Valve's games put a cap on real prices by selling the items through Valve's store. You can buy a new gun for $2, so the price of the gun in "ebay gold" will never rise above $2.

(Big simplification for TF2 players follows) Also, in TeamFortress 2 (Valve's biggest virtual economy), it's difficult to farm gold. Logged in players receive 1 gold/hr, capped at a max of 10 gold/week. It's possible to create new accounts, and run all of them concurrently, but the expected gain is fairly low, and you have to pay Valve real money for the privilege of having extra accounts.

The exchange rates are also totally asymmetric. The exchange rate for money into gold is approximately $1 => 81 gold. The exchange rate for gold back into real money is ambiguous. There isn't a liquid market here. It involves finding rare in-game hats that aren't sold in the valve store, and selling them on e-bay for $100-$400.

The hypothetical gun might cost $2 on the valve store, but 1 gold in game (i.e less than 1% of the store price). This strongly incentivizes players to trade in-game.

It's possible to make a profit by trading with humans, but that's labor intensive (because you have to find the player and haggle), and probably seen as a positive for Valve, because the traders are providing liquidity.

But not every item is available in the store. The ones that aren't - unusual hats, super-rare "glitch" items, community weapons - sell for hundreds and hundreds of dollars.

One such "glitch" is known as a "vintage scrap metal" which only a few exist in the game. They popped up when a user would delete their metal and ask valve to put it back, when they did, it showed up as "vintage scrap metal" with blue text. Such metal has sold for over $1,000.

I feel much of the TF2 economy (these items that can't be bought in a store) is simply players holding onto the weapons and working together to sky-rocket the price. Now, people refer to a "spreadsheet" which is set by a group of individuals. Everyone follows this spreadsheet religiously.

For small items, I think the TF2 economy is very neat. But for rare items? A mess.

After I wrote this last night, I'm now leaning towards the idea that the "rare item" economy is intentional, and working as designed.

In effect, by making it difficult to turn virtual gold into money, and allowing rare items to sell on EBay, Valve is paying a small number of traders to provide a liquid market.

I'm aware of the spreadsheet, but I think you overstate its importance. Sure, people are aware of the book value, but just like real life, people pay more or less than the book value according to their desire.

Many games add "Gold sinks" to tackle this. Just ways for players to use gold that completely removes it from the economy. I believe the trick of this is to scale it with the amount of gold in the system.

Complete conjecture, but I suspect this is related to things like the increased price to craft gems in Diablo II (bigger gems are more expensive) which was a stark contract to Diablo 2's simple method of "3 small gems make a big gem".

Diablo 2 felt like it had an economy that happened almost by accident whereas DiabloIII feels like they put a lot of effort into the economy and trying to have enough ways to remove gold from the economy.

Adding to gold sinks -

WoW I think had some of the most visible impacts in terms of gold sinks (some I am sure were pioneered by other games and MMOs)

They brought about the concepts of vanity items, which were absurdly expensive and went from there.

Whats even more interesting is seeing the progression and evolution of these economies.

Wow 1.0 auction houses and others barely had the concepts of gold sinks, nor any of the finer tuned economic catches that blizzard introduced by the time it reached its 3rd expansion - Wrath of the Lich King.

Diablo's largest gold sink is the Auction house has a 15% transaction fee. If 1100 DPS 1h becomes worth more because people spend more time farming gold vs items then the auction house will just eat a ever larger share of created gold so eventually people spend more time farming items so there are more 1100DPS weapons and the price drops.

> I believe the trick of this is to scale it with the amount of gold in the system.

That would make the items too expensive for normal players - only the gold farmers and their customers would be able to afford it. Tricky business.

Blizzard sure could use someone like him right about now.

Diablo 3 has crazy gold hyperinflation due to bots and the real money auction is causing further havoc. It is pretty obvious that this was not well thought out prior to release.

I disagree. I think it was well thought out, I just think it's hard to know what will happen until afterward. As for some of the values of items in Diablo III currently... I think there will be a settling period before prices reflect their true value. Supply will increase until some equilibrium is reached. When we hit some equilibrium we'll know if Blizz needs to tweak things. The gold AH, for instance, has had the overall item price tank pretty quickly over the last few weeks reaching what is now much more sane numbers IMO.

I don't think they took into account the bot farming which causes a huge disparity between normal users farming and them getting 6mil gold/hr.

There is also evidence of duping on the Asia servers already requiring a rollback so. So people are actively trying to exploit the system and there are not enough checks in place.

Blizzard is well familiar with bots and virtual economies, they do still run multi-million subscriber behemoth World Of Warcraft after all.

Just to clarify the item dupe was caught quickly and no rollback was needed, they were able to track the item that was the basis for the dupe and all the clones and remove them.

What's the equivalent of this in the real world? Forgeries? Fraud? Owning something without a license? Or is it not comparible?

Isn't valve's store idea a pretty trivial way to anchor the price of items though? It seems blizzard chose the path of ambiguity, rather than using a proven off the shelf method for controlling price.

I can't dig up a source, but Blizzard representatives have confirmed in the past that they hired economists to work on Diablo III -- this isn't something unique to Valve.

Thats a job I would love to have. Datamining and seeing the patterns, figuring out the tweaks, and seeing it affect the economy as it propogates out.

That would be one fun thing to test - and better yet, contrast with real world examples.

> And it totally made sense that hyperinflation would occur since the creation of virtual gold was limitless and effortless

The creation of the US dollar is also limitless and effortless.

Only for the Federal Reserve, who has a mandate to manage for a stable economy--so they are careful with their currency creation.

If every U.S. citizen could create dollars, we would indeed have hyperinflation.

Even though I had no clue about actual economics at the time, this is what I saw as so screwy in runescape. A lot of the ingame money came from alchemy. A few clever people had figured out that the two of the highest tier bows were easy to produce en masse and so created a market for their components. Since runescape does not have a shard system like WoW or other MMOs, this particular market was huge. RMT (real money traders) came in and automated the gathering of these components. Jagex tried numerous methods of eliminating RMT from the game, including fixing ingame prices to within a certain amount. Not sure what happened then, but I still can't figure out why they didn't simply fix the mechanic at the heart of it.

Jagex eventually reversed it's decision on the fixing of prices and returned free trade. This had the effect of bringing back a large number of bots, causing huge inflation of certain items and a large devaluation of item which bots can produce easily.

The economy is now hugely imbalanced, so performing common actions such as crafting a sword from metal will cause you to lose a fair amount of money. There is also no real item sink because the consequence of death from npcs has been reduced (keeping most of the item you where holding when you died) and PvP (player versus player) has been neglected to the point where few players engage in the activity.

That's disappointing.

>If every U.S. citizen could create dollars, we would indeed have hyperinflation.

For that same reason we don't give the power to create dollars to Congress.

From a legal standpoint, "every U.S. citizen" is, in fact, "Congress". That's what the whole "Representative" thing is supposed to mean.

When Congress signs off on deficit spending, you are giving them the power to create dollars.

The simplest form is what happens in games like Mafia wars. The standard tecnhiques are to introduce sinks everywhere and to inflate prices in an illogical way (e.g. the price of buying n+1 weapons is larger than the price for n). This is a weird form of "personalized inflation" but it seems to stabilize the game.