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PLEX Prices, Economics and CCP’s Responsibility

April 16, 2014

It’s long. tl;dr is PLEX prices are high and it’s CCP’s fault. Now either read it or don’t.

PLEX prices hit an all-time high of 743.5 million ISK on April 2 before retreating modestly to around 720. However, a price north of 700 million ISK now seems the new norm and nobody should be surprised when the upward trend continues to the 1 billion mark. One billion? Dirk, you’re a lunatic! Yeah, yeah. One billion may be a big number, but so was 520 million. A year ago, that is where PLEX were, which equates to an increase of 38.5% in the last 12 months. That is pretty close to the 39% we need to reach 1 billion. The question is not whether we will see 1 billion ISK for PLEX, but rather when. More importantly will be why.

Many have questioned what is driving PLEX prices. The answer doesn’t require Level 6 Astroeconometrics or even an advanced degree. The most basic understanding of economics is all you really need to sufficiently answer that question: Supply and Demand. The simple fact is that for quite some time now the demand for PLEX has consistently outstripped the supply. Thus, prices move higher.

Eve is a great game. Most of us who enjoy it the way we do enjoy the depth and complexity of things beyond just the spaceships. Graphics, ship skins and turrets that move are nice. But on a grander scale, Eve is a simulator. You may not play it that way, but that doesn’t mean you aren’t a part of someone else’s simulation. Outside of the social experiment that is Eve Online, and all of the psychological and sociological principles that apply, Eve’s virtual market is a close second in terms of realism with regard to economic principles. Sure, this is a game and as such you will always have players who think minerals are free and therefore they have a zero cost basis. But by and large, the markets are big and liquid and dominated by many of the same economic theories that apply in the real world. First and foremost among these is the supply and demand model for determining price.

Keeping this at its most basic level, the supply and demand model states that in a competitive market, which EVE is, the price for a particular item will settle at a point where the quantity demanded will equal the quantity supplied. This is known as economic equilibrium. Prices below this point will not attract sufficient supply and prices above will not attract sufficient demand. Assuming buyers are getting all they demand at this price level and sellers are selling all they produce at this level, the market is in balance. But we know that balance doesn’t hold very often. Changes in demand, supply or both will result in changes in price. And here is the issue with the rising price of PLEX.

When PLEX was first introduced, its use was limited to game time. PLEX prices increased gradually over time, driven primarily by rising demand for more and more accounts wanting to “play for free”. Here is where we began to witness an uptick in account growth, which I will refer to as the “Alt Invasion.” Players realized they could use PLEX to leverage their ISK making abilities; especially for miners and those using tools such as ISBoxer to manage multiple accounts at once. During this time, supply generally kept pace with demand. Yes, the price went up, but gradually. That is not what we have witnessed in more recent times, namely the last couple of years. Why is that? Are the suppliers of PLEX, those who pay for them in cash and then sell them onto the market, buying fewer PLEX? I don’t have the numbers, but intuitively I would say no. This is a demand-driven shift in prices.

Shifts in the demand curve occur when the quantity demanded is affected by a factor other than price. For example, the demand for Hot Pockets may increase after a report showing gamers who eat Hot Pockets are twice as likely to get a date as those who don’t eat Hot Pockets. As a result, nerds everywhere may start consuming mass quantities of Hot Pockets, thus shifting the demand curve to the right. In the case of PLEX, new uses for it created a shift in the demand curve. What were these uses? First, they added the ability to use it for account transfers and then later allowed it to be converted into Aurum in order to purchase items from the NEX store. My belief is that both of these are generally marginal at best. Similarly, resculpting of characters is probably also a minimal use of PLEX. Lastly, one-off instances of PLEX for charity purposes for various relief efforts are infrequent. However, every incremental addition to the use of PLEX is cumulative in its net effect over time.

The changes that likely forced the biggest shift in the demand curve were the addition of second and then third character training on existing accounts. Whereas in the past if you wanted to train multiple characters simultaneously, each character needed to be on a separate account. Once the training was complete, if training is ever truly complete in Eve, the choice could be made to either keep that account active or transfer the character. This created a barrier for those players who weren’t interested in having more accounts than they already did. With the introduction of multiple character training on a single account, alts can be trained while main characters continue their training as well. On top of that, no character transfer is required at the end. By all accounts, players have taken to this option quite readily. Likewise, deals like the Power of Two, where a new account with 6 months of game time can be opened for the price of 3 PLEX, also adds to the demand side of the equation.

Overall, CCP has done quite a bit to help shift the demand for PLEX higher. Sure they are giving us what we want. And like heroin, players get hooked. But what about the supply side of the equation? Is there much CCP can do to entice more players to use cash to buy more PLEX in order to supply the in-game market? Discounts on PLEX do occur, but these are short-lived events. CCP may even try and time these to temper short-term price spikes. However, these are temporary measures and not long-lasting offsets to increased demand.

The fact is that the incremental suppliers of PLEX, the players who aren’t already buying PLEX to sell for ISK, do not seem to be growing at a rate sufficient to meet the demand in game. Most of the players who buy PLEX to sell for in-game ISK are already doing so. Perhaps there are some who haven’t yet gotten into the game of using real money to legally buy ISK, but it would seem unlikely that there are enough to offset the demand. So what to do, what to do? In my view, there are three possible paths and one outlandish one.

First, and most likely, CCP does nothing and players figure it out for themselves. Rising prices can best be cured by simply not buying the item. If enough people are forced to stop buying PLEX to fund their accounts, the price should come down. The marginal buyer, the buyer who will exit the market if the price gets too high, can simply step aside. He may not like the inability to PLEX his/her accounts or train multiple characters simultaneously, but PLEX ain’t government cheese and we aren’t entitled to get it on the cheap. Could this have an affect on subscriptions? Perhaps. But so long as the accounts that cancel were only funded by PLEX, CCP is still getting paid. And from a company profitability standpoint, CCP really shouldn’t care if you are using PLEX for game time or anything else because they have already been paid by the player who bought the PLEX for cash. However, this probably won’t solve the problem of surging PLEX prices. Why? Because we probably have not seen the end of new uses for PLEX. We’ve got game time, we’ve got multiple character training. How about PLEX for Neural Remaps or PLEX for accelerated training? The point is, new uses are most likely coming at some point and it will only exacerbate the issue further. So onto the next possible path.

CCP rolls back what PLEX can be used for in order to reduce the demand side of the equation. They could decide not to allow PLEX to be used for multiple character training. This is the single biggest new use that seems to have forced PLEX to jump by as much as it has in recent months. This change would reduce some of the the demand they created and perhaps stabilize PLEX in the 500 million ISK range, barring any normal inflation from other uses. I’m not advocating for the removal of multiple character training from the game, just it’s ties to PLEX. Make it cash only. In all likelihood, this would actually generate more revenue for CCP than the current model since they would be getting paid by subscriptions, PLEX sales and multiple character training. Then any new ideas they came up with would also go onto the cash-only model. Oh no, it sounds like micro transactions. Blah blah. PLEX are a form of micro transactions, just not really very micro when you look at the dollar amounts. You may not be paying the cash, but someone is.

The third option is that CCP provides viable alternatives to using PLEX by making the use of cash an equal or preferred option. I say “viable” because you can already use cash to accomplish some of these things, but in some cases it wouldn’t be very smart. For example, you can normally buy 1 PLEX for $19.95 or 2 PLEX for $35 ($17.50 each). Yes, you can buy 6-, 12- and 28-PLEX packages as well, but they all equate to $17.50 per PLEX. For this example we’ll stick to the 2-PLEX standard that most people tend to go with.

If you want to train another character on your account, you can pay with 1 PLEX ($17.50) or you can pay $19.95. That makes no sense. In that case you’re better off buying a couple of PLEX, using both for 2 months of training or using 1 and selling the other for ISK. But if the price was lower for cash, say $14.95, the price of a 1-month subscription, the option to avoid PLEX altogether would be the smarter option. Would CCP lose money? It depends. Yes if the player would have bought PLEX for $17.50, but is instead paying only $14.95. But if they would have used ISK then the answer is no. Then they are paying $14.95 while the PLEX they would have bought for ISK is still sitting on the market, having been paid for by some other player at $17.50. In this case, options that favor cash over ISK could in fact generate more revenue for CCP while reducing demand on the in-game PLEX market.

PLEX for Aurum: You can buy Aurum for cash at a rate of between 120-167 Aurum/$1. However, if you use a single PLEX valued at $20 that converts to 175 Aurum/$1. If you use the 2-PLEX package, that is 200 Aurum/$1. Again, reverse this. Make cash payment the more attractive option. This is not to penalize the player that wants to use ISK to buy PLEX, which they will then convert into Aurum. It is about reducing the demand for PLEX by offering a better option for using cash. In the end, the player seeking to pay ISK for PLEX should ultimately benefit by the price of PLEX not continuing to skyrocket.

As for character transfers, this is the complete opposite of multiple character training: $20 cash or 2 PLEX ($34.95)? Either raise the cash price or reduce the number of PLEX down to 1. Oddly you can’t resculpt your character for a fee other than PLEX, so open that up to the option of a reasonable cash fee.

Finally, there is one other possibility if CCP plans on simply adding more and more uses for PLEX and thus creating new demand through their own actions. Help ease the inflationary pressure by taking more active steps to keep it within some reasonable band. As I stated earlier in this long, drawn out novel, in the last year alone the price of PLEX has jumped 38.5%. That is not healthy inflation with regard to PLEX. Now we can debate whether the real Price Indexes in-game average out to something more normal, or whether the ISK faucets in-game are too much, but let’s just stick with PLEX. CCP could, and quite possibly should, begin to act as a central bank. This goes way beyond using the 700 PLEX seized from banned accounts that they are currently giving away in their nifty little event. This would require them to take active positions in the PLEX market in order to try and allow for controlled inflation. Conversely, it could also be used to avoid deflation, should it ever come to that. But in reality, so long as CCP keeps adding new uses for PLEX, deflation is an unlikely concern. I’m not going to jump fully into how they could or should accomplish this form of monetary policy through some form of open market operations, because that would be an article in and of itself. But it may be something worth serious consideration.

In the end, the point of CCP taking a good hard look at how they handle PLEX isn’t about giving us something for nothing, breaking the PLEX market or to keep it from rising at all. Rather, it would be an effort to offset the runaway inflation that is a direct result of their actions given that they have little control over the supply side of the equation. Eve is a deep and challenging game, both for the players and for CCP. I’m quite certain they couldn’t have envisioned the scope to which the game would mirror real-life social and economic issues, but CCP has some responsibility to ensure the changes they make to the sand box don’t have unforseen consequences. Preferably before PLEX hits the 1 billion mark by Fanfest 2015.

– Dirk MacGirk