Saturday, February 18, 2012

Technological Change and Inflation in EVE

The latest patch for EVE Online added some new battlecruisers. The production of these new ships and modules for the ships has increased the demand for Tritanium. This is the basic mineral in the game and essentially every item is produced using it. The increased demand has caused the price of Tritanium to rise, which causes the price of everything else to rise in game. Essentially there is inflation caused by the resource requirements for a new technology.

The effect of the inflation is asymmetric across professions. Mining has become more profitable as its end product has a high demand, but there has been no shift in mining technology. Though the fixed cost of entering the profession has risen due to the general price rise. This increase in fixed cost is true for essentially all professions. Mission running, Wormholes, and complexes appear to be less profitable due to the increase in both fixed costs (ships, rigs, and modules) and variable costs (ammo). Further a negative wealth effect on these professions and PVPers decreases demand for the rewards of these professions. Finally, the bounty and mission rewards have not increased with the inflation, decreasing the lucrativeness of this profession.

For producers the effect is ambiguous, but probably positive. On the negative side, the production materials have a higher cost. Further there is a fixed cost to entering production of the new ships from the blueprints & research. But these new items have a high demand and, as ships take time to produce, the producers can discriminate on price by charging the early buyers more, forcing those with a lower valuation to wait.

Granted all of this is dis-equilibrium dynamics. Until the supply flow of ships matches the flow demand of ships there will be inflationary pressure. Once there is a large enough stock of these new ships, the market will be able to settle into a new equilibrium as there is no time-demand friction.

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