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Well, let's do an Economics 101 class and see if we can't make heads of tails of this a bit more.
Supply and Demand...
We are all probably well familiarized with the concept of supply and demand. In a perfectly competitive market with all other factors being ignored and the assumption that the sellers want the best price for their goods and the buyers want to pay as little as possible but neither side wants to wait very long (i.e. they do what it takes to sell / buy as quickly as possible), then supply and demand impact the price point at which a product will sell. As supply increases, the price will decrease and vice versa; as demand increases, price will increase and vice versa.
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| Example of demand increasing from D1 to D2 and therefore price increasing from P1 to P2 and quantity changing from Q1 to Q2. |
So as stated in the intro, since there are fewer people logged in there must be lower demand for PLEX and therefore shouldn't the price decrease? Well, there may be fewer logged in players but there is no current knowledge that the number of subscriptions funded through PLEX has decreased the same amount; the volume of PLEX sold has decreased over the past few months but not as much as the PCU has fell, I'm guessing only about 10% from a glance.
Nevertheless, prices are rising and not decreasing! Something is a play here. Is it possible that demand has increased against our initial assumptions? Could the changed New Eden Store and ship paint jobs that require PLEX converted into Aurum to purchase be increasing demand? If this was true, we'd expect to see that quantity sold increasing or at least holding steady but that is not the case.
Perhaps the pressure is coming from the other side of the equation. As discussed above, when supply increases prices will decrease and quantity sold will increase, and when supply decreases then prices will increase and quantity sold will decrease. Interesting.
Let's do a scenario so see if my adhoc hypothesis holds up. Let's say both demand and supply have fallen. The lower demand means prices will fall but the lower supply could counteract that fall, and even reverse it if the supply drops off enough. Note that we don't have an easy graph to see how much the supply is at any given point, only the volume of goods sold and the price they sold at. On the other axis, if demand and supply both decrease then the quantity sold will decrease as well, which fits (albeit not as easily) with what we see.
TLDR: its possible based on my simplistic understanding of economics and the current state of the PLEX market that both demand and supply have fallen, leading to an increase in prices and decrease in overall volume.
If correct, and that's a big if, we can postulate that if the concurrent users logged in numbers correlate positively with supply and demand, then PLEX prices could decrease if the PCU count recovers and climbs to higher levels again.
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I was going to talk about Price Elasticity of Demand / Supply but I'm already feeling way out on a limb here. Basically from what I remember the idea is that the elasticity is a measure of how much a buyer will tolerate a changing price before they decide to not buy the product. A lot of factors plays into the elasticity like how much the item is needed, how much it costs compared to the buying power of the purchaser, etc. I'm going to wildly guess that the price elasticity of PLEX is pretty high, i.e. the price can increase quite a bit before a buyer will opt out of the market, hence why the volume sold has decreased so little in comparison to the price increases.
But that is even more of a wild guess than the rest of the post so take it with a grain of salt.
UPDATE: EVE Altoholic has better analysis with lots of graphs and expertise behind it. Go check it out!
UPDATE: EVE Altoholic has better analysis with lots of graphs and expertise behind it. Go check it out!
The curve itself is creating demand as people buy plex as an investment vehicle.
ReplyDeleteNope, only supply fallen, not the demand. I've just finished done an analysis on that: http://greedygoblin.blogspot.com/2014/07/if-more-people-log-in-more-x-happens.html
ReplyDeleteThe TLDR: the login decrease affects only highsec players, low, null, and WH activities are unaffected. So those who have the ISK and the demand for PLEX are keep logging in, those who were selling PLEX to buy some ships are not logging in.
The supply and demand sides for PLEX are very different. Demand comes from numerous sources, and is very broad based. People want to PLEX accounts for time, as well as secondary things PLEX are used for. This appeals to everyone, since everyone like IRL money. Also, there is the PLEX is money factor. Most people have extra in-game money and they like to preserve its value. Again, this is a very broad-based need. And note that so long as PLEX are seen as rising and "will always rise", the monetary demand for PLEX actually increases. Would you hold your money in dollars if you knew that next year, Euros would be twice as costly in dollars?
ReplyDeleteOn the supply side, though, the market is very different. Do you buy PLEX? (Meaning, buy it using IRL money.) Does anyone you know buy PLEX? I do not, and I know one guy who bought three PLEX, one off, two years ago. PLEX buying is not broad based. Rather, PLEX buying is a luxury, of sorts, that people who are doing well IRL do because they'd rather spend IRL money than grind in-game to get the ISK they need to do what they want. Furthermore, many (most?) older players can command a very good ISK earning rate in-game, and so generally have lots of ISK. So, we can see that PLEX-buying is a rather niche market.
All of that is rather long-form way of talking about price elasticity. Which you have basically correct. PLEX demand in game is much less elastic as PLEX supply.
If demand and supply have fallen, the change in price will be ambiguous unless you can measure which is moving more. If demand has fallen more, then prices will decrease; if supply as fallen more, then prices will increase. Seems to me that the supply is falling more than the demand is, driving up prices.
ReplyDeleteCCP may be waiting for the Crius release to put Plex up for sale in the real world. Right now, Plex costs in the real world are their normal prices and normal bulk purchase discounts. I know I purchased a Plex 6 pack from Amazon recently, liquidating 4 at around 790+ million isk, selling another at 801 million isk, leaving the last sitting on a long term sell order for 850 million (wishful thinking, I know).
ReplyDeleteI'm wondering how much Somer Blink driven changes to ETC sales altered the Plex market. CCP put that change into place November last year. The last time Plex prices in the Forge were below 600 million was a month later, January 1, 2014. I guess I'd have to know how the ETC resellers are doing now to know how the cash business is doing.
There’s been plenty of “it’s a bubble” and “it’s going to a billion” nonsense, but other than G-Gob and VK (both commenting here, I see), I haven’t seen much attempt to really dig into what’s driving the market. Thanks Kirith!
ReplyDeleteI’m going to throw another possible factor into the ring (because why not). I suspect that a lot of serious industrialists and traders have been parking more of their ISK reserves in PLEX for the last few months, as a way of hedging against the uncertainty about the upcoming changes to industry. As Dr Eyjo said, those changes will “bring on severe pressure for new market equilibrium on almost any item that is out there today.” In non-central banker-terms, that means, “Strap in, because we’re in for a very bumpy ride ahead.” Rather than re-investing ISK or just holding cash, I’ll bet a lot of smart industry and market players have been putting ISK into the perceived safety of PLEX.
If one PLEX typically changed hands in the past multiple times before it was consumed (and I don’t know if that’s true or not), then hoarding would contribute to a decrease in overall trade volume, along with a decrease in supply and still fairly robust demand.
What you’re describing, with a fall in both demand and supply, is a kind of “stagflation.” But when I watch PLEX prices move in the major trade hubs, especially on Saturday mornings, it looks to me like there’s still an awful lot of demand in the markets.
What I don't understand at all is how people can confidently think that PLEX is a good long term investment at this time.
DeleteHow can you confidently think that it isn't?
DeleteIn don't confidently think that it isn't! I honestly don't know if it a good investment or not. I was expressing my ignorance, not incredulous-ness :)
DeleteMy confidence is based on several things:
Delete(a) that I believe I understand what money is (and PLEX is harder money than ISK),
(b) that ISK will not get significantly harder
(c) the monetary use of PLEX is nowhere near maxxed out
(d) there are no other good commodity investments; PLEX are unique in that CCP will not create them willy-nilly. (Compare to Leopards, or Geckos, for example.)
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ReplyDeleteThe prices of other goods are not inflating. This means that when I sell a PLEX for ISK, I convert my $17 into more and more of the same goods I'm buying from time to time. Thus I no longer need to buy PLEX as often to fund the same activities.
ReplyDeleteThis PLEX-stocking constraint means you have your supply and demand back-to-front. The item being bought and sold is ISK, which is paid for in dollars (with PLEX as a proxy). As the amount of ISK supplied per dollar is increased, the number of dollars being converted to ISK is decreased, since demand for ISK is relatively inelastic. A person who already spends all their free time blowing up other people's spaceships isn't going to blow up more spaceship by spending more money. They might upgrade to cruisers or battleships or capitals, etc, but the chances are that someone who enjoys frigate combat in FW to blow off a few hours a week isn't going to upgrade to cruisers just because they have access to more ISK.
As PLEX prices go up, supply comes down. As supply goes down, prices go up.
There will be at least two factors ameliorating the rampant ISK-inflation of PLEX: one is the perceived dollar value of time, the other is the dollar value of ISK of PLEX compared to RMT shops.
The perceived dollar value of time is quite simply the dollar-to-ISK conversion rate at which people who previously preferred to play-to-pay will start paying to play. If I have to spend too much of my play time farming ISK to buy PLEX, I will either stop playing, or start buying PLEX to sell for ISK (and then cutting back on my ISK farming activities, while looking for more player-interactive activities). Either option reduces demand pressure on PLEX (one by supplying more, the other by demanding less).
The RMT equivalent issue is more interesting to me: as the legitimate RMT becomes more valuable than illegitimate RMT, ISK buyers will start using PLEX (and thus increasing supply).
If CCP perceives that the "stop playing" option is losing more players than the "participate in legitimate RMT" option is gaining, I would expect to see incentives from CCP for redeeming PLEX into the market.
What the players can do to ameliorate the PLEX price "problem" (in scare quotes for a reason) is: sell PLEX rather than using illegitimate RMT.
Of course there's also option 3: "someone is deliberately inflating PLEX because they are bored and have nothing else to do with a few trillion ISK" (which then influences "I sell PLEX to fund my PVP").
As promised, I've posted an analysis of PLEX as an investment vehicle: http://evealtoholic.blogspot.ca/2014/07/analysis-investing-in-plex.html
ReplyDelete