MMO Economics

Today we demonstrate te law of demand through gaming.

All fantasy MMOs (massively multiplayer online games, think World of Warcraft) use a leveling system to keep a demographic of players coming back. Players kill monsters to accrue experience points on their character. At certain benchmarks, the character gains a level, giving them more powerful abilities, stats, skills, whatever.

The game of Ragnarok Online follows this model, giving players the opportunity to progress their characters from level from 1 to 99. (Then you can transcend and do it again. And there are job levels that rise in parallel to character level. I'm sure game designers would have a field day.)

This takes time, and leveling is only part of the experience in an MMO. PvP allows players to pit their characters against other players' characters, and endgame content allows characters of maximum level to continue fighting challenging monsters. So leveling fast can be a benefit.

Enter, in Ragnarok Online's case, the Battle Manual. Players can purchase this item using real world money (through the intermediary of "Kafra Credit Points") and increase the experience points their character gains from killing monsters by 50% for 30 minutes.

Finally, the point. Ragnarok Online's website has surveys, one of which being:

There are enhancements to leveling available for Ragnarok Online that increase Experience gain. How often do you use the Battle Manuals? If you don't use them much what would inspire you to use them more? Please be honest with the poll else it can't be considered appropriately.

The responses:

• "I always use them!"  --  94
• "I never use them." -- 70
• "I would use more if they were 80 points."  -- 25
• "I would use more if they were 50 points."  -- 134
• "I would use more if they were 30 points."  -- 400
• "I would not use more."  -- 35

Battle manuals currently cost 40 or 50 points, depending on whether you play on a free server (50 points) or a server with a monthly subscription fee (40).

Kafra Credit Points are sold on a sliding scale, 500 points for 5 dollars, 1050 for $10, 1650 for $15, 2300 for $20, 5200 for $40 or 10,400 for $75.

The questions aren't exactly what I would have asked, there is no "I would use them if they cost 0 points" question, and how do we differentiate between "I would not use more" and "I always use them?" Do one or both represent usage at the current price in the same frame of reference as the responses at specific price points?

For a start, let's take "I would use more if they were n points." responses to mean "I don't currently use Battle manuals but would if they were available for n points. That gives us consumption of 400 at p=30, 134 at p=50 and 25 at p=80. This gives us a price elasticity of demand of -0.9975 when going from a price of 30 Kafra points to 50 Kafra points, -1.356 going from 50 to 80 points and -0.5625 from 30 to 80 points.

So, elasticity increases at higher price ranges, but is never highly elastic and it's close to -1 at the lower price ranges. I'm not sure what my intuition on this might be. I would probably expect a fairly low elasticity, possibly with an area of higher elasticity around some point of inflection. (Think an arc tan graph.) The absolute price ranges are very small, ranging from a low of forty three cents an hour at the minimum to one dollar 60 cents an hour at the high end.

There is much more to look at here, I think. It looks like the discounts on buying Kafra points cause greater price differences than the change in points, and I haven't even looked at the other options in the survey.

But I'm out of time for now. more tomorrow.