Why are buy order prices lower than manufacturing costs?

[zluq_zabaa]

@Forseti_Valkyrie

Comparing Eve’s ‘player-driven’ economy to the real world is laughable. A RL market operated like this would be impossible because you cannot buy high and sell low very many times before you are out of money.

If you’re making risk investments with your own money, you are doing it wrong. In the RL economic system smaller fish constantly get eaten by bigger. Smaller fish usually are the ones who think because they have a couple of 10 or 100 or 1000k that they can enter a competetive market. Well, they can enter, but they will be competed to their bankrupcy. It is done with entire countries and with much bigger fish all the time.

In EVE there is no real pressure on the markets, no real pressure on the consumers either, with the only exception being PLEX, due do its connection to real money.

[Ramona_McCandless]

@zluq_zabaa

The US right now is the place on earth where you’ll find the highest support for trade agreements, because usually they get the better end of it and can somewhat coerce some other countries into accepting specific terms.

I would have said China was more likely to have this.

It also helps when the population also generally support their government.

[Fluffy_Moe]

Its a lot of stuff put together that all contributes in various ratios to basically too many goods vs too low demand.

There is overall not enough destruction. Just take a look at the available data (just google, comes right up top), highsec ganking far, far outperforms all of nullsec combined, yet its nullsec that is supposed to drive this with its “massive” wars. Thats supposed to be the biggest source of destruction in the game, but it isn’t.

Botting of all sorts and types contributes to this greatly. There are mining fleet bots, AFK cloaky gate camper bots that spam intel channels and 3rd party apps thus preventing destruction and reducing demand, market bots. The market bots are huge as they take advantage of just about every price spike in either direction, if something spikes down then buy, if or when it spikes up then sell, couple with centralized markets like Jita, and you already get what happens next.

Etc. etc.

[Uncas_Khurelem]

It’s interesting that you came up with this. That monthly economic report is very interesting. I’d like to discuss this, if anyone is still reading.

Most of the mining is done in Delve without exports. In fact with the most import. No wonder that mineral prices are too high in other areas which means manufacturing costs are too high as well. It’s all clear. I’m not gonna say that the original anomaly is completely solved (about low buy order prices) but I’d like to.

My question is: Do you, people think that EVE has an economical crisis? The analysis is pretty clear, even in the graphs. There is overproduction in the game. The question actually should be:

How are average prices still higher than manufacturing costs? XD

[Anderson_Geten]

I do the same, while still being in ph.

[Salvos_Rhoska]

@Uncas_Khurelem

Most of the mining is done in Delve without exports. In fact with the most import.

Also look at the bounties.

Goons are playing smart, again.
Must be getting richer than Midas in their Fortress Delve.

[Veyreuth]

I think most people miss that a slight change in material costs can make a huge change in the profitability of manufactured goods. Since it could take several days to take a T2 project from invention to completion, the price the industrialist is willing to charge is relative to the price they paid for the materials rather than the current price. If you compare the relationship in a specific moment, you miss that. Perhaps when the project was started, a couple null sec corps just dumped some moon goo on market at a lower than normal price. To an industrialist, this might show up on spreadsheets as opportunity to run projects, when in fact buying and resisting the goo at a higher price would have been more efficient.

People often miss the chain reaction effects in market prices. You sometimes get someone who tries to corner the market on a manufactured good. Prices spike for the finished item and without digging deeper it looks like an active market. The first few industrialists to make it to market make bank. Since projects take time, the laggers enter having bought overpriced raw materials and all the dummies that looked at the big margins on their spreadsheets days earlier flood the market. Prices crash, since the industrialists value liquidity to take on other profitable projects. Market traders buy up the oversupply and are able to sell below cost and still profit while discouraging rogue industrialists from nosing in.

[Teckos_Pech]

Goons doing alot of mining is a relatively new thing, yet the observation the OP makes has always been around. Not for everything, but for many of the T1 items that people can make.

@Uncas_Khurelem

My question is: Do you, people think that EVE has an economical crisis?

No.

@Uncas_Khurelem

The analysis is pretty clear, even in the graphs. There is overproduction in the game.

No.

@Uncas_Khurelem

How are average prices still higher than manufacturing costs?

Because price is set by supply and demand and not by costs alone, generally speaking. Supply is cost, but demand is not. To be clear, the supply function of a good in a competitive market is actually the sum of each firms marginal cost function.

[Salvos_Rhoska]

@Teckos_Pech

Goons doing alot of mining is a relatively new thing

Goons are getting fantastically rich in Delve.

They finally realized why bother with a huge Sov empire and all its complications, when you can instead just farm it all yourself.

I expect they are making far more isk now than even during the height of the blue doughnut.

[Uncas_Khurelem]

Can you explain your arguments in more detail? I have problem understanding them.

It says that more value is produced than destroyed. Isn’t an economical crisis in real life like that?
Too much products-> too low prices of products->no profit for factories->people in factories have no money to buy stuff->even lower demand-> even lower prices->even less money for factories

[Teckos_Pech]

@Uncas_Khurelem

It says that more value is produced than destroyed. Isn’t an economical crisis in real life like that?

Yes, that is what it says, not that is not a crisis. What is the point of an economy? To make profits? No. The point is to buy stuff, have stuff, use that stuff.

@Uncas_Khurelem

Too much products-> too low prices of products->no profit for factories->people in factories have no money to buy stuff->even lower demand-> even lower prices->even less money for factories

Why do you assume lower prices in that first link of your chain of reasoning? If we have greater production because of an increase in demand we actually get higher prices. In your second link that is self-correcting. Even if what you imply in your first link is true, then as a rational producer I would stop producing once the profits dry up. In fact, I might even stop while there are still positive profits and look to another area of the economy that gives me similar or greater profits. In your third link, you are assuming there are no other options available to people.

You have set up what looks like a death spiral, but there are a number of problems with several of your initial links and since your chain of reasoning is recursive even the later links have these same problems too.

Economies tend to be self correcting. That is they do not spiral into oblivion nor do they move to equilibrium and stay there. If you see an economy spiraling into oblivion look for a policy or policies, typically imposed with a threat of violence, that is messing things up. Most of our big economic problems have such policies at their root.

[Uncas_Khurelem]

I’m trying to make the analogy bettween EVE in real life. So I assumed some stuff in the reasoning. For the first link I assumed that the sitation is similar to the one in EVE, less destroyed than produced. Sure, there is growth though. So demand does not equal destroyed stuff.
About the second part: Yes, a rational producer probably changes profil but:

1. Changing profil has cost. Actually pretty big costs. New machines, new infrastructure. In EVE blueprints and stuff.
2. If there is overproduction in the hole market there is no other option.
3. I admit that as a producer one can avoid losses. But this means that he/she has to dismiss workers. So those workers will have no money to buy stuff so demand drops.

I have different knowledge about economic crisises. The reason of theses crisises is kind of unknown as far as I know. But their solution allows for those violent ideologies. The ”classic" solution is to restart demand by setting up big projects by authorities. Like bridges, railways and stuff. People get jobs, money so demand increases.

They did this in Germany in the 1900s which lead to the influence of violent ideologies and the brutal power of Germany in the WW2.
I think the recent economic crisis was solved by migration in EU. Cheap workers setting up demand for other parts of the economy. And this leads to conflicts again. But this is just my speculation.

[Salvos_Rhoska]

@Teckos_Pech

If you see an economy spiraling into oblivion look for a policy or policies, typically imposed with a threat of violence, that is messing things up

This is true in EVE as well, where CCP restricts the sandbox in which players operate.
It can be argued that CCPs policies are what are messing things up.

[Teckos_Pech]

@Uncas_Khurelem

Changing profil has cost. Actually pretty big costs. New machines, new infrastructure. In EVE blueprints and stuff.

Yes, but this does not mean you continue down a route that is unprofitable. There is no gain in that.

@Uncas_Khurelem

If there is overproduction in the hole market there is no other option.

You keep saying this, but on what do you base this? Look at the graph, production has always exceeded destruction. That this is case does not mean there is over-production.

@Uncas_Khurelem

I admit that as a producer one can avoid losses. But this means that he/she has to dismiss workers. So those workers will have no money to buy stuff so demand drops.

Again, why can’t those who are dismissed find alternative means.

The entire economy, both in the game and out is partly described by Joseph Schumpeter’s notion of creative-destruction. In the case of EVE that is more literally true in that part of what drives the economy is literal destrcuction–ships going boom. However, that is not the full extent of what is going on. A player might start off with missions, move on to mining, add PI, some exploration or veer off into PvP. In all cases he will be adding ships, in some cases he’ll be losing ships or destroying ships of others. But on net he may very well be acquiring more and more ships. That’s fine.

In RL economies the destruction is more subtle in that it is new ideas, innovations and technological advancement that destroys the old and out moded. In 1900 about 40% of the US work force was employed in agriculture, now it is just under 2%…and they make even more food than they did before. Jobs associated with travel by horse have all been largely eliminated. Manufacturing jobs are going the way of agricultural jobs. And yet, unemployment is not trending upwards. As jobs are destroyed new ones are created. Twenty years ago nobody even dreamed of Cyber Community Liaisons Manager or that kind of stuff.

And in RL actual destruction is absolutely not a way towards greater economic prosperity or even economic growth. This idea was pretty thoroughly skewered about 170 years ago by Frederic Bastiat and his parable of the broken window. And this simple thought experiment can help show why: if destruction is a sure fire way to improve a country’s economy…how come countries are not bombing themselves? Why don’t they evacuate everyone from New York City, level it, and then say, “Isn’t that awesome, look at all that new work and new jobs you get to do!”

@Uncas_Khurelem

I have different knowledge about economic crisises. The reason of theses crisises is kind of unknown as far as I know.

Most economic crises have a reason and it is invariably is a boneheaded policy that somebody thought was a brilliant idea. Case in point:

@Uncas_Khurelem

The ”classic" solution is to restart demand by setting up big projects by authorities. Like bridges, railways and stuff. People get jobs, money so demand increases.

These are called megaprojects and inevitably they tend to be failures in that they cost way more than the initial estimates…way more. Then tend to take far, far more time to finish than initially claimed, and they almost never provide the degree of benefits the proponents claim. This is not a good way to “restart” demand. See the research of Bent Flyvberg.

@Salvos_Rhoska

This is true in EVE as well, where CCP restricts the sandbox in which players operate.
It can be argued that CCPs policies are what are messing things up.

I don’t doubt CCP’s ability to screw things up, but when it comes to the economy they are generally pretty hands off, or if they aren’t they are extremely subtle about it (which kind of contradicts the notion that CCP are a bunch of bumbling doofii). They periodically come along and tinker with things, but they are not trying to implement policies on an on-going basis.

[Ramona_McCandless]

@Uncas_Khurelem

They did this in Germany in the 1900s which lead to the influence of violent ideologies

What? Im pretty sure infrastructure projects were not a cause of polarising German idealism in the 1900s. Given that there were three (at least) different rises of ideologies across the years 1900 - 1933 alone I cant even be sure which ones you mean.

[Anderson_Geten]

@Teckos_Pech

In fact, I might even stop while there are still positive profits and look to another area of the economy that gives me similar or greater profits.

You can only do that if the initial investment you did has had a correct return. That is, you got your money back AND got paid.
We are talking about billions here. They take months to get your initial money back.
If the market crashes ? Well you can’t change. You can just keep producing, and hope the market will make you get money again. Also people may not be “aware” that the market is changing. if prices are consistent over a year, I will start not even looking at the price.

@Teckos_Pech

And yet, unemployment is not trending upwards

Could you provide the source for this affirmation ?

@Teckos_Pech

how come countries are not bombing themselves?

You should read “The prince” of Machiavel. He answered that several centuries ago, and it’s a short book. The answer is : to keep control over a country, you need to make up a foe. Be it Russia, be it U.S.A., be it muslims, the scapegoat is the way to hidding the strings.

But bombing your own country is actually a very useful tactic. Just don’t get caught red-handed.
Just imagine your corp get bored in Eve. You make too much resources in your null dead-end rented system, the games becomes a boring grindfest and nobody comes here ever.
You then can make a few people from another corp come to grind you in cheap ships. The goal is to socialize with them and make your corpies feel invested in the “war” against them.
You can even let them reinforce a citadel. And pay them a few ships to do so. And EVEN lower the taxes for your corpies to want to farm.

[Salvos_Rhoska]

@Teckos_Pech

I don’t doubt CCP’s ability to screw things up, but when it comes to the economy they are generally pretty hands off, or if they aren’t they are extremely subtle about it (which kind of contradicts the notion that CCP are a bunch of bumbling doofii). They periodically come along and tinker with things, but they are not trying to implement policies on an on-going basis.

There are secondary effects on the economy by arguably all changes CCP makes, or has not made. They need not directly target the economy, to have impact.

Everything is interconnected in EVE. Even the lack of x has impact, by its absence.

[Uncas_Khurelem]

@Teckos_Pech

You keep saying this, but on what do you base this? Look at the graph, production has always exceeded destruction. That this is case does not mean there is over-production.

Maybe there has always been an economical crisis in EVE. And nobody noticed.
I agree with you on the fact that one can add even more ships and still have demand. But the difference bettween the real life and EVE destruction amount is huge. As you have mentioned it about the innovations.
Bastiat’s parable is a qood idea but the case is a bit different. Destruction is not the only part of the demand but it is a constant part of it. Which prevents crisises and improves stability.
I imagine it like this: If your window breaks or your missioning ship explodes your personal demand to replace the item is much higher than in the case when you just want to improve your business.

Can you recommend something to read from Flyvberg?
I don’t completely know your point about this. What you might not count in:

1. These megaprojects are only so highly needed in case of a crisis.
2. It’s hard to measure how much a bridge or a metro is worth. Maybe it’s possible to estimate how much time it saves for people using it. But then we are stull very far from seeing how profitable these are.

@Ramona_McCandless

What? Im pretty sure infrastructure projects were not a cause of polarising German idealism in the 1900s. Given that there were three (at least) different rises of ideologies across the years 1900 - 1933 alone I cant even be sure which ones you mean.

Our society tends to be very black and white about Hitler, that’s why I tried to be confusing. Sometimes even mentioning him feels like mentioning Voldemort.
I was talking about the crisis in 1929. Which was solved in the USA by the “New Deal”. I think this crisis lead to the influence of natinal socialism in Germany. I tried to show how influential authorities are in crisis.

[Uncas_Khurelem]

Even in Orwell’s 1984. Mega nations in constant war.

[Ramona_McCandless]

Ok well then you know yourself that it wasnt caused by too many large building projects.

However if you had said Kaiser Wilhelm and the building of the Kaiserlichtmarine, then I suppose you could say that had an indirect but definate after effect. But that wasnt started in the 20th century.