Economics in ROSE

It's intriguing : given a free economy and a sufficiently advanced system which allows unrestricted human interaction, the exact same patterns we see in real life financial markets appear in the ROSE economy. I played an Artisan who to some extent dabbles in the commerce side of ROSE.

Inflation in an economy is when there is too much money chasing too little goods. A very classic example occured in ROSE when hackers managed to duplicate certain high levelled items and also generated large amounts of zulie (the currency in the game). At first only the hackers were rich. With their increased spending power they were able to buy lots of items and goods. This is all fine where NPC goods are concerned because there is an unlimited supply of them... however there are many items which only drop from monsters, and hence have very limited supply. The price for those class of items increased dramatically, puzzling many lower levelled players who were scratching their heads (but nonetheless happy) over why some people (no idea who) were willing to pay such ridiculous prices for the items they harvested.

Soon everyone was rich and could pay similar high prices for harvested items. Here we come to one of the interesting questions of economics : are prices supply driven or demand driven. The first possibility is that prices of goods are driven by supply : if it costs more to make something, then it shall have to sell for higher in order for producers to recoup their costs. The second possibility is that prices of goods are determined by demand : if I am selling a Coke for 1 dollar, but really, people will buy it anyway for 2 dollars, then what the hell am I doing, I should sell the Coke for 2 dollars or even 3 dollars if that's what they want to pay.

Both theories seem to work in ROSE as they do in reality : Bird Feathers can only be harvested in the wild and there is a very limited supply of them : since the hacking crisis, the price of feathers has risen 10 fold. Bird Feathers are used to craft Fairy Wings. Ironically the price of Fairy Wings have ALSO risen 10 fold. People's wealth stay the same : they make more money selling items they harvest (Bird Feathers) yet the cost of finished products (Fairy Wings) also costs more. But in this story, the cost of producing Fairy Wings has increased 10 fold and so the price of Fairy Wings must also increase 10 fold in order for producers to not make a loss.

The other argument that prices are demand driven is also valid : crafters who produce Fairy Wings (like me) would NOT sell them at the old price if we knew the public was capable of paying 10x more : we would instantly charge them 10x more EVEN IF our costs remained the same. Basically we sell the goods for the highest price possible. Our prices go up because people are capable of paying for it, not because our costs have gone up : for most of us, costs remain the same because we harvest our own Bird Feathers and other materials.

So which theory do you think is right? =p Interesting question, no? How do you reverse inflation once it occurs? Can anything be done, using ROSE as a test economy? In fact, if you consider the fact that player wealth remains exactly the same (your harvesting sells for 10x but goods cost 10x more) is inflation a harmful thing at all??? All interesting questions : all answered in standard economics texts but I won't go into detail here.

In any market there are buyers and sellers of goods : the market exists to bring both groups together to fulfil both their needs. In ROSE there is no single market as such : any player is free to "vend" or set up shop anywhere in the world, and set prices for goods he wishes to sell, and goods he wishes to buy, and then happily leave his character there and wander off or go to sleep : others players can come by and complete the transaction and exchange of money.

In ROSE some items have a fixed price range attached to them because NPCs (computer controlled characters) will happily purchase or sell unlimited quantities of that item, with a 2x buy-sell spread. Basically, for any good, the NPC will sell it to you at double what he's willing to buy... so if you pick up a piece of Iron, you could sell it to the NPC for 100 zulie but if you wanted a piece of Iron from the NPC you could buy it for 200 zulie.

This is of course a wasteful practice, and both parties (buyer and seller) would benefit if they could be brought together, and possibly agree on a price of 150 zulie : the buyer gets it for cheaper than what he'd pay for, and the seller gets more money than what he'd get normally.

The imperfect solution to this is vending. Buyers set up shops declaring their intention to buy while sellers set up shops declaring their intention to sell. This is a very imperfect market with imperfect knowledge : no one knows who is selling for how much, since there are hundreds of stores in any given city, and no guide about who is selling what. Buyers try to increase the chance of their obtaining the item by offering more : perhaps to the tune of 180 zulie. They still get the item for 20 zulie cheaper. Sellers try to increase the chance of their disposing of the item by offering to sell for cheaper, perhaps 120 zulie. They still benefit, gaining 20 zulie more than they would have.

Perhaps you see an inconsistency here : couldn't someone just buy the Iron off someone for 120 zulie and immediately resell it for 180 zulie to a buyer? This situation is called an Arbitrage : riskless profits for zero net investment. Arbitrage opportunities only occur in markets with imperfect knowledge : people don't know how much items should cost, people don't know someone is selling for cheaper or buying for higher, etc. Of course there are a host of legit reasons why prices should differ : different demand and supply in different areas, time costs, distance costs, etc. Storm Arrows are priced at almost double their actual cost because bringing them in from Luna incurs a heavy travel cost as well as the fact that only a few characters can even make it to Luna. Vital Jams are cheap in Adventure Plains because they are worthless to the inhabitants there : if you are there the best bet would be to hold on to them until you can sell them at the capital. The fairest prices you can get are always in the largest city : with a higher density of players, you get a very high density of shops which makes it very difficult for any shop to price anything unrealistically since his neighbour will just undercut him. But most of the time plain stupidity is the primary cause of arbitrage =p