for newly
The participants proposed the following solutions.
Attunable items – This solution has no real world
analogy. What happens is that the item can have only one user.
It is attuned the user though some ingame
process and once attuned it can not be traded or sold. While it
does not totally solve the problem it does remove competition
from secondary markets. This solution is being used in EQII
and some other games.
Obsolescent though Monty Hall
–In an adventuring oriented game, as the game ages, the
developers keep adding bigger and bigger challenges for the
players, and consequently the rewards become bigger and bigger.
This is called the Monty Hall effect. In a business MMO the
developers would constantly add new manufacturing items that are
superior to the ones currently created. Having a large number
of consumable items (potions, ammunition, bandages, fireworks,
food, drink, clown makeup, etc.) is another variation of
– All items decay. This insures that the market is never
saturated, because the items have to be replaced. Many players
dislike this method, but it is used with good effect in SWG
and other games. An alternative is to make lots of consumables
(food, drink, potions, ammunition, fireworks, etc).
Fashion/taste – this method is used to good effect by
There and Second Life. Here customer tastes make last weeks
items unfashionable and everyone has to replace their current
set of items with whatever is hot.
Limit Industrial production
– government intervention by
assigning quotas, or limiting production rights. Granting these
rights can be done by direct quota, lottery, or though an
auction. One interesting idea was to assign all players a quota
and then let the players sell their quotas to each other.
Another idea was to all players own a certain resource that only
produced so much each turn and then let them trade those
Negative Faction (Don’t piss off the Wookies)- the act
of manufacturing causes the player character to gain negative
faction with an NPC group within the game. This group would
retaliate against the player in some manner, once the negative
faction is high enough. The example was making Wookie rugs.
This would give a player character high negative faction with
NPC Wookies, eventually ending with enraged Wookies burning the
The competitive landscape in the business game was the main
topic of conversation for the 3rd and final session.
We used the attributes of a marketplace under prefect
competition to guide this discussion.
Numerous Buyers and Sellers
– Enough buyers and sellers to
insure that no one person or firm can influence the price of a
Homogeneity of Product
– Goods offered by one seller are the same
as the goods offered by another.
Freedom of Entry and Exit
– New competitors can enter the
market at the same cost as the entry cost for current
competitors. Conversely there are no major barriers to leave the
– all buyers and sellers have the same
information about the marketplace available to them. They all
need to be well informed.
No/Low Transaction costs
– the cost of making a purchase is
non-existent or low. If it exists, the transaction cost is the
same regardless of which seller the customer chooses.
Some versions of this list include Infinitely Divisible Goods
as another required attribute for perfect competition. Given
the time constraints and the fact that currency solves this
problem, we did not include that attribute for discussion.
It would be possible to design a game that has prefect
competition. However would this game be “fun” (the objective of
a business game)?
The answer is no. Under prefect competition all players are
price takers. There are no opportunities for arbitrage,
collusion, cornering the market, predatory pricing, dumping, and
all those other fun robber baron business activities.
However we do not a perfectly imperfect market. In that
situation the economy is so inefficient that only the most
driven players will participate.
The key is to create market structures that will take enough of
the burden off of the players to entice many of them to
participate, without turning the game into a boring commodities
In economic terms this means an oligopoly market structure. An
oligopoly has a few large sellers, with a number of smaller
competitors. They sell goods that are differentiated from one
another (close substitutes).
Creating imperfect markets is the simple answer to that
question. To do this we need to do the following.
Numerous Buyers and few Sellers
– we want numerous buyers and only a few sellers for a good at
any one time. To do this we can fragment the marketplaces (SWG
has no central clearing house for its Vendors carrying high end
goods. EQII has online only vendors, giving players
opportunities to offer goods when others are offline).
Alternatively we can control the amount of goods available at
any one time by making key component drops extremely rare, or
Close Substitutes – insure that goods are close substitutes
for one another and that crafters have some means of product
differentiation when they make an item. Letting crafters create
the same goods in different colors is one simple solution.
Having a sword that gives a +1 strength but a marginally lower
DPS is another example of a close substitute.
Imperfect Info – This allows for arbitrage and very
interesting game behaviors. Many WoW traders play the
market. They use a third party program to track average prices
and buy up goods that are under-priced only to resell them at
the average price. There players will work the payroll
cycle. Thursday the prices for goods drop, as players find that
they need some real world cash to make it through the rest of
the week. Players buy up goods then and then resell them after
payday for a nice profit. The players willing to spend the time
have to have enough information to analyze the market and get an
information advantage on their competitors.
Transaction Cost in time – Cost includes both in-game cash,
but also how much time a player has to spend to complete the
transaction. In SWG the cost of comparison shopping is
very high, since there are no centralized market for high end
goods. Players have to travel from vendor to vendor to see what
is being offered. This makes advertising, one stop shopping
mega-malls, and location an important part of the business game
(though it does frustrate some buyers). The trade-off is that if
the transaction cost is too high the buyers will opt-out.
Finding the right balance is critical.
Moderate Cost of entry – This ties in with the 2nd
Session discussion on avoiding monopolies. However some means
for moderate entry costs, that did not invalidate the solutions
from the 2nd session included –
Profession Tracks –
make the players commit to a crafting class (arms manufacturer,
potion maker, automobiles), and make changing between classes
Location Based Competition -
location is important for success (vendor stalls at
transportation nexus, adventuring supply shops near high traffic
dungeons, Market stalls outside of a planetary starport), then
new competitors into the market will either have to purchase a
high cost location, or compete at a disadvantage. This
disadvantage can be offset via advertising (SWG
advertising droids directing customers around the starports to
bargains off the main drag are common).
Secure transactions are mandatory, even in Oligopoly. While
piracy in Eve was brought up as fun game play (at least for the
pirate), the participants agreed that allowing players to steal
from one another is not fun game play.
In an oligopoly environment we need to let players compete via
marketing principles. Marketing has divided competitive
strategies into what is known as Kotler’s 4Ps. Note that
these competitive strategies take advantage of the flawed
structures that economist say will create oligopolies.
– competition via product differentiation. One way to
do this is to have items have stats that are differently valued
by one class of characters. For example, in EQ, a tunic that has
+2 agility is highly valued by Rangers. The same tunic with +2
wisdom is not as valued by the Rangers but is now highly valued
Place – Where the goods are offered for sale. As mentioned
before locations near transportation nexus are prime real
estate. Again centralized market places with listings of all
goods for sale are good to lower transaction cost and get more
buyers to participate. For example, the creation of the bazaar
in EQ, made for viable business game. But doing so reduces the
opportunity for competition based on the location of the seller.
Promotion – Advertising pure and simple. Players do this all
the time, (shouts and zone wide spam LFGing). Most of these are
for services that can not be offered for sale via broker or
auction house systems. Branding crafted goods with the crafter’s
name, signage for stores, and other mechanism all allow the
players to compete through promotion.
Price – An easy one, but if there are price caps and floors
because NPC vendors buy and sell the same items, then price
competition is restricted. Heavy price competition is normally
the last resort after Product, Place and Promotion competition
options are exhausted. Note that the most competitive real world
markets, such as grain, and crude oil, have virtually no
promotional, product or place based competition.
The round table sessions were very successful. The participants
got engaged in analyzing MMO business games using economic
principles. Many solutions for design problems became obvious
once these principles where understood.
The solutions for the specific design problems that the
participants where interested in were:
The risk of Hyper-Inflation can be managed via viable cash
drains directly or indirectly linked to the general price
We can create a loan structure which will allow players to
borrow cash from each other.
Elder crafter domination can be solved by insuring that the
industrial structure is not one of natural monopoly.
Market saturation can be avoided by obsolescent
Market structures that lead to Oligopolies make good business
Competitive business games should support tradition means of
Going forward, using economic theory of public goods, welfare
economics, financial intuitions, etc. should provide solutions
to design issues that are not directly connected to a business
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