Thursday, November 12, 2009

Rent Seeking in Warcraft

Economists define money as a medium of exchange and a store of value. One logical consequence of this is that there must be an actual mechanism to exchange value. This mechanism by which stores of value are exchanged is called a market. As markets exchange value they distribute that value among market participants. In our modern industrialized world money markets are the main market. However, markets are not the only system for distributing value. Another means of distributing value is brute force (such as a war); another means of distributing value is democracy.

At least in theory, modern capitalist democracies are democracies first and capitalistic second. Democracies deploy markets to achieve specific social ends in the same way they deploy armies to achieve specific social ends. One difficulty with this social arrangement is that markets work most efficiently when they are free from outside intervention. We take it as a democratic given that people have a right to petition the government for a redress of their grievances. But the people’s grievance is often that capitalistic markets produce results which harm them. Thus governments are pressured into a market intervention that erodes efficiency and undermines the reason that a market was deployed in the first place.


When social groups petition their governments for market interventions that favor them economists call this behavior “rent seeking”. The “rent” in rent seeking is merely a historical term and doesn’t have anything to do with renting a flat or car. Another name for rent seeking is “privilege seeking”.


Evidence of Absence


The most interesting aspect of rent seeking in Warcraft is its almost total absence. Let me be clear here. Players are always complaining about nerfs and demanding buffs to their class. This is indeed privilege seeking. But there is extremely little movement by players to prod the developers into giving them an advantage in the in-game market for good and services.


One example of rent seeking that springs to mind is the recent reaction of players regarding the new disenchanting option in dungeons and raids. Many players with toons with the enchanting profession claimed that it would seriously impact their ability to charge for disenchanting and thus impact their ability to make money. After a significant amount of complaining Blizzard announced that they would restrict the disenchant option to parties that already had an enchanter in order to “protect the importance” of the enchanting profession.


This example of successful rent seeking is a rare occurrence. There are certainly a great many interventions by Blizzard in the in-game market: the establishing of the Inscription profession, dual specs, and even the prospecting of epic gems which caused titanium prices to skyrocket. Yet none of these market interventions were done because players demanded them. The Greedy Goblin discusses all sorts of types of anti-competitive practices that players attempt to engage in from monopolies to cartels; behavior that would be illegal in our non-game world. Sometimes these anti-competitive practices work and sometimes they fail but I have yet to see any serious effort from players to get Blizzard to intervene to stop it.


Capitalism and Democracy


For those who think that game markets offer useful insight into real world markets this situation begs for an explanation. Given the power and ease by which developers could dole out market favors it’s shocking that there is so little pressure by players to do so.


The obvious answer is that players don’t advocate for market interventions to the extent they do for class interventions because they value class changes more than market changes. Players don’t advocate for market interventions because markets in Warcraft operate successfully without those interventions. There is no need to demand intervention because the markets successfully address their in-game needs, as opposed to class mechanics which don’t.


What’s interesting about this answer is what it implies about rent seeking in capitalist democracies. Economic theory argues that rent seeking imposes net social costs on society. Yet the lesson from Warcraft is that rent seeking actually creates net social benefits. When markets work effectively to address social needs people don’t seek market interventions; the demand for government interventions is a signal of market failure. There is nothing instinctive about rent seeking any more than there is something instinctive about citizens petitioning government for a redress for their grievances.


Seeing rent seeking and subsequent government interventions in markets as an economic positive allows us to grasp that the reason government interventions take place is not because capitalistic monetary markets are weak but precisely because they are too strong. Weaker monetary markets reduce rent seeking and allow those markets to operate efficiently and effectively to meet social needs. That’s what’s happening in Warcraft. The interesting economic lesson from Warcraft is that less capitalism produces better capitalism.

26 comments:

Tesh said...

Unbridled capitalism is as dangerous as any other monetary system taken to any extreme. "Rent seeking" can function as a throttle on some of the abuses that may come up, and as a barometer of consumer sentiment, but granting boons from on high can be equally troublesome, especially when the "government" is empowered to take from one to give to another. Blizzard doesn't have to work in such a zero-sum framework, at least as far as the economy goes. (Class balance is another beast entirely.)

That said, game markets don't track very well with real world markets at all. The general trends of supply and demand work well enough, but game markets are remarkably free of politics and other special interests that can hijack even the best of intentions.

Klepsacovic said...

When comparing WoW economics to real life, it's important to remember that there are some important differences. The economy in WoW is entirely unnecessary for survival; you can survive without ever needing to buy food or anything else. Advancement doesn't even require the economy; you could potentially create everything you need entirely on your own.

There are other differences, little details that dramatically change how people act in the market. I really should get around to writing about that.

Rohan said...

Professions in WoW are a "sideshow" for the vast majority of players. Indeed, a significant number of the edge players choose professions because of the character bonuses involved (witness the popularity of BS/JC).

Character power dominates wealth in WoW, in a way that doesn't correspond to the real world. For that reason, I think your comparison fails.

Spitt said...

I read the title, and said "Yay, someone else wants player housing!" And then I saw something I am used to reading in Business Week.

very deep, very insightful economic talk, and yet, lacking in anything other then opinion. I am sure it will be referenced later as fact by someone else, but that's the cynic in me talking.

Alaron said...

Elnia, there's rent-seeking behavior going on every day. I always see someone complaning in Trade about prices on X crafting material being too high, and Blizzard needs to cap it (or, occasionally, prices for crafted mats being too low). Overall, though, most people recognize the importance of economic balance, and don't want to mess with the system.

That said, I think your comparison breaks down when looking at decision-makers. Governments intervene in markets far more then they should, in general, due to political pressures, whereas Blizzard is (generally) immune to public opinion.

Elnia said...

@Rohan + Alaron. I not comparing; I'm contrasting. That distinction is important.

spinksville said...

I think there is an extent to which MMO devs are expected to pay attention to what players want. I'm not sure if this is the same thing, but ultimately they want to keep people in the game and happy.

So I wonder if the move towards more accessible content is a response to rent seeking behaviour through earlier expansions?

Kromus said...

Interesting read, I think its cool in a way-- I love random market changes in wWoW its funny-- and I think dual spec must of been awesome for Inscription, enchanters and pretty much everything else.

Was great when epic gems fist came out, I use all my heroic badges and bought 20 epic gems and sold them each for 200g!

Bring on more market stuff :D

Eaten by a Grue said...

I think one thing the WoW economy has going in its favor is that it is ruled over by a fairly well functioning "benevolent dictator." In the real world, the people who make up the government, (and the people who lobby the government for changes), all have an equal interest in the money and the goods & services created by the economy. So you can have corruption.

In WoW, Blizzard does not care about gold, titanium bars, enchantments. Those things are worthless to Blizzard in the sense that it does not seek to aquire any of them. So there is no self-interest there.

Not saying that Blizzard handles the WoW economy perfectly, but at least it is immune to corruption.

Kromus said...

Eaten by grue, you make a brillaint point :)

...but their not immune to ignorance ;)
or gnomes.

Gevlon said...

I fully agree Klepsacovic: the market can barely hurt people so they are not pressurized to do something about it.

Also, there is unlimited amount of easily doable work in WoW for everyone, something that cannot be done in real world markets.

Elnia said...

@Klepsacovic +Gevlon. Expect those responses aren't answers.

My article is predicated on the factual reality that WoW economics and real life economics are different.

The question is why should that be so. To simply repeat that it's different because it's different is no answer. Because the point is not that the WoW should become more like the real world but that the real world should become more like WoW.

If people are not pressurized into doing something in WoW then perhaps we should create polices in real life to eliminate that same pressure.

What's stopping the American government from creating dailies? Nothing, in fact that's a fair description of Keynesian economic pump priming or what we are calling today "economic stimulus."

Tim Howgego said...

You miss 2 key points:

1. Understanding: WoW has had dramatic changes to it internal economy that hardly any players noticed. For example, around patch 2.3/2.4 the value of gold (measured in earning potential per level-cap character hour) almost halved: It became almost twice as easy to make gold using basic gameplay mechanics (like daily quests). I saw it. Gold farmers certainly noticed (it screwed their cash-flow big time). And over the next month-or-two, the auction house reflected it. But I never saw any QQ threads. Players couldn't comprehend what was happening, and (perhaps more importantly) what was happening didn't hurt them tangibly. The only players it hurt were those that had stockpiled gold, and came back a year later to find everything twice as expensive at auction.

2. Role of QQ in design: The prime role of designers is to make a fun game. That may involve listening to endless QQ, but it does not have to. Game economies provide some of the best analytical feedback available. There's simply no need to hear what players (who likely don't understand it anyway) have to say - *what players do* can be observed and balanced. This parallel is somewhat similar to the function of government (specifically British, but probably others) - abstract "feeling" problems are managed with an emphasise on the opinion of citizens, while monetary policy is managed with an emphasis on empirical data trends. (I hope) no sane person would try and set interest rates solely by asking people on the street what they thought they should be.

More generally, I think you're trying to take a step back without taking a big enough step back. For example:

Democracy and capitalism are not linked. That's a 20th century myth. Yes, there's an argument that China is in a transitional phase, but the country still poses a significant challenge to any theory that states those 2 words are linked.

Contemporary government uses a sovereign structure, which places "a government" in control. However, pre-modern societies often functioned using different structures (such as property or contract). This is very important when talking about topics such as the distribution of value. For example, when you say "another means of distributing value is democracy", I have a horrible feeling you mean "democracy, on the the United States model". But remember that the US system of value assignment is heavily based on the English Magna Carta. An evolution of the property-based system of government that dominated medieval England. Indeed, one of the reasons for US Independence was the desire to maintain the perpetual property rights originally enshrined by the sovereign king of England.

The benchmark for MUD/MOO governance is probably still "LambdaMOO Takes a New Direction". It's the same basic "need for a policeman" that litters anthropology, also neatly enshrining the impracticality of splitting technology from community. Indeed, I suspect anthropology is a better starting point for discussion of any group dynamic, because it doesn't get confused by (relatively) recently established methods, but it does focus on the one thing common to everything - people.

Elnia said...

@tim. I don't mean democracy on US model. I think you need to take a step back because you are conflating value with monetary or tangible value alone and that's just not true. In fact, though I didn't discuss it it's obvious that one of the problems with value distribution in real world economics is that it focuses to much on monetary value distribution and treats others type of value as "externalities".

I agree that in theory writ large democracy and capitalism don't have anything to do with one another. The original Greek democracy wasn't a capitalistic society. But in our modern world they have become inextricably linked. Even so-called socialist states (such as Sweden) are really modified capitalistic in their organizing structures. It's merely a matter of degree and not of kind, patriotic jingo aside.

Tim Howgego said...

Elnia - I completely agree. On both points. Unexpectedly reassuring.

Defining value has always been difficult, not least because it tends to evolve with thought. I'd argue that intangible value increasingly dominates as an economy moves into the "information age". In a nutshell, everything becomes a public good. Consider it in terms of externalities, if you prefer. Everything becomes a market failure without government intervention.

This poses a huge problem for government intervention, because governments are almost (?) as terrible at dealing with intangibles as markets. Especially political structures, which love physical stuff, to which people can materially relate.

Which is why probing interactions within virtual environments (where everything, except the individual, is basically intangible) is so intriguing for me: There's a chance a solution might emerge to that wider problem...

Klepsacovic said...

@Gevlon: Not to pick at details, but there is almost nearly unlimited simple work in real life. We just don't realize it because the standard of living granted would be so much lower. Subsistence farming, hunting and gathering; these are things which can be done. We can barely even consider them because they would be so terribly unrewarding. They are the mob grinding of real life: slow, but mildly profitable.

@Elnia: You're right, I had a knee-jerk reaction and failed to fully comprehend all you were saying.

Real life could be like WoW, we have the productivity to sustain very low levels of employment as we see in WoW. However I don't see anyone enjoying such an arrangement. Those working would feel as if their work was stolen and those not working would feel useless. The key problem is that our survival in WoW is guaranteed by the laws of physics and NPCs; there is no entropy to fight and the NPCs act as a massive robot slave force.

Unlike Gevlon I'm completely in favor of welfare and other safety nets, but I think any reasonable person can agree that there are limits to how much society can hold people up. Reality itself just isn't as accommodating as that of WoW.

Elnia said...

@Tim

But does government intervention really pose a problem? It does if you consider government and markets as opposed to one another. But if you conceive them as a unified whole then maybe-just maybe-the problem goes away.

Individually a market or a government is just a hand and it tends to fumble around incompetently. But when the two hands are operating together they can create public goods that neither can acieve alone. This is what I'm suggesting about a biofeedback type loop via rent seeking. Rather than an invisible hand regulating the market we have invisible hands regulating society as a whole.

I don't know if this is true or not. But I what do know is that originally what we call economics was called "political economics" before it became bifurcated into political science and economics. Maybe that division has not been conceptually healthy.

Tim Howgego said...

Elnia - Interesting. Excuse me, while I go off on a tangent...

I start from the assumption that the role of government in a capitalist system is to intervene where markets fail. Which is, of course, a very narrow view. Now we can rethink political economics, which plenty of people have done since Adam Smith (I guess) first started to link these ideas together.

But that would still miss the basic problem: Neither free markets nor interventionist government are particularly good at managing intangibles. And I'm terrified that's because *people* aren't particularly good at managing intangibles.

The neat thing about people is that they can be influenced by other people. As I think I've commented here before, items like WoW's minipets (and more obviously, vanity mounts) exemplify consumerism without production or use value. The value of these goods is entirely relative to other players. An influence-based "market" using an intangible thing. Rather than an economic system based on land and labour, we're looking at one based on emotions and social standing.

The problem with social influence is that the social structures through which influence passes differ slightly for each person. So any "currency" (quotes are obviously important here) conveying influence is not perfectly interchangeable. Is not tradeable in a way that maintains parity of "value". You can argue this already happens: A million dollar bonus in the financial sector conveys much the same meaning to the employee as a box of chocolates does to a teacher. Which starts to hint at the multiplicity of social structures we already live in.

That we fear these multiple structures is very confusing: Why do we remain tribal, based largely on physical geography, when (for some of us) physical place has become far less important than it once was? Are we simply lead to think that way, because the sovereign structure of government (that there is just one) can't deal with anything else? Which rather brings me back to the rights problem inherent in interventions like Intellectual Property law: It's an attempt to assign a single owner to things which are often far more complex, particularly in their subsequent use and development.

Emergence (multiple states of being) is now common to scientific thought, but yet not society. Curious.

Elnia said...

I detest the whole concept of intellectual property partly for the reasons you suggest and partly for other reasons. This isn't to suggest that I don't think people should be compensated for the value of what they do but rather I don't think that makes it property in the classical sense of the term.

What makes modern living "modern" is precisely the fact that it entails conditions of associated living. One of the under appreciated facts of associated living, however, is that intangibles like status become more important than tangible property. One major right underlying property rights is the right to exclusively occupy that space. Trespassing laws seek to enforce that right. Status in this sense is simply the right to exclusively occupy a certain social or cultural space.

This gets to a key reason why I dislike the concept of intellectual property. I think all it does is take traditional property rights and dumps them into the intangible sphere. It assumes that intangible space, if you will, is merely an extension or copy of tangible space without any consideration whether that is in fact true or not. You talk about emergence but at least here in the USA the legal system is specifically designed to thwart that. Put differently, we may live in a modern society but many of our Western intuitions are actually founded in a pre-modern outlook. The critical question is whether this is cogitative dissonance and unsustainable or whether this legacy actually produces a dynamic tension that move us forward.

Tim Howgego said...

Associated living in the John Dewey sense? On the face of it, I agree.

However, the very same structures that foster individuality within groups, also seem to value "sameness". In the world outside the iconoclasts' bubble, interaction appears to be driven by things like celebrity. People want to find commonality with as many other people as possible.

Then consider that celebrities, who are, in practical terms, intangible, create wealth by controlling the rights to themselves. The notion of everyone owning a piece of those personal rights, is in direct conflict with the deeply held notion of "I" (me, consciousness). Even if, at an emotional level, that's what is happening. Now it transpires that "I" is a huge illusion, because "I" is so deeply embedded in a world full of everyone else. Ah, the irony! But it starts to explain why a individually-centered notion of self leads to exclusivity of rights.

It follows that a multiplicity of society first requires an understanding of a multiplicity of self. That redefines your critical question, without managing to answer it.

(There's a part 2 to this comment that I'm still struggling to write.)

Elnia said...

Tim, it's eerie that you recognized that phrase. I had John Dewey specifically in mind because that's where I took "associated living" from.

Laura said...

I am pretty sure that rent-seeking would increase if, as Klepsacovic said, you had to farm or buy food in order to keep your character alive in the game.

I also think the amount of rent-seeking would increase dramatically if, like Hellgate: London's "hard mode," when you died your character was gone for good. And if they could die of hunger.

Suddenly market economics becomes the focus of much of the game, as it is in much of real markets. WoW markets are chiefly not interesting to the majority of the player base because of the possible exploitation of infinitely renewable, re-spawning resources, resources which are tangential to the major gameplay aspects (you can down Onyxia or ToC without the use of raid consumables, for instance. It's harder, but you can certainly do it).

In sum, I'd put forward the point that there's less rent-seeking because the basic functions of the market (allowing you to exchange money/value for food, shelter, and clothes) is already provided by the game mechanics.

So really WoW's market is like a giant welfare socialist economy, with basic necessities provided, and only non-essential "luxuries" bought and sold. Trustory.

Sthenno said...

I have two issues with what you said about rent seeking. I think people do it all the time, that's exactly what asking for buffs to your class is.

Money enters the economy in the form of loot. Class buffs improve your ability to get loot, which improves you ability to get money. Sure, the real money is in AH manipulation, but that can't actually generate wealth in the economy. In fact, the AH is a huge wealth sink, making money disappear into nothing while never producing anything. Buffs also mean more success and smaller repair bills, so again, more money. Generally people care about gear (and vanity items), not so much about the money, and this is why they are asking for the buffs. But in the real world most people who want the government to prop up their industry want it for the things they will buy with the money they get, not for the love of money itself. It's no different here. Buffs to a class as buffs to the class' money.

Second, the enchanting is not an example of rent seeking. Rent seeking is asking the government (Blizzard) to intervene on your behalf to protect you from the market. In the real world, we can think of the market acting in a natural way and the government doing something to alter that course. However, for groups getting a roll on enchanting option, there is no natural world. This is a completely new element in the "natural" world of WoW that the government (more like the Gods) are adding in. This would be akin to the pulp and paper industry petitioning the government to not change the laws of reality to allow everyone to pull paper out of thing air. I don't think that's really comparable to asking the government to intervene in the free market on your behalf.

And while I know it's not the point of the post, it is true that markets operate more efficiently without intervention. This, however, is a specific definition of "efficiency" and a great deal of argument is required to show that we actually want that kind of efficiency. Unregulated markets have a tendency to very efficiently make a few people very rich while leaving everyone else to starve.

Elnia said...

@Sthenno

Your roaming around it now hone in one the point. The fact is that money in the real world is a way of keeping "score" that gold is not in WoW. But as Tim points out money isn't such an accurate reflection of that score as people seem to think.

It's a little bit strange to say that people want money for what it can buy when you have billionaires who have so much money they couldn't spend it all if they dedicated their whole life to it. Something besides the need for sheer survival is driving wealth accumulation.

Pantoum - Kel'Thuzad said...

Two thoughts:

1. I think that we'd see more rent seeking if WoW had easier means to allow for organized petitioning of governments. There's no obvious way to create a WoW "interest group" to lobby blizzard. Forums, blogs, or in-game cartels aren't enough.

And it's further compounded by there being absolute walls to communication across servers. And, Blizzard is good at insulating its decision-makers from public demands. Now, if 10,000 people could corner a prominent developer at Blizzcon and give them the LBJ treatment...

Or if an organized group of subscribers would all unsubscribe and stick to their guns...

If we take the enchanting example as valid, I think that it's rare because it caused enough people to cry out at once--and it helps that the vocal complaints had a strong argument.

2. I think the most brilliant thing Blizzard did is give gold for quest rewards at max-level. This decision, then supplemented by dailies, depresses rent-seeking because it's easier to get money than lobby for rents. My time as a player is better spent earning more gold and paying any "tax" that unfair market conditions impose than by trying to overcome the organizational hurdles to successfully lobbying for rents.

TLDR:

I think that we'd see rent-seeking in WoW, if the benefits outweighed the costs...but the game is designed in a way to put up very strong barriers to successful rent seeking, that paying the rents is almost always easier than lobbying to remove them.

Anonymous said...

there are a few reasons why rent seeking is absent.

1. Rent seeking usually involve losses from the majority (all citizens/players) to benefit the minority (1 company/guild). I argue that there is no such minority in WoW

2. WoW is a closed market, so there is no protectionism.

3. True currency in WoW isn't gold, it is dps! As you have pointed out, everyone fights nerfs and praises buffs to their own class. =]