Server Economics vs Real Life Economics

Yes people, I’m back at it again! It’s been 4 months since my last post, some stuff has changed (I’ll cover that at the end), but what I’m here for today is to talk much more about the structure of the market on the server, and put forth a few suggestions for the future. If you want a bit more general information I recommend reading my last post (https://piratemc.com/topic/the-piratecraft-economy-and-how-it-works-2/ ). Here we go!

Fair warning, this is my opinion once more, so feel free to comment or add anything. Trump-approved wall of text incoming, be warned.

Types of Markets

Ok so this is a pretty big one that I didn’t cover much in my last post – it doesn’t mean my last post is no longer valid, but it does change a few things. Here is a very brief overview of the types of market. When I talk about the ‘market’, I’m not talking about the whole economy, I’m only talking about a specific part of the economy – such as the market for phones, or for computer games.

There are 4 main types of market structure:

• Monopoly – Where there is one big company pretty much runs the entire market. It has so much power in the market; it can set pretty much any price it wants, without losing many customers. Example: Standard Oil – it was owned by John D Rockefeller way back in 1870. It controlled so much of the market, no matter how high the prices were, people kept buying from them as they had few alternatives.
• Oligopoly – Almost like a monopoly, but this time there are several large firms that control the market. Example: Apple and Samsung in the phone industry. They’re huge companies, each with lots of the market share. Ever wondered why Apple’s phones are so expensive? It’s because they know people will still buy them even if they cost $999.99, because they have that much power in the market.
• Monopolistic Market – Sounds like a monopoly, but it isn’t. Lots of firms in the market, selling different things, at different prices, but they all have similar amounts of market share. Example: Local restaurants – they’re usually quite a lot in a town, they all serve different things, and they usually get around the same amount of customers.
• Perfect Competitive Market – This is the weird one of the four. There are tonnes firms in the market, all selling pretty much the same items, at pretty much the same price. Example: Egg companies – eggs are eggs, you can’t really make them very different from one another. If one company starts selling eggs at a higher price, supermarkets will just choose a different company as they have so many companies to choose from.

Here’s a picture I found online that covers the four markets:

The type of market structure on Piratecraft

The ways goods are produced on Piratecraft are all pretty much the same – you either find it, you grow it, or you craft it. The only exception to this is custom items, or items that are unobtainable (such as elytras). Therefore, I will be disregarding the market for these ultra rare items, and instead be focusing on the more genuine items such as stone, potions, and enchanted books.

The markets on this server are mostly perfectly competitive meaning that everyone who sells stuff is on a level playing field basically. Here are the features for a perfectly competitive market, and I’ll be applying them to the PMC market using Cysteen’s and __plant’s shops as examples.

• The items in the market are all the same. Whether Cysteen or __plant sell dirt – its exactly the same dirt. Dirt is dirt, you can’t change that. You can’t get ‘premium’ dirt, you can’t get ‘__plant brand dirt’, nor is one dirt better than the other. It’s the same
• There is nothing stopping you from entering the market. Cysteen has been on much longer than __plant, yet they both have shops. It’s not hard to start selling stuff, all you need is well… stuff… and if possible a shop at /warp shops.
• Customers have ‘perfect information’. This basically means that we as customers know exactly what we are buying. If I go to Cysteen’s shop and she is selling wool, I know that I’ll be getting wool. An example where this would not be the case is a second-hand car dealership: the dealer may say ‘oh yeah the car is in perfect condition’, but you don’t know that.
• There are lots of people in the market. This one is a bit ‘meh’. We used to have loads of people selling stuff, especially back when we had player owned warps. Compared to the amount of people on the server, not many have shops. There’s still quite a lot of shops to choose from, just not as many as there theoretically should be (this means that something is preventing people from getting shops, ill get to that later).
• The customers dictate the prices. If Cysteen increases the price of one of her items, she will lose customers – as they can go elsewhere and buy stuff cheaper very easily. She doesn’t have much power in terms of what something should cost – it depends on the other sellers, and the customers. She has no choice but to sell at the same sort of price as her rivals, otherwise she won’t make any money.

What effect/difference does it matter?

Each market has its characteristics that make it either easy, or hard to set a price for an item. If I’m a monopoly (the only person selling an item such as elytras), I can set my price really really high, because I know people will want to buy one. However, if there are loads of other people all selling pretty much the same stuff (perfectly competitive market) it makes it very hard if neigh impossible to set a price for an item.

In simple terms; if you think prices are too cheap on the server, there is very little you can do. This is why trying to boycott another player’s shop, or buying all of the diamonds to increase their price won’t change much.

Undercutting 

Undercutting is where you offer goods or services at a lower price than a competitor. For example, Cys sells stone at $1.50 per stack, but then __plant decides to sell it at $1.40 – to make it cheaper and sell more.

Undercutting has always been an issue on the server, but it’s the sign of a responsive market (which is a good thing). There is nothing worse than a market that is not changing or adapting – it’s the worst thing in the world, so undercutting can be seen as a good thing.

But

It’s a shop owner’s worst nightmare when someone next door sets up a shop, and sells everything just a little bit cheaper. It’s annoying, and you have the right to be annoyed. In real life, this sort of thing is regulated – if firms are consistently undercutting each other, they will be fined and forced to increase their prices. We don’t have that on the server. I’m not saying undercutting is a good thing, or a bad thing. It always happens and it always will happen no matter what.

A solution to undercutting/price war

Undercutting isn’t the main issue; it’s the prices of shops in my opinion. I know from reports of several players who own shops that they barely cover their monthly rental costs. It’s cheaper to just sell something privately without a shop – you save yourself hundreds of $$$ every month. If shop prices weren’t so high, players would be more willing to adjust their prices in accordance to demand, rather than to try and make enough money to keep their shop going.

Basically, instead of selling an item expensively to try and make enough money to cover the costs of your shop, you could sell the item for the equilibrium price (I talked about this in my last post).

And yes, reducing the prices of shops will probably mean the prices of some items will fall. But at least then the market can adjust naturally, rather than being forced to a price demanded by some shop owners with high shop rents.

In conclusion… finally

So basically:

• The prices on PMC are affected a lot by the prices of shops
• Its very hard to set a price for a certain good – trying to get diamonds to sell for more is very hard, very very hard
• Undercutting isn’t great, but it isn’t Satan. It has its benefits too, and the level of undercutting can be reduced by lowering shop prices and getting more people to sell (especially if pvp will be enabled at /warp shops – because it will scare off some customers)

A few suggestions to help the economy/market develop faster

• As previously mentioned; reduce shop rent prices. If pvp will be enabled at the shops, it will mean less customers – at least less customers that are alive. Reducing the shop prices by around 25% should see a decent amount of getting shops – helping the economy develop faster.
• Change the layout of /warp shops a bit. Seriously, I’m not joking. Most of the shops players buy is along the main ‘high street’ and the market. The other shops, such as those in the North and East, are almost never rented because they are just too far away from the action of the high street. My using w/e and rotating a few buildings and roads, you could greatly increase the user-friendliness of /warp shops. It’s a 1 hour job with w/e
• Combine all of the existing warps to the shops into one warp. Along with that, move the warp to the center market place, not the castle – I don’t care about the castle, if it doesn’t sell rum, I don’t care. This modification would go hand-in-hand with the one above. I believe there is currently a poll on the server for this.
• Have some rum. Rum solves all of your problems.
  

  I know it was a lot to read, but thanks for at least clicking on here and sparing me 10 minutes of your life. Sorry if it was a bore, it probably was, but I really wanted to get this out there because I wanted to discuss undercutting. And yes i totally stole those memes. Poi