Price Deflation Occurring? (in General)

In the last two or three weeks there has been a pronounced decline in the selling prices of most items across the board. With a few exceptions, even speculatively purchased items such as the store's broad tattoo populations are in the red as investments. Check auction logs; items from elven boots to katanas and executioner blades to mithril shields to tattoos of augmentation and endurance, goods for a wide spectrum of strategies, have all declined in price.

Why is this happening? The deflation has been more pronounced in lower-grade items -- compound bows, heavy crosses, and cabassets are now difficult to sell at all, and executioners have lost at least half their value -- suggesting some part of the problem is just market saturation. Still, since I've been here, we're averaging 80+ new users every 24 hours, and even top-end rarer items like the ToE's and ToA's are still dropping in value. It may have something to do with the reward adjustment concurrent with the tattoo PR change, or there are just more items than there is demand for them. It seems as though the USD/CB2 exchange rate had been declining since the start of the game until that change and a nadir of $1.8/$100k, and is now headed back closer to $2.2/$100k.

Regardless of the reason, this sort of deflation is a strange thing for an economy like CB2's to encounter, where items are never destroyed -- except for people taking them with them when they leave -- and CB2$ attrition in services like healing is minimal. I'm surprised to see signs of it here. Deflation can really gum up an economy and make it difficult to trade things, especially since item markets aren't that liquid. People will find selling frustrating, wait to buy things in the expectation things will get cheaper, and loan demand will be minimal.

Do others think it's occurring? Not occurring? Inflation instead? Discussion welcomed and enjoyed. :D

I think someone said that the sale of all the tattoos by jon accounted for about 1/4 of all liquid assets at the time, couple that with lower rewards due to tats being counted in PR and there you go...

The recent tattoo auctions took over $60M out of the economy. The Central Bank is holding onto over $100M. CB is cash poor.

Great observations, Nixon.

Shouldn't something be done? Deflation is a noxious, horrible thing. Delta price levels are what's important(though some things don't respond to market forces here, like forging/blacksmith) when it comes to the monetary base & deflation, to the extent that CB2$ are just another commodity. Some degree of inflation is necessary to keep things trading, especially in illiquid markets like ours.

So, uh, can we get some fiscal or monetary stimulus? Something to get our blender economy growing again? :D

Tourneys would put some cash into the econ, other than that we all just have to fight more :)
Buying BA is now the money sink it should be, previously you could equip an oversized toj and make a profit buying BA, hence the high inflation we have seen. Now that prices have been reset somewhat I'd guess there may be moderate inflation from here.
There will always be some sort of market as not everyone is just interested in turning a buck and people are always changing strat or starting a new character.

Now the LOWER level your ToJ is the better, if your party is powered mostly by enchantments. Think about it.

Mags, can you explain again why deflation is bad?
Since we are "paid" in CB2$, I would say that it is actually a good thing.
For instance, people with spare rares (most notably, campers) will be encouraged to sell their stuff as soon as possible, allowing the people who actually need the rare items to use them.
With even more deflation, people would buy a rare item not as an investment, meaning to sell it later at higher price, but because they use it.

Of course, if you are trying to sell items, you will encounter problems.
However, the overwhelming majority of players here are buyers, not sellers...

In conclusion, we should aim for more deflation, not less.

Since I gather that this is not your opinion, would you care to tell in plainer words your argument for fighting deflation? For instance, who should gain by inflation, and why?

Manta,
Why would people/campers be encouraged to sell rares at deflated prices?

It's not only campers who sell rares. All kinds of people sell items to make money. So what if you pick up an Exec in the store by chance. And you don't need it. Well it is a rare that is only going for 250-300K. Also "Uncommon" compounds are barely going over what you pay for them. Soon we are going to see compounds left in stores because it will no longer be a profit to buy them.

Mags, because the price will be even lower in the future.
Spaceman, if you do not need an exec or a compound, leave it in the store: someone else will buy it. Seems simple to me.

Spaceman,

Compunds are not worth much due to the large amount of them spawned in the BM.

There are now more compounds than any other long ranged weapon with the exception of Long Bows.

Absolutely, Manta. The critical distinction here is between price levels and change in price levels. One is "CB2$ is worth a lot," which is arguably good, and "CB2$ is worth more every day," which is economy poison. :D

As you suggest, having a price level in place where CB2$ is worth more relative to items does help people buy, and even arguably makes things more liquid. Items are more accessible to new players, etc. All good things. But this is different than when money is progressively worth more and items are progressively worth less. The so-called "stickiness" of prices and the expectations of people of future price change have a dramatic effect on how much people are willing to trade. Sellers are notoriously unhappy to sell anything at a price lower than it was the day before; it's easier to sell for a smaller increase than you wanted, than for less you could've gotten. Just look at the wishful buy-now's in the auction for evidence. Two weeks ago they'd be selling, but deflation affects buyers too: I can wait a week and buy that katana for $300k instead of $350k today. Trade blows up.

An economy "overheating" will cause excessive inflation because there's so much trade and so much demand, but it's the opposite in deflation. Hoarding money becomes a winning strategy. When everyone adopts this idea, things grind to a halt. Campers are generally like anyone else, in that they want to be able to trade for neat items too. When CB2$ becomes the commodity to hold rather than wicked-good stuff, it's bad. Deflation can also be a self-reinforcing cycle; when people can't earn as much from selling forging services, they can't buy new things as easily, for example. It's particularly deadly in an economy where there's a lot of debt because the real value of the debt increases, but that's not a problem here unless CB2Bank wants your head. :D

The current deflation could just be a manifestation of a one-off business return change, i.e. paid less per battle. That wouldn't be a big deal, although it would be short-term pain where a form of fiscal stimulus like a tournament could help greatly. However, if it's because there's not enough money being created relative to the influx of items and players and this is a persistent problem, something should be done.

What would be really wonderful would be adding some small rate of "inflation" to fight rewards and blacksmith costs; make it so that every day, you make very slightly more in battle than you did the day before. Loans would suddenly be a very viable thing, and people would have an impetus to buy and sell items sooner besides "I want that," because their money will buy less tomorrow than it will today.

Any argument about people wanting cool stuff to play with it today is completely applicable to the real world too(I'd love a plasma TV, but I'm waiting until they're nicer and cheaper), where Fed governers suggested they could drop money out of helicopters to prevent deflation, it's such a dangerous thing.

Does this help? Anyone's further thoughts?

There is a constant source of inflation, even though right now we might be having momentary deflation. The number of players is constantly going up, therefore the number of fights/period of time is going up, therefore the number of $ entering the CB economy/period of time is going up.

In the old days, once forging was introduced, there were few money sinks. Now, well, to say there's a plethora of money sinks would be an understatement.

The shortage of money is temporary - I think I can say that with a good degree of confidence. I don't believe there's anything to worry about, since the only thing that would grind the economy to a halt would be if everyone stopped fighting. I doubt that will happen.

Your argument about deflation hurting forgers is a good one.

However, you add that
-people would have an impetus to buy and sell items sooner besides "I want that," because their money will buy less tomorrow than it will today.

Please, explain: suppose you hace an exec, and the price of execs is rising: why on earth (except if you need money badly) would you feel an impetus to sell it? On my part, I would feel an impetus NOT to sell it, for as long as possible.
In conclusion, you say that hoarding money is a bad thing, but
with inflation people do hoard items instead, which, to me, seems a much worse scenario.

Moreover, you seem to forget that in the real world, if people do not buy
TVs, it is theTVs manufacturers that will suffer. However, our item manufacturer is the store and the black market, and honestly I do not feel any pity for their sufferings.

Another point: how is the price of high-end items (namely, elbows, corns, etc.)? Or has this price drop hit only the low and mid range items?

"There is a constant source of inflation, even though right now we might be having momentary deflation. The number of players is constantly going up, therefore the number of fights/period of time is going up, therefore the number of $ entering the CB economy/period of time is going up."

Austrian! :D To the non-economist geeks, there was a school of thought that believed that the pricing of items depends on the size of the pool of money, and that the size of this pool growing/shrinking is what causes inflation or deflation. Conceptually, it has some flaws, but it unfortunately completely fails in practical use partially because people are irrational. Milton Friedman tried it.

Remember, the size of the economy has nothing to do with relative pricing. You can have 50 guys buying 5 compound bows or 100 guys buying 10 compound bow and have no difference in the price of the bow. The rate of player birth/death relative to the rate of item creation is indeed important, but this is not so much about the supply/demand of money; it's supply/demand of the items. Other functions, like forging, are unaffected.

Watch for the rate charged for forging services to increase, because BA is now worth more relative to CB2$.

You're right that one of the most interesting differences between us and a real economy is that our "income" doesn't depend at all on production. That fact saves us from most of the serious traps.

"Please, explain: suppose you hace an exec, and the price of execs is rising: why on earth (except if you need money badly) would you feel an impetus to sell it? On my part, I would feel an impetus NOT to sell it, for as long as possible.
In conclusion, you say that hoarding money is a bad thing, but
with inflation people do hoard items instead, which, to me, seems a much worse scenario."

I get paid for fighting in CB2$. I'll always want to buy something with my CB2$; I don't just hold them looking pretty on my character screen. I also always want a better weapon; if I have an executioner's I want a Morgul's, or if I have a Great Axe, I want Two-Handed Flail. The weapon I can afford is equal roughly to my spare money + sales from my previous weapon. Yes, I could get more for that weapon 2 weeks for now, but the amount of weapon I could buy for my savings plus those proceeds will have gone down because its price goes up too.

"Moreover, you seem to forget that in the real world, if people do not buy
TVs, it is theTVs manufacturers that will suffer. However, our item manufacturer is the store and the black market, and honestly I do not feel any pity for their sufferings."

Everyone suffers. I suffer because I'd love the TV, the employees of the TV company suffer because they don't get paid, the TV company itself suffers with less profit, and the entire economy suffers because there's less exchange of goods.

Carnage Blender is somewhat unique in that the production of the economy doesn't depend on trade or outflows. Additionally, the real value of items depends explicitly on the amount of demand relative to the amount of supply, which is pretty much going to be the number of players who want them relative to the number in the game. The delta here is the number of people who develop a yearning for swords versus the number the store is spitting out.

"Another point: how is the price of high-end items (namely, elbows, corns, etc.)? Or has this price drop hit only the low and mid range items?"

They've dropped too, but to a lesser degree, from what I can tell. This is an important fact to get right.

I had a really long post about this, but I had some mispelled words and when I went back to change them, the page was expired.

Basically I was throwing out the idea that item "quality" is going up because people aren't just selling base items anymore, but heavily forged/BS'd items.

Also that I don't think things are becoming a huge problem, although being a full time camper is starting to lose a bit of it's appeal.

And finally clan members are getting the shaft because unless you have a ton of crazy good equipment it's near imposiible to buy ba and still turn over a profit. This further strengthens the whole rich get richer idea because the people who are already rich are reaping all the benefits of clan bonuses.

Overall I think bringing back tournies will help a lot, as clan members will be forced to chose which they want to participate in, and newer players will get a crack at rares that are completely out of their range.

I'd agree things are not mission critical at all, but that adding slight simulated inflation would be very positive. :)

"Basically I was throwing out the idea that item "quality" is going up because people aren't just selling base items anymore, but heavily forged/BS'd items. "

This is a very interesting point. My initial answer would be sadly that item quality in terms of enchant/tattoo level doesn't matter much. If you look at the NW:price ratio of a base Katana (20k:300k-ish, if I recall), the ratio of net worth to price goes down as net worth grows, and the ratio drops to around 0.5:1, even less than forging costs and much less than the blacksmith, even if you exclude the cost for the base item type. The same is true of compound bows, where higher-end bows now routinely sell well below NW. The biggest part of price is by far for the base item type. The level of a tattoo is almost completely irrelevant to what it sells for.

This may reflect in large part players' anticipation of better items and that investing a lot into enchanting a worse base type is not "worth it" beyond a point. This inflection point may be irrationally low because everyone is looking to a future where Morguls will be fairly common, or because Morguls are fairly cheap relative to forging fees.

If Carnage has 805 active users in the past 7 days would make about 115 serious players. Out of those I'm guessing 28 of those are campers, and the 87 or so thats left had gotten their gear early in the game. What else would they need other than to upgrade what they have. That's my 2 cents.

Can't argue there mags, I fight enough where getting more money/fight will help me out more than the average joe. So, I'm with you!