[Game Econ] Competition isn't fun

 "Most Businessmen don't like their competitors, or for that matter competition. They want to make as much money as possible and getting a monopoly is one way of making a lot of money." - R. Posner, Olympia Equipment Leasing Co. v. Western Union Telegraph Co. (797 F.2d 370, 1986)

In a previous post of mine, a commenter asked why I considered WoW's auction houses to be "flourishing" and not Diablo 3's. In retrospect, I should have said "fun" not "flourishing".  I notice that lately a few other bloggers have taken on this similar issue, mainly sparked by the GW2 Trading Post.

I'll start out with the admission that I am not an economist, I am a law student who has a particular interest in antitrust law which is part economics and part policy, from which I have been imparted a certain limited understanding.

Moving back to topic, I think Azuriel is on to something with his observation of "vendor+1c" situation in GW2 (though I would point out, based on my experience this morning that many crafting materials have moved above the vendor+1c range, specifically Gold Ore and Cotton Scraps). This of course does not disprove that issue in which supposedly "rational" economic actors are selling something at a loss. This isn't even the guy reselling Dust of Disappearance on the AH to take advantage of laziness...at vendor+1c the TRADER is the lazy one because he could get more for his money by walking to the nearest merchant (and there is almost always one within a stone's throw of the trading post).

In my opinion I think Tobold nails it; the issue with the AH's on D3 and GW2 is not that they are somehow "faulty" it is that they better represent the "perfect" market....or at least it would, if the demand were larger than the supply. In the case of GW2 there are so many people producing Copper Daggers that the demand is sated and then some, so the excess has no value...with vendors being the price floor that causes the Vendor+1c phenomena. The main issue is that people (myself included) LIKE crafting, they like being able to make their own things, and because everyone is doing it, the supply is almost infinite, the demand is not.

So going back to my title and point...competition is not "fun". People in WoW and SWTOR are only competing with the other people on their server and from my observation often this means an easy road to a monopoly. If you are the only person with a certain recipe or willing to make a specific glyph, you have created for yourself an environment in which you essentially have a monopoly. Why do people complain about opponents that undercut by 1 copper? Because that's how prices in the real world work; the firms reduce prices as much as they can until it stops being profitable. These games have sufficient barriers to their crafting market (character can only have 2 professions and there's a time investment before one can start crafting) to enable some competition. In GW2, anyone can take up any profession with only a few minutes of work.

When a gaming market has competition it involves a great deal of undercutting, taunting, buyouts-and-repostings...all to push the item towards its actual value as opposed to an artificial value mainly created by a lack of firms/actors participating in that market.

So in summary, what makes WoW's auction house fun is that it a market where demand is larger than supply, GW2 is the opposite, in which for most items the supply is much larger than the demand. Because of the relatively small size of WoW's markets, there is limited competition and more room for increasing price above cost. GW2 dispenses with this small market by opening it to the entire world, thus a bunch of "goblins" that otherwise would have been on their own servers (with maybe 4-5 others) they are against thousands of others.

I leave you with a final thought about gaming and economics. Economic theory often assumes the notion that an economic actor is rational...and recently has come to face that the economic actor is anything but rational. This tendency is magnified in a game, where people are happy to figuratively burn money on things with no real value, because the "money" is not real. When clearing out their inventory I argue that to most players, it is more worth their time to offload an item quickly (by filling an existing buy order), than to get maximum profit out of selling said item.