Supply, Demand, Distortion, and Aces

In an earlier post, I predicted that protecting the First Generation monopoly will result in significant problems down the line. It turns out I was right.

TA;CR: (Too American; Couldn't Read) Blizzard has absolute control over the supply and the demand and believes that market distortion can be prevented by destroying other people's ace-in-the-pocket they use to adapt to Blizzard's own design.  This line of thinking is absolutely and mathematically wrong.

1. Blizzard has absolute control over the supply side via tinkering the drop rates
2. First Generation (people who got to Act 3 and 4 Inferno without meeting gear requirements via glass cannon) gathers the supply and distributes them on the AHs.
3. Blizzard adds reactionary regulations, forcing everyone else to meet gear requirements.
4. Second Generation comes along and emulates First Generation's glass cannon strategy, purchasing gear only First Generation has access to.
5. As soon as progress is made by the Second Generation, Blizzard hammers the glass cannon build, rendering all the gear useless. Second Generation cannot sell their gear to get back their money because no one will want it.
6. Fanboys cheer that justice has been served, just like they cheered when they nerfed SS and Force Shield.

So, what's the outcome?

Second Generation is not able to recoup on its investment and has to start over again. However, this time around, repair costs will prevent Second Generation from accumulating the money needed to meet First Generation price controls. Their repair costs will be higher because their gear is now inadequate, and then magnified by the boost Blizzard to the repair costs in general.

Second Generation is in a dilemma: If they grind out the gold required to buy First Generation gear for a second time, there is no guarantee that Blizzard will not render their investments pointless. Hope is lost, second generation quits in droves.

Those datacenter costs that make the DRM possible will eat into the initial profit margin. There needs to be a minimum amount of transactional revenue occurring per month in order to pay for it. The more transactions that can occur, the more profit Blizzard can accumulate. But heavy-handed and reactionary regulation policies, dictated by a hand-to-mouth economic strategy will deter this.

Every single time Blizzard changes the supply and demand, the First Generation never gets hammered. They have all of the gear they need. They roam unchallenged, no matter what nerf Blizzard brings along. They have an interest in knowing game mechanic changes as that directly correlates to profit potential, so they will have the ability to re-gear themselves much faster than anyone else simply because they can afford each others prices. The First Generation is indefinitely preserved. 

Everyone else plays by First Generation's price monopoly, which is ensured every single time Blizzard tweaks game mechanics to counter the last time they tweaked game mechanics.  Entire investment strategies are rendered useless, however, the money has passed along to the First Generation, who uses it to gear up for the next viable build, then sells the remainder down for the exact same price.

Blizzard believes distortions to the market come from people who aren't playing the game as they intend.  (Of course, no one bothers to ask why Blizzard appears to be unable to create a game exactly the way they intend)   However, the only distortion going on is the indefinite preservation of the First Generation's price monopoly. These First Generation players are the actual gold sink in the game. The gold goes to them and it rarely leaves.  (And there is no redistribution, forced or self-interest, of that gold sink to bind the well-being of the Second Generation to the profits of the First Generation.)

Because of this, Second Generations will get wise and either quit, realizing the futility of it all, or spend far less than they previously did on the AH. Second Generation now has proof that their is no insurance to protect the viability of their investments, even in the short term. Blizzard can change anything, whenever they want, without ever being expected to be bound to a Magna Carta-esque social contract.  They can effectively wipe out hundreds of millions of investments in the blink of an eye, Leviathan-style.

The volume of participation drops on the AH as people go broke, and no one buys off of the RMAH out of fear that their investment will be rendered useless next week. Blizzard datacenter costs start rising with nothing to offset it (this is not a subscription game) and Activision investors, who are notoriously short-sighted hyenas, bail in droves.

All because of a faulty definition of distortion which has resulting in a gold sink being a handful of players at the top, the First Generation, who will never want you to change the policy of heavy-handed regulation because they will always benefit from people having to buy gear from them multiple times.

Do you honestly think the First Generation and their very tiny numbers can provide enough transactions to offset your datacenter costs indefinitely in this model where no protections against your regulations exist? Your investors should want massive aggregate participation in the RMAH, with insurances and incentives. Monopolies are inefficient when the net you are casting directly benefits from mass participation. It appears no one at ActiBlizzard knows this.

If you don't gear your economy towards aggregate participation, your datacenter costs will go belly up in two seasons. You can only have 66.6 million auctions up every two days, and the only auctions people are paying money for is the stuff that First Generation has access to, which is a fraction of 66.6 million.

Some people have said that the supply is desirable goods is infinite, and so things will correct themselves simply by mass participation.  This is completely false.  Diablo 3 is not a closed system.  It requires external datacenters and player participating to make possible.

The supply of goods are made available based on player time. Player time is not an infinite resource. Player time is a very finite source that can be completely abused and destroyed based on economic policy. The amount of player time available providing the current circulation of supply took twenty years to build.


The Second Generation is now completely disheartened and has absolutely no interest in farming slight variations of the goods they have already farmed. No incentive structure will rehabilitate them whatsoever. This problem, when applied to the real world, is generally offset by the creation of new human beings. (Those delicious blank slates waiting to be exploited). However, Blizzard is not accumulating new players at the rate they are disheartening current ones.


The only thing that will spur the Second Generation into participation is a guarantee that Blizzard will not alter the game in financially destructive ways again. Until then, they are a broken, underperforming population who will be very weary of the RMAH, and thus, not netting Blizzard any revenue whatsoever.


The glass cannon spec was the only viable spec because Blizzard made it that way. Now they say that they never intended it to be that way. This Orwellian way of running things requires a lot more than absolute control over supply and demand.

So in short: Games that rely on aggregate market participation will require more than a primer in supply side economics.  They will need to consult with macroeconomic advisors on how to optimize aggregate consumption so that the supply side has something to feed.