Thursday, June 9, 2005

SWG: Diversity of Crafted Products

(Note: In what follows, be aware that we're talking about crafted products -- that is, we're only talking about the stuff that crafters have permanent schematics for and can make at will if they have the resources. Sales of loot, quest, and one-off schematic items do participate in the SWG economy but don't determine its form.)

To begin with, let's be aware of the fundamentals. SWG's economy is a near-textbook example of what economists call "perfect competition." By definition, this is a market structure in which:

  • Products are relatively undifferentiated (i.e., they lack "diversity").
  • Price and quality information is readily available for all products.
  • There are many buyers and sellers.
  • New sellers can easily enter the industry.
Every one of these is true for SWG. This means that SWG's economy should show many of the effects -- both good and bad -- that models of perfect competition tell us to expect.

In a perfect competition economy there are numerous producers of a few similar (undifferentiated) goods, and many buyers who do not coordinate on what prices they will pay. This should generate intense competition on price, since -- because there are numerous producers, and few other ways to differentiate goods except on price -- we should expect that no one producer or consumer should be able to leverage their size to set prices. Supply and demand will dictate the average price of every item.

And that's exactly what we find in SWG: lots of similar items at similar prices. (With a few oddballs from people who aren't serious sellers.) In a monopoly or oligopoly, one or a few sellers can set prices and everyone else has to follow; in the perfect competition of SWG, if one seller doubles his price, he loses sales because nothing prevents other sellers from offering the same item at a lower price.

This situation isn't entirely a bad thing... if you're a consumer. Perfect competition such as SWG's is good for consumers in at least three ways: 1) it tends over time to depress prices to their lowest possible level; 2) it allows new players to compete in an established market, which insures a constant supply of price-competitive goods, and 3) it encourages producers to try to make the highest quality items (in order to try to compete on something other than price). If you're a buyer, you have to love perfect competition.

But along with the good, SWG also shares the negative effects of perfect competition. In particular, it makes life hard for producers, and in the exact opposite ways in which it's good for consumers: 1) it limits profits (because you can only chase sales by lowering your prices); 2) it discourages success through innovation (because experienced players can't leverage that experience to create new kinds of goods); and 3) it raises costs (by limiting the resources that can be used and requiring that lots of time be spent in finding and harvesting the "best" resources).

The result is that SWG's economy is extremely customer-driven: If nobody wants it, there's no point in making it. This is great for you if you're a combat player, as there'll always be weapons and armor for you at some price, but it takes a lot of the fun out of being a crafter because it basically makes us indentured servants. (Which may be exactly the balance of power that SWG's designers want... but that's another thread.)

So, all this said, it seems to me that the real question is whether it's possible to make the crafting game more fun for crafters without significantly affecting the perfect competition model that makes SWG's economy so consumer-friendly, and if so, how that could/should be done.

Ultimately it comes down to allowing crafters to differentiate their products. The tricky thing about allowing differentiation us that it can move an economy away from perfect competition toward what's called "monopolistic competition": those who are able to make a unique product are able to set the price for that product, so that price may not be a good reflection of actual value. An example of this in SWG would be if I somehow figured out a way to make T21 rifles that did both heat and electrical elemental damage -- as the only producer of such items in a market of many buyers, I could effectively set whatever price I wanted and people would still buy as many as I could make, even though it wouldn't be that much better than a regular T21. (To be more precise, this would actually be a monopoly situation. If I taught a few other people on my server how to make such rifles, then we'd have monopolistic competition. The effect is roughly the same.)

So obviously that's a dangerous road to travel, no matter how much fun it might be for crafters-as-sellers to be able to differentiate their products on something other than price.

But I think there may be a solution. It's twofold:

First, enhance the crafting process to allow crafters some way to differentiate their products on features... but design this new process so that every advantageous new feature comes at the price of a disadvantage. For every benefit, let there be a corresponding and equivalent cost. (Note that you could also allow features that have no benefit -- things like colors and shapes that don't affect utility. These would also help differentiate products, but as they're purely aesthetic they would not need to be countered with a "cost" feature.) I described such a concept in my Crafting: A Blueprint for the Future thread, but there are certainly other approaches possible.

Second, expand the idea of crafting specializations. Currently, any crafter can experiment on whatever attributes are experimentable for any item, but some crafters have more experimentation points than others (humans, for example, which I personally find annoying since that's supposed to be a Mon Calamari species benefit, but never mind). What if this were expanded? Maybe a crafter who learns a particular ranged weapon skill from the Marksman profession gains an additional point of experimentation when crafting a ranged weapon. Maybe learning a Commando skill gives an additional point for experimenting on minimum/maximum damage, while learning a Ranger skill gives an additional point when experimenting on weapon speed. Maybe there's a crafting quest item you can install (permanently) in your datapad that gives a 10% bonus to weapon experimentation but that also imposes a 20% penalty on all Artisan experimentation. And so on.

Between these two changes, crafters would become able to create items that varied on both features and quality, but without allowing any one crafter to automatically become the "best" (and therefore able to dictate pricing). And this would happen because different crafters would make different choices, because these choices would not be better or worse but just different, and because not everyone could make everything.

There'd still be some overachievers who'd feel they had to provide hundreds of every possible combination... but if any individual item could have five or ten or twenty possible combinations, there's no way any one crafter could sell every possible kind of item -- no would merchants remain sane from all the restocking of their vendors they'd have to do. Big PAs that have multiple specialized crafters selling stuff in a mall could come close, but there's no real difference between that and what we have right now, is there?

As far as I can see, the bottom line of implementing these changes is that consumers would get more choice, crafters would have more fun (because the process of crafting would be more interesting), and prices would remain low due to supply and demand forces on different but equivalent goods. Everybody wins, and fiddling with resource amounts or types is not necessary.

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