Tip.It Times Presents: Inflation and the Runescape Economy

[Duke_Freedom]

How many people are holding rares on the "greater-fool theory", if not on the assumption they they will raise in price forever and ever? Also, the half jug of wine is now up to 45-60 million (acording to the zybez price guide.) Also, rarity does not generate value in itself.

 

 

 

Maybe you misunderstood me because the word rarity has double meanings in this context - I actually ment to say that non-wearables are based more on their scarcity then wearables. Ofcourse if an item is scarcer then an other item it also has a lower (theoretical) supply then the other item, while the demand (in case of two similiar items) should stay equal. Lower supply and equal demand means higher prices. The more scarce, the more expensive.

 

 

 

If we assume that there are just as many half wine's as there are crackers (not too unreasonable though there are probably slightly less crackers) and we see that half wine's are roughly 50mil while crackers are roughly 700mil, we can conclude that there is more of a 'price bubble' in the price of crackers then in the price of half wines. The crackers are based a lot less on their scarcity and a lot more on the fact that they go up in price. Now if this latter effect is gone, it's not unreasonable to say that they'll also go down in price faster.

 

 

 

Basically, why own a half-jug of wine or a pumpkin?

 

 

 

And although a lot of people buy rares for investement purposes, there are quite a few people who buy them because it are collector items as well - this is especially true for the non-wearable rares. Generally the collectors are also the people who will never resell their rares.

 

 

 

Obviously, when the panic hits, those holding materials will be best position, and may even come out ahead when the dust settles. Also, by buying up materials now, the existant stockpiles will be larger when the panic hits; making the price increases less severe when the run on materials does occur.

 

 

 

Why would the players be interested to buy up materials now though? Rares are still growing at a rate of hundreds %'s per year in price. Besides how big are the possible changes we're talking about in the prices of materials and how fast could it go anyway? I'd say the price increases would be varying around a few hundred %'s, depending on the material and it's game-implemented high-alch value and use.

 

 

 

(Theoretically, merely by writting this entry, I (and Duke_Freedom) could burst the rare market bubble.)

 

 

 

Well right now there's nothing wrong with the rares market, so there is no bubble to burst either :? - the money supply is still growing at a high rate and so is the player population. The possible scenario's we're discussing here are probably still year(s?) away.

 

 

 

Furthermore the main idea of the scenario's (extreme increases in the prices of materials) we're talking about here is not as much of an issue about whether it's possible - it's also an issue whether people can be convinced of it and believe in it. As long as people don't believe in it and as long as investors don't see the potention of materials (aka, they start buying materials as investement), it is unlikely that anything will happen yet.

 

 

 

That's why I said hyper-inflation can hit unexpected - ofcourse, if it is inevitable, it will eventually happen, as the shortage of materials will force a price increase itself. However it will take longer before the prices are really affected and it would go a lot less gradually then when people believe in it and stock up materials for investement purposes.

 

 

 

Is is possible to to engineer a "soft-landing", either by player co-operation (which is really unlikely by its nature) or Jagex?

 

 

 

Well I definately wouldn't count on the player's solving it. For the rest it's really hard to say - there are a lot of factors in play. For example, if the player growth would only lower slowly, perhaps there would be no action needed as all the changes would / could (ideally) go gradually as well. However, if the player population peaks and then suddenly start diminishing like there is no tomorrow then we have a totally different story.

[Guest]

Great article...I agree with the author, but IÃÆââââ¬Å¡Ã¬Ã¢ââ¬Å¾Ã¢d like to add something that I have in mind and he didn't mention clearly...

 

 

 

There isnÃÆââââ¬Å¡Ã¬Ã¢ââ¬Å¾Ã¢t JUST cause of the high alchemy spell that the inflation rises, thatÃÆââââ¬Å¡Ã¬Ã¢ââ¬Å¾Ã¢s for an obvious view of the game...runescape economic way is delivered to JUST add gp on the game...for example, the high alchemy, the sells at stores, monsters killing, mining, fishing, woodcutting, quests, clues and etc....and on the other side, there isnÃÆââââ¬Å¡Ã¬Ã¢ââ¬Å¾Ã¢t anything to take off this gp from the game, ok we got construction and other things, like the author said, but it isnÃÆââââ¬Å¡Ã¬Ã¢ââ¬Å¾Ã¢t enough...runescape could make banking taxes and other things like repairing armors and weapons, and etc...

 

to understand the inflation works like this example...there is Xgp amount of the gp on runescape...to someone get 1gp, other should lose 1gp...but if someone get 1gp richer and others donÃÆââââ¬Å¡Ã¬Ã¢ââ¬Å¾Ã¢t, there comes the inflation, cause the total amount of money get X+1gp(thinking in a silly way just to illustrate)...and where this inflation reflects? it makes all items value change(rising or not)...is the amount of items grow more than the gps, then the items get cheaper and, obviously, if the amount of items rises lower than the gps, the items get expensive...and thatÃÆââââ¬Å¡Ã¬Ã¢ââ¬Å¾Ã¢s exactly what happen with rares...

 

 

 

like I said in the beginning , there isnÃÆââââ¬Å¡Ã¬Ã¢ââ¬Å¾Ã¢t just 1 cause, there are manyÃÆââââ¬Å¡Ã¬Ãâæthis is 1ÃÆââââ¬Å¡Ã¬Ãâæ

 

 

 

 

 

thanks

 

 

 

 

 

 

 

My D*CK is Big....

 

 

 

oooooops...My DUCK is Big!

 

hehe

[blaek7]

In my opinion, what is happening is that there is a "bubble" in rares which is allowing the relative supply of gps to rise while holding down the cost of everything else. This bubble is a bit different than any economic bubble in the real world for several reasons; basically it is dependant on "cheap" money and "cheap" materials. Or more correctly, both gps AND materials must enter into the economy of Runescape in order for prices to go in the expected direction (stability for materials, rising prices for rares).

 

 

 

To use a real world analogy, imagine the Runescape economy as a market in its boom phase. The U.S. in the 1920's for example. Gps represent money, Rares stocks, and materials consumer goods.

 

 

 

 

 

To spell it out clearly, a "panic" is a severe market shock in the Runescape economy caused by sudden changes in prices. There are, in my opinion, three basic ways in which Runescape could experience a panic.

 

 

 

1) Material Price Inflation: Inflation creeps into the materials market because material production lags too far behind gp increases (even with the gps going into the rare market). This will probably be caused by a slowing rate of growth in the number of players in the Runescape economy. This is the real world equivalent to (price) inflation (more or less).

 

 

 

2) Bursting of the Rare-Market Bubble: The price of rares falls (or does not continue to rise rapidly enough) because the world supply of gps contracts (or does not grow fast enough). This will probably be caused by Jagex over-reacting to inflation or a fall in the number of players. The price of rares then begins to fall, speculators panic, then the bubble implodes. This the real world equivalent of a stock market crash.

 

 

 

3) GP abandonment in Mega-Transactions: Assuming both gps and materials continue to flow into the economy, the rising cost or rares will present another problem; their cost become so large it can not be handled in gps. Players can only hold 2.1 bil gps in their bank accounts, because it is held as a 32-bit number. (I'm guessing should be 2^31 -1 or 2,147,483,647)

 

Once the price of rares approaches this, it will become increasingly inconvenient to trade in gps. Even before rares reach this limit, trading may become difficult, as sale of a single rare may person's total gps over 2.1 billion. However, as Duke_Freedom suggested, if rares trade for slightly over this amount, it will probably be common for a less valuable rare and gps to be traded for a rare. However, eventually, some sort of commodity become the "currency" of rare sales, thus lowering the demand for gps and possibly leading to currency abandonment of gps. There is no real-world equivalent to this.

 

 

 

Also, I would suggest that ANY panic OR severe market shock may result in some or all of the evils of material price inflation, bursting of the are bubble, and (partial) abandonment of gps in player-2-player trading.

 

 

 

Also, I would like to add, that, short of a miraculous tweaking by Jagex, some sort of panic is fore-ordained at some point. I can not say when will happen, which sector of the Runescape economy it will start in, or how bad it will be, but it will happen.

 

 

 

 

 

And although a lot of people buy rares for investement purposes, there are quite a few people who buy them because it are collector items as well - this is especially true for the non-wearable rares. Generally the collectors are also the people who will never resell their rares.

 

 

 

The question is this, are there enough "collectors" to buy up the rares "speculators" will sell of at prices reasonably near the pre-panic levels? Also, few players are pure collectors or pure speculators. How many players might sell of their rares if they were reasonoably certain that the rare could be bought at a later date more cheaply.

 

 

 

Well right now there's nothing wrong with the rares market, so there is no bubble to burst either - the money supply is still growing at a high rate and so is the player population. The possible scenario's we're discussing here are probably still year(s?) away.

 

 

 

Right now, the Christmas cracker costs about 650 gp, assuming 500% price increases per year, (meaning a rise of a factor of 6 right?), we have about 226 days (this is a projection, and I know inflation is getting less severe) until the Christmas cracker costs more gps than is holdable in one's bank account. That works out to be the 25th of Febuary 2007.

 

 

 

Why would the players be interested to buy up materials now though? Rares are still growing at a rate of hundreds %'s per year in price. Besides how big are the possible changes we're talking about in the prices of materials and how fast could it go anyway? I'd say the price increases would be varying around a few hundred %'s, depending on the material and it's game-implemented high-alch value and use.

 

 

 

Basically, because the materials market has nowhere to go BUT up, and further more it WILL go up. Also materials can be bought in smaller quantities, while the cheapest rares are pushing 10 mil gp now. Gps have no where to do but down. If you have gps collecting dust in your bank account, why NOT stockpile materials.

 

 

 

Furthermore the main idea of the scenario's (extreme increases in the prices of materials) we're talking about here is not as much of an issue about whether it's possible - it's also an issue whether people can be convinced of it and believe in it. As long as people don't believe in it and as long as investors don't see the potention of materials (aka, they start buying materials as investement), it is unlikely that anything will happen yet.

 

 

 

I agree the panic probably won't happen tomarrow, all the more reason to advocate stockpiling materials now instead of latter when such actions might very well trigger the panic we are trying to prevent.

 

 

 

Lastly, I want to address the issue of the wisdom of spreading knowledge about a potential panic in the runescape economy. My theory is that if players have some idea about what will happen, they will be less likely to "panic". Also not everyone in Runescape is a merchant/speculator whose sole goal in Runescape is to amass wealth. (I wonder why I sometimes assume that :-k Some players will attempt to go about there activities as normally as possible during the panic, which will protect against speculation-induced inflation.

 

 

 

If people know that rares will not increase in value forever and ever, speculators will not seek after these items as much, which means that the rares will not fall as far to the "collector price floor" AND fewer speculators will be holding (and selling) these items in the crash.

 

 

 

Also, if currency abandonment does occur, large stockpiles of materials would be helpful in allowing items to function as money. When the new medium of exchange does arrise, there is the problem that its current supply might to small compared to its potenial supply. This will create a contraction is the total value of the money supply, resulting in a potential rare-crash. The larger the material stockpiles, the more secure the rare-market will granted. Granted, I don't want to be holding rares in hyper-inflation, but they might have some value left.

[Duke_Freedom]

The question is this, are there enough "collectors" to buy up the rares "speculators" will sell of at prices reasonably near the pre-panic levels?

 

 

 

No, definately not. However, I do think it creates a certain price floor or at least makes the panic smaller (then if they were all in the hands of speculators).

 

 

 

Also, few players are pure collectors or pure speculators. How many players might sell of their rares if they were reasonoably certain that the rare could be bought at a later date more cheaply.

 

 

 

Well during the 3.5 month long price drop of phat prices at the start of rs2 I observed that quite a few people were holding on to their rares.

 

 

 

(meaning a rise of a factor of 6 right?)

 

 

 

Yeah, it's a rough estimate anyway. If I look at my data right now and that of exactly a year ago I see they rose with a factor 7 even.

 

 

 

Basically, because the materials market has nowhere to go BUT up, and further more it WILL go up. Also materials can be bought in smaller quantities, while the cheapest rares are pushing 10 mil gp now. Gps have no where to do but down. If you have gps collecting dust in your bank account, why NOT stockpile materials.

 

 

 

Ok it's a good arguement that the people who can't afford the cheapest rare could buy materials for future purposes instead of just keeping their gp (that alone creates increased demand for materials already, helping to let the process go more gradually).

 

 

 

I agree the panic probably won't happen tomarrow, all the more reason to advocate stockpiling materials now instead of latter when such actions might very well trigger the panic we are trying to prevent.

 

 

 

I don't think the individual player who can afford rares currently has an advantage by buying materials right now though? Especially because rares are still going up, and at a high rate. Nor is the individual player really concerned with trying to prevent panic or not. :P

 

 

 

My theory is that if players have some idea about what will happen, they will be less likely to "panic".

 

 

 

It depends mostly on whether the process goes gradually or not. If the prices of materials go up too fast in a short period of time, people will panic.

 

 

 

If people know that rares will not increase in value forever and ever, speculators will not seek after these items as much

 

 

 

Speculators seek out items that go up in price. The only items doing that are rares and will probably be rares for quite some time still. We can't even say whether the scenario's we describe could happen in 6 months, a year, 2 year or even longer. Speculators don't want to buy materials and wait that long - especially with rares going up.

 

 

 

Granted, I don't want to be holding rares in hyper-inflation, but they might have some value left.

 

 

 

It depends a lot on the situation. Not all scenario's we described lead to a crash of the rares-market. Ofcourse you'd probably be better off owning materials at those times though.

[xxsheepxx]

Finally someone who know's what they're talking about. Not another one of those "rofl lol that not how you ply."

[blaek7]

I don't think the individual player who can afford rares currently has an advantage by buying materials right now though? Especially because rares are still going up, and at a high rate. Nor is the individual player really concerned with trying to prevent panic or not.

 

 

 

As a hedge against material inflation/rare bubble collapse. Although any potenial crash or panic is probably a year or so away, Jagex might cause the money supply to decrease due to an update at anytime. Also, I wouldn't have all my money in a rare at the moment, so you don't get ruined if you misjudge the end of the bubble. For example, suppose your on vacation the week of the rare bubble crash, and a single rare constitutes (say) 80% or more of your net worth. Also, although the material and money supply continue to grow at slowing rates, (particuarly the material supply) no one knows exactly HOW MUCH growth we need in these areas to hold off the panic.

 

 

 

Right now, I'd suggest a mix of rares and materials (I'd probably do rare heavy right now), gradually becoming heavier in materials as time passes.

 

 

 

Nor is the individual player really concerned with trying to prevent panic or not.

 

 

 

I agree, the individual player is NOT concerned with maintaining price stability on his own (nor is he in anyway able to do so). The main point in mentioning that is to prevent the accusation that I will be responsible for the panic when does hit or be blamed for its severity.

 

 

 

It depends a lot on the situation. Not all scenario's we described lead to a crash of the rares-market. Ofcourse you'd probably be better off owning materials at those times though.

 

 

 

If there is hyper-inflation with the materials market, rares probably wont' keep up proportionally with materials. That mean an drop in rare prices "adjusted for inflation", which may mean a collapse of the rare bubble. This would probably be less severe than a collapse due to a decreasing money supply, but you'd have atleast a few speculators droping some rares to get more tradable goods to "speculate" (i.e. gamble) in the economic chaos. Rares might (or might not) hold reasonably well, but that isn't a risk I would want to take; especially not with the vast majority of my characters net worth.

[Iv_Green_vI]

noooo! inflations blows!! :^o :arrow: :|

[Ctth]

Sure, over time inflation will occur in any free market economy (or pretty much any economy, except maybe that oh so theoretical gift economy), and we shouldn't consider this bad. However, things can and have happened in RuneScape that offset this natural inflation and just generally screw up the whole supply vs. demand beauty of rare items.

 

 

 

For example, the duping night. Rares, especially R2HS and Party Hats, were duplicated, decreasing their value. I mean, r2hs are amazingly difficult to obtain if you think about it. You need such high-level smithing, you need (at least for free players and back then) to wander into the Deep Wilderness to get the Rune Ores, etc. Yeah, very difficult and rare. Thus, Rune items that can't be dropped by enemies should be ridiculously expensive.

 

 

 

50k (last time I was on, which was about a year ago, so I dont know if it's gone even lower)? That's just not correct.

 

 

 

Sure, back then money was worth more, but Rune 2-Handers as far as I remember were 1mil.

 

 

 

Too bad people can't just enjoy the game. Still, duplicating wasn't the only bump in the natural road. In the real world, it's not as easy to rise from being poor. You can't just stop being homeless by killing random monsters and taking their money (well, I guess you kind of can if it's a person). That's where it all kind of evens out.

 

 

 

Also, I'd like to add that I love the rarity and how expensive p-hats, santa hat, etc. are. It's how they should be. It's something to strive for. Something that can't be easily replenished. It's a great market and it's what the rich people have. Why do people complain? Because they think they can't get any. Yeah, right. Work a little harder and you can ;).

 

 

 

I haven't played yet since the house building update. But I think that's a great alternative to rare items for members, but what about the freeplayers? Let's just hope inflation continues at a natural rate and we don't have to worry about duplicating any time soon. Some people just think "Yeah! I can finally get a Santa Hat for free thanks to duping!" They need to realize that the economy is in danger.

 

 

 

Fin

[Wachtwoord]

That was a really ownage discussion, but I still really wonder when and if the hyper-inflation will happen.

[slayernm613]

 

There are other items that have increased in value over time, and nothing is stopping anyone (except a lack of funds) from investing in these items.

 

 

 

 

 

 

 

Like? All materials have had stable prices for over 3 years, unless there was some game update that influenced their prices. All pseudo-rare items like whips have only and will only go down.

 

 

 

 

 

 

 

umm.. no, ess prices have gone up, with no influence in updates... I was just in World 1 varrock, and essence was going for 30-38 gp apiece. And even on the forums, the lowest price is now 25gp; as opposed to the 15-25gp they were during the summer.

 

 

 

And, since ess prices went up, rune prices went up too: airs at 20ea, fires 20ea, to name a few.

 

 

 

Not only that, but bowstrings and yews have gone up.

 

 

 

The statement you made, duke, is too general, because things like the forementioned yews are in such high demand that the sellers hitched up their prices. I'm assuming that ess and runes went up because there are fewer people with a lot of time to runecraft at this time of year, due to school and everything. Less supply= higher prices, right?