Suppose the price today is 20% higher. And suppose you expect that price premium to go away before your next regular purchase. Do you buy the same, more or less?
I’d consider buying more today, (with the intention of buying less in the future, assuming that the extra ISK does not also change my behavior in game). It is like buying more canned goods that are on sale today and then drawing down that stock when the price goes back up. In other words, a current spike in the PLEX price today, followed by an expectation of a price decrease, just like we see in your graph, is not unlike a PLEX sale when you look at things in an inter-temporal setting.
If I am buying PLEX to fund my PVP for this weekend I buy 20% less PLEX than I would have last week.
I could speculate on what I think it would do next week but why would I? I have no knowledge of whether PLEX prices will go up or down or even whether I will want to play Eve next weekend. The only thing that matters to my buying decision for buying PLEX for this weekend is what the current price is to cover what I need for my immediate needs.
Right now PLEX is worth more than last weekend so I have to buy less. Maybe I am missing some nuance of how you economists use “elastic” but this seems to me an anti-elastic relationship if such a thing exists. I’ll grant other players might now be enticed into buying PLEX if it is 20% more than last week who wouldn’t have otherwise, perhaps for future need, but I still don’t see why you think they are in the majority.
Despite there being evidence of that kind of thing in your link back up stream? What prompted this thread was a run up in PLEX prices to 3.5 million ISK. It then crashed back down to 3 million. We have seen similar kind of things in the past. But, okay. My point is that some people will speculate. Some people holding PLEX bought at a lower price may sell. And some who would not buy PLEX at the old price, would buy at the new higher price. Those things will increase PLEX supply, not decrease it.
And the same thing can be said of other things. A grocery store near me often puts beef on sale. For example they put these huge porterhouse stakes on sale for $6.99/pound. I often buy 5 or 6 steaks and freeze 3 or 4 for later when the price goes back up. When PLEX ISK price goes up, it is kind of like the RL PLEX price being at a discount.
That is evidence of what? I interpret the summer run up in PLEX price as a drying up of supply due to less people playing Eve (and funding their playing by buying PLEX) thus less PLEX on the market resulting in a higher price. It then went down when a war started and more people started playing again as shown in the PCU graph I linked. That is elastic behaviour and completely understandable to me.
What I don’t understand is why you think that a higher ISK:PLEX exchange rate would always result in more PLEX being sold by CCP. If anything, I see it as contributing to the dearth of PLEX on the market as credit card warriors need to buy less PLEX for their immediate gratification.
Again, do you have any evidence that players motivated to buy PLEX by a higher price outnumber those who are incentivized to buy less PLEX to meet their immediate needs by the same high price?
Because while you may not buy more PLEX, other people who were not going to buy PLEX for ISK at the lower price will buy at the higher price. It is not unlike a RL sale. People who are speculating in ISK may decide to sell and cash in their paper earnings.
Again with some simple numbers. A RL PLEX costs $10 and you can sell it for 1,000 ISK. So the $1 to ISK ratio is 100 ISK to each $.
Now suppose the price goes up to 2,000 ISK, now the ratio is 200 to $1.
Now, assume as before the price is $10 and in game 1,000 ISK. The ratio is 100 to $1. Suppose CCP sells PLEX at $5, now the ISK to dollar ratio is 200 to $1.
So if a RL sale produces more PLEX in game, why not an IG run up in price? The effect, from an ISK to dollar stand point is pretty much the same.
As for evidence it is indirect. There notion that supply is upward sloping, not downward sloping which has been studied for quite awhile.* The logic is the same for other goods too. If the price goes up, all other things constant, then that increase in profits will invite greater production. Greater production from incumbents and/or additional production from entrants.
If costs are decreasing in the long run, then the supply function can be downward sloping.
Oh, and even if you are correct, that supply decreases as the ISK price goes up…that is still not perfectly inelastic–i.e. fixed supply.
But you have no evidence that the run up in the in-game PLEX price produced more real-world PLEX purchases for CCP. In fact, the data I linked support the opposite view as less in-game PLEX were finding their way to market over the summer when the price was higher. If those variables were elastic with each other you would expect the opposite.
I’ll grant you that real world PLEX sales do seem to spur PLEX finding their way to market which is your best evidence for some elastic relationship, but we don’t know how much future demand is being burned up by those sales, so I am not sure that on its own is proof.
I think you are perhaps erroneously applying your real-world economic dogma to an atypical situation. CCP has a monopoly on PLEX production, it has no production cost, and PLEX consumption is completely discretionary. Let’s take your steak example. If I live in a small town without a car and have to shop at the only supermarket, and eat only one steak a week for whatever reason (doctor’s orders, I only have it during the big game) then the beef producers/supermarket will get less money from me if they start giving me 4 steaks instead of 2 for the same price. I will still just keep on consuming the same amount of steak and there is no danger of me buying elsewhere so they’d be better off keeping selling at a higher price.
Now in the real-world this situation would be an outlier and best ignored by the Beef Council and my local supermarket. But as to CCP and PLEX buyers? I bet almost all PLEX is bought for immediate use. I don’t think many people who buy PLEX are planning ahead but rather just indulging in instant gratification and buy PLEX either when their paycheck comes in (“Right, I just got paid and want to play Eve this weekend and I am out of ISK. Let me buy $40 of PLEX!”) or purchase it for a specific goal (“I want a carrier alt and I have a big real-world bank account. How much PLEX will I need to get one today?”). In both cases, a higher amount ISK per PLEX means less money going to CCP.
If you made me guess the first archetype makes up the majority of PLEX purchases, with second most being new or newer players buying progression. Both these groups will buy the same or less PLEX as the amount of ISK they get grows. I think only a small fraction of players sit on the fence where they may or may not buy PLEX to trade for ISK and are influenced by the price. I mean who is going to spend real-world money for no other reason to just have their imaginary wallet gain a couple zeros because there was a good exchange rate that day? There almost always will be a concrete reason for that purchase. Of course, if my assumptions about the relative sizes of the groups are wrong, then so is my conclusion. I’d love to see some data on that but I guess you don’t have any or you would have shared it by this point.
I think though the fact CCP so rarely has PLEX sales supports my view that the real-world PLEX sold volume is largely inelastic to the ISK:PLEX exchange rate. They seem to use them primarily as a loss-leader during a promotion, and as a tool to shape the in-game PLEX market by drawing on future demand, or even at a direct financial cost to their bottom line. Instead of lowering the cost of PLEX to drive PLEX sales, CCP has instead focused in recent years on directly increasing the demand for PLEX by increasing their utility.
Nor do you. I do however, have plenty of examples where supply is positively sloped with respect to price.
The data does not support your view at all. You can’t use time series data for that kind of conclusion. Demand and supply could be moving or both could be moving they could even move in ways that offset each other to different degrees. You can’t tell which from time series data. You’d need panel data (cross sectional data tracked over time). You don’t have that so you have no evidence either. And even with such data, since you are dealing with a system of equations you’ll also have an identification problem as well. That is you might identify the demand or the supply function, but you may not have data to identify both or the one you want.
Further, you are making an incredible claim: that supply is downward sloping IG with respect to price. For that you will need incredible evidence. And you do not have it. Yes, I don’t have any direct evidence either, but then again I am not making an incredible claim.
It is a theory not a dogma. Second that CCP has a monopoly is irrelevant. Monopolies still use the same profit maximizing condition as a competitive firm, marginal cost = marginal revenues.
And yes PLEX consumption is completely discretionary which is why the OOG demand is likely elastic. If the OOG demand, which is the predominant source of IG supply, is elastic, why do you think supply is not elastic and varies inversely with price? Yes, I get that you wouldn’t buy the same amount of PLEX, but why is your decisions the same for everyone else? Are you telling me that your decision making is so awesome that it must apply to everyone else? That others are not free to speculate that a recent rapid increase in price won’t be followed by a decline? Or that a person who was not interested in buy PLEX at price say 3 million ISK won’t be interested at 3.5 million…because you wouldn’t be interested? Or that a speculator who bought PLEX at say 2.5 million ISK each now wants to sell at 3.5 million and take as much of his paper gains as he can…because you wouldn’t do it? Of all of these possible responses 3 out of the 4 increase supply and the single remaining response reduces supply. Yes, that one response could be the dominant response but you have nothing other than…well…navel gazing.
C’mon dude. You know that if there is a sale, going out and buying up more than your otherwise would to build up a stock for when the sale ends is not an unreasonable response. Yes, it could be that there are cases where not doing that is reasonable, but using the exception for the rule is not very convincing. Further, I hate to keep saying this, but this is just more navel gazing. That the local super market should base their pricing decisions on just you and your behavior? Sure, if everybody is just like you then yes, the super markets pricing decision may very well be sub-optimal. But my point is we are all individuals with different subjective valuations of various products and different views on these things. Unlike you, in the example, I actually have a freezer. Unlike you, in the example, I am forward looking. Unlike you, in the example, I realize the sale will end, so I buy more so I can have a stock to draw down when the sale ends. Does this mean that the super market gets less of my money from steak sales? Sure, but then again getting as much money from me may not be profit maximizing for the super market…and frankly I don’t care if it is or is not. I am not going to base my purchasing behavior on what maximizes the profits for various firms.
That statement is incoherent. Demand can be elastic or inelastic. Supply can be elastic or inelastic. The amount sold on the other hand does not relate to the concept of elasticity. In its most broad definition, demand is the locus of points that relate the quantity of a good a consumer wants given various parameters such as income, price, and taste. The quantity sold on the market is just a number and the result of supply and demand.
Further, the fact that PLEX are a discretionary good indicates that demand is more likely to be elastic than inelastic. That is, a price increase will likely result in a decrease that is larger (in percentage terms) than the increase in price.
And how can something that you claim has no production cost be a “loss leader”? And what and why CCP does has little relevance to this discussion. The behavior of consumers is the focus. Consumers will respond to changes in price, but CCP’s motivations likely have little to no effect on the consumer’s behavior other than via how CCP’s motivations influences the price.
I’ll close with this thought.
If you are correct, than an increase in demand function (i.e. the demand shifts outwards–i.e. demand is higher at all price levels, that is CCP introduces a new use for PLEX) should lower the price. Conversely if the demand function shifts inward the price goes up. That is a very odd situation…an incredible situation. The demand side version of this (a positively sloped demand function) is so unusual it has it’s own name: Giffen good. Giffen goods are very rare, and the examples that have been suggested are not without controversy. In short, you need some strong evidence…and you don’t have it.
I won’t go that far, although I will assert that is the case for some customers. On aggregate though I will just claim that real-world PLEX volume is largely inelastic with respect to the ISK:PLEX ratio. As the price goes up some players will buy more, some will buy less and I think that the number that will buy less is significant enough to result in little or no net gain in PLEX sales for CCP:
That doesn’t seem especially incredible to me.
Of course I never said that. I don’t even buy PLEX. You are just being argumentative at this point. I am fully willing to concede I am wrong about my estimation of the typical PLEX buying behaviour in the face of actual data. Why are you so sure that most players are rational economic actors as you seem to believe?
Sure. But with constant consumption on my part stockpiling during sales only results in less profit for the supermarket. The supermarket would be better off not offering me any sales at all. They have a monopoly on steak for me much like CCP does for PLEX. All their sales do is make me give them less money for what I want. Much like a higher ISK:PLEX exchange does for players with a need for a fixed amount of ISK.
Indeed, perhaps I am muddling the terms. Forgive me. Let me restate that as the demand for PLEX is largely inelastic with respect to the ISK:PLEX exchange rate. The player base as a whole will buy similar amounts of PLEX across a wide range of ISK:PLEX values.
You can give your product away for nothing costing you future sales even if it has no production cost. I would think that is obvious.
Well, I am still not convinced that a higher ISK:PLEX price will with certainty translate into any significant increase in real-world PLEX sales for CCP, but I appreciate your efforts to apply economic theories to the situation.
No, I’m just saying people do things for various reasons that are not outlandish or silly. All the reasons I gave suggest supply is upward sloping, not downward sloping or even fixed.
We don’t know why there are sales. One reason is getting money sooner vs. later. The other is maybe the product in question is cheaper for the supermarket too and getting people in buying steaks means some will also buy charcoal, lighter fluid and beer…which are not on sale…and getting people in their store vs. another store. But in the end, as a consumer I don’t really care. I don’t want the store to go out of business, but that isn’t my concern and not much I can do about it. Do I want CCP to succeed? Sure, but there is only so much I can do to help with that and still I’ll want something for that help.
My point is except for giving it away for “free”, given it has little or no costs any price means that it is mostly pure profit.
How about this:
OOG PLEX demand is likely price elastic–i.e. a change in the OOG price results in a larger change in quantity being bought. That is if the OOG price goes down by say 25% CCP will sell say 35% more PLEX.
OOG PLEX is at best normal good. That is the income elasticity is 1, so if my income goes up by 10% I’ll buy at most 10% more PLEX.
Now, as for the OOG ISK price elasticity…who knows. Maybe elastic or inelastic. But either way, it will increase in game supply. If inelastic the increase will be smaller than the (percentage) increase in the IG ISK price. BUT That would still mean IG supply is upward sloping.
i didnt say elastic relationship i said elastic resource meaning there is always an overstock that can easily meet demand
its actually an unlimited supply but i dont see why i should bother explaining that to you seeing as youre being so rude about it
It seems like people are getting confused over the types of people who buy plex to seed on the market. and yes, higher plex prices are going to impact their purchasing habits differently, but in a way that will more or less balance things out.
in broad strokes they can be broken down into 4 categories.
People who use plex for their IG finances, and have very strict budgets on their IG and OOG spending. These are the people who buy 500plex per month in order to get a billion isk for whatever purposes they have. but they only need ~1bil per month in order to do whatever it is they do. this group will see the largest decline as plex prices rise, because they can get their monthly isk requirements for less.
People who use plex for IG finances, but have a more elastic IG budget. I suspect that this group is the largest, and also the primary driver behind the plex market. they are the ones who purchase 500 plex every month in order to get “as much isk as they can” to use for their IG activities. this group will likely be unaffected by increased plex prices since they have budgeted a 500plex purchase into their entertainment budget each month, and as the prices go up, they simply get more ISK for their dollar. some of them may even be tempted to go over into category 4.
People making a one time purchase for a large project/ship/etc. These people are similar to group 1 in that they have a set amount of isk they want to hit. only they do it in a single lump sum rather than spread out over multiple months. this group may see a slight decline in the number of plex purchased.
People making a one time “extra” purchase, these are generally people who either have more limited oog finances, or who make “enough” isk ig to not need to buy more regularly, or simply people who don’t see spending a ton of extra cash on a game as being worth it. but who may splurge once or twice a year on a pack or two. As plex prices rise, we may see an increase in sales from this group, since the same amount of cash gets them more IG, making it a much better value prospect. some people from category 2 may also jump over here, since their higher disposable income might make a larger isk injection tempting.
so yes, the oog plex market is impacted by the rising plex price, and there is both positive and negative pressure on the different buying groups. but overall, the largest plex drivers are unlikely to change their buying habits.
Any chance of CCP allowing us to use PLEX to buy more goods & services? I remember CCP selling graphics cards some years ago. It’d be great to see this return, and maybe allow us to buy other stuff like airline tickets.
I think this, if anything, is the most important aspect of this thread/discussion, rather than trying to analyze the market with economic models etc.
The psychological impact on different client types of game/plex changes is key to understanding whats happening.
Looking at trends in the numbers may indicate some overall degree of rational behaviors, but this is afterall a game, and played by many (probably most) that have little interest or understanding of making their decisions rationally, rather prioritizing their own immediate needs as they experience them.
Interesting, was there more you could get with PLEX? Never knew there was things you could buy with it like that on their store. Did hear about fan fest tickets for Plex. CCP is so unique
One of the reasons why they are not making that charities or PLEX option again, and are removing PLEX options, is that PLEX is now expensive and maybe sales are lower because needs of people buying it to exchange for ISK are saturated faster. And they would want to deescalate the price rise by making less competition on the PLEX market. Also it can bring additional cash when it is the only option to pay real cash, and I dont think anyone bought PLEX from CCP just to buy tickets with it, or give it to charity, they would rather use PLEX from stash, already bought with ISK.