The Impact Of Inflation On The MMO Economies

The majority of online video games be it on the console, pc or mobile have an economy. While it's true that although mobile games now have MMO economies that are rather simple in design, they do mirror much of how real-life economics works.  A lot of the principles from real-life economics can easily apply to a game’s economy. But do remember that while they mirror quite well, there are differences. A lot of what happens in an MMO economy is sort of impossible to replicate in real life. There's one aspect that's completely unique to MMO economies and that's how inflation is actually produced. Any of you that have played MMOs for a long time understand inflation to a degree already. Even if you don't understand it that much, you probably understand that the higher the inflation, the worse it is for the game.  I'm almost certain some of you have quit MMOs before simply because of the high inflation rates and I don't blame you.

The fact of the matter is inflation is an MMO killer and rots MMO player base away slowly.  But for the sake of anyone that has no clue what in the world inflation is let me explain. Inflation is just the rate at which money decreases in value. That's a bit wordy but all that means is that the money you have on you right now is worth much less after more inflation. Let's use a simple example. Let's say you buy a cannon for 200 gold today, but tomorrow it is 400 gold. And it is not just for cannons either, for some reason, everything is now two times more.  And when that happens you know it is inflation taking over the economy by storm. I'm going slightly off-topic here but there's a huge difference between supply and demand and inflation. Inflation is the price increased across all items in an MMO. While supply and demand might increase the price for a particular or set of items but not most of them. In fact, inflation can occur even when supply and demand for everything are the exact same. This is a super important distinction so try to keep it in mind.  

So everyone should understand that once we have enough inflation in an MMO, you can kiss that game goodbye. Those of us that use the market by playing the game normally will have a hard time affording anything and that just doesn't bode well for the MMO’s future.  With all that I've said so far, I want to ask a question is inflation evil?I know you plan to say yes so let me just tell you the real answer: it isn't. It's sometimes very beneficial. I know that sounds counter to what I've said so far about the topic but to make any sense of this we need to bring in some real-life economic theories into the equation.  Let's get started. There's a well-known theory in economics known as Phillips Curve. I'm not gonna explain all the details about the theory since that's a bit over the top but just know that the higher the inflation, the lesser the unemployment. This has been proven time and time again through historical evidence. It sounds contradictory but it works and it happens in real life.  What if I told you that all MMO players are employed? By playing the MMO itself you are intrinsically employed.

The definition of employment just means getting paid. I can already see the dots for me. Do you get paid when you're playing your favorite MMO in gear gold? If you answered yes, then congratulations! So this means inflation needs to exist at some level in order to keep players employed and if we interchange the word employed with playing, we can see that we need inflation. It seems confusing but it really isn't. Another example is what happens when there's no inflation in the market? All prices are basically static, which means they don't change. If the prices don't change at all, then there's no urgency to buy. For example, your favorite sword goes on the market or 10k gold and that's a lot but you figure with inflation that price will only go higher in the future so let's buy now.  But if there's no inflation then prices will stay at 10k regardless of whether it's today or next year, so in a row and no inflation, people will not buy or sell as much or as frequently. So trying to get a lot of money is just going to get harder.

Still doesn't make sense? Think about it this way: If we were the developers, how would we force inflation in the market? Because naturally inflation will occur, so the developers themselves have to intervene.  The number one way to increase inflation in our modern society is to print more money and if you look into it, the government does try to print more money to keep inflation at a steady rate. So how do we put money in MMOs? Well, through the players of course. In real life, inflation is easy to control but in games, it is infinitely harder. Because by killing all of the mobs in MMOs yourself, you are generating money out of thin air. You put the money, not the developer, you create inflation by existing. Now here's the thing about inflation, it isn't that bad when it is controlled. So if inflation is small but steady it isn't that big of a deal. In fact, it is healthy as I mentioned before. But there is a chance for hyperinflation to occur. In MMOs hyperinflation is inflation which spins out of control that means the price of goods increased exponentially in a short timeframe.  

Such a thing happens often at most that have a ton of gold bonus or is very popular which is almost all of them. This is why you notice a lot of developers spending a lot of time and care to fight against gold botters or creating systems to help keep systems steady because hyperinflation can and will destroy a game.  So if players print money and now there's hyperinflation going on, printing money isn't going to help. Farming for a particular item that sells for a lot will, but just getting gold from grinding will not help out at all anymore because of how worthless a single piece of gold has become. So you've already eliminated a useful way to earn and make cash in the game for newbies which in turn discourages them from playing the game entirely. This is something that crushes a lot of MMOs and it is the crux of the problem. We know we want to avoid hyperinflation at all cost but we also want small and steady inflation in our game. However, we have no direct control over inflation, the players do.