1 Topic by Tyrus Dark (edited by Tyrus Dark 2011-07-12 04:09:05)

  • DERP
  • Agent
  • Offline

Topic: Production is undervalued by game design

WALL OF TEXT, SCROLL DOWN TO SO WHAT FOR TL;DR


Specifically, any module that drops in quantities near to or greater than demand will never be (or should never be) profitable to produce. The exact ratio is not the point of this discussion, but it doesn't require demand to be fully satisfied to produce an undesirable effect on industry

This problem exists with or without the "minerals I mine are free" crowd, though that crowd exacerbates the problem.




Economic worth / "actual value"

The economic worth of an item is roughly speaking the maximum opportunity cost of the item to a player.  That means that all alternatives considered (sell or recycle, essentially), the item is "worth" the maximum of those.  This is important, because the "costs" associated with various methods of item acquisition lead to different total costs.  It's also important because recycling never amounts to more than 50% (roughly) of the "components" listed on an items information page.  This means that if an item were to suddenly appear in a player's hanger fully repaired (theoretical, I know), a "rational" economic actor would value the item at its "perfect recycle" rate (perfect because a perfect recycler would, in theory be willing to pay exactly mineral cost, assuming he wanted the minerals instead of the item), and any less means that the player suffers an "economic loss" (that is, failed to pursue the best opportunity cost).  Of course, any method of acquiring a saleable item has additional costs associated with it....


Production
To produce an item, you're required to:

Reverse Engineer the item: this costs 1 (or 1000) of the original item and the cost of the RE process itself.  While skills can reduce the cost to RE, you start at a "loss" of one item, and you lose a decoder, which also has economic value.  This is slightly offset by the return on investment from the higher-rated CT (in some cases, easily offset), but for many items, this is a raw cost.

Acquire the necessary commodities: The most obvious cost, this is the variable cost of the commodities.  Note that CTs starting at a default efficiency of 50%, so the listed commodities needed are significantly higher, this particularly effects newer industrialists.

Run the factory: This requires variable costs based on runtime.  There's also the absolute time required (an economic cost) which is quite long, particularly for bots.  The factory calibration skills are absurdly expensive, meaning very few industrialists (especially in the near term) are going to invest in these 1%-per-level skills over the more noticeable and immediate 2%-level.  (note I don't actually have enough information to determine the relative cost of time-decline vs. commodity decline, but again, not really the point here)


So the total cost to me is: 

((RE cost + Decryptor Cost + Original Item Cost) / # of Runs I use the CT for*) + (Factory cost per run + Commodity Cost X # of runs) (+ however I value my time)

*And again, this declines over time requiring another RE run eventually, but this is also relatively immaterial if we assume some 4-5 levels of intensive mass production giving us around 50+ items per CT at a minimum and a few hundred at max, however, this is also a dangerous assumption for newer industrialists, and for larger bots where the raw commodity cost is going to be very prohibitive for a multi-run, not to mention the economic cost of the high-level decryptor)


Item Drops and Repairing
While repairing is -somewhat- expensive, there are ALSO skills to reduce this, and higher tier facilities must be taken in to account.  In fact, it's FAR, FAR, easier to get perfect repair and recycle skills than it is to get perfect manufacturing skills. There's 9 levels of efficiency, and expert factory calibration is a rank 9 by itself.  A fully efficient producer (REing through producing.  Recycling and Repair are rank 3 each/

So, the economic worth of the item to "everybody else" being 50% of the commodities listed on the item was mentioned earlier. Strictly speaking, since every item drops damaged, the actual worth of a dropped item is:

Repair cost + Perfect Recycle Value

Since every item drops damaged, the actual worth of an item should never actually equal the perfect recycle rate.  REGARDLESS, this method of item acquisition is FAR less expensive than production.  At minimum, an industrialist will acquire a near-perfect item and refine it (economic worth, 50% of listed commodities) AND produce an item that is likely to be at less than 100% of listed efficiency, so around 170-180% for average skilled industrialists for the first item, in commodities alone)

This alone doesn't make sense on the face of it.


So WHAT?

As it stands now, the "rational" value of EVERY item that drops in significant quantities is less than half of the amount of NIC that is sunk in to producing that item. This means producing ANY item which drops in sufficient quantities to satisfy some measure of demand will never be worthwhile to produce in the long run.

(Look at ANY item involving espitium to see this in action)

The proper equation should roughly be [repair cost + recycle value] = [Industrial Process described above].  This means people who acquire items via drop and people who manufacture the item (as rational economic actors, anyways) should view the item with the same "total value"

There are, of course, two ways to achieve this. One is absurdly high repair costs (turns drops, basically, in to a crappy source of commodities, and emphasizes mining acquisition) and the other is to have better recycle rates (emphasizes the actual industrial process, may devalue mining)

To make production of these items worthwhile, they should in theory be "floored" by the ability of rational economic actors snapping up underpriced sell orders and recycling them in to commodities to use in further production. As it stands this will never be achieved for any item which experiences a decent drop rate.


Although "perfect skill" characters MAY approach this 50% barrier, the theoretical model that's based on is absurdly difficult to achieve, especially with such a young game.  Economic balancing due to a glut of perfect producers won't be achieved for ages.

  • *
  • Agent
  • Offline

Re: Production is undervalued by game design

Produce stuff that you can't find from drops?

  • DERP
  • Agent
  • Offline

Re: Production is undervalued by game design

Elirian wrote:

Produce stuff that you can't find from drops?

That's a short term profit solution but it fails to solve the underlying problem that everything that drops is by definition unprofitable to produce. It's a "player run economy" after all, but ANYTHING that drops loses significant value very quickly because it's actual economic value is very, very different than a produced item.

This includes, eventually, t2+ items if they start to become farmed semi-regularly.

  • *
  • Agent
  • Offline

Re: Production is undervalued by game design

Well, what you're effectively saying is that it's not possible to net a decent margin on items that people can easily obtain for themselves. I agree.

5 Reply by Tyrus Dark (edited by Tyrus Dark 2011-07-12 05:49:30)

  • DERP
  • Agent
  • Offline

Re: Production is undervalued by game design

Elirian wrote:

Well, what you're effectively saying is that it's not possible to net a decent margin on items that people can easily obtain for themselves. I agree.

No I'm saying more than that.

1) The system that produces that result is broken because items economic values are actually not even close to worth their actual production costs.

and therefore

2) The net effect of items losing actual economic value upon production means that irrational producers can run the market without fear of being floored to resource costs by rational actors.  This applies to produced items by the "minerals are free" crowd.

More importantly though

Devaluation will apply to ALL items with the exception of bots as PvP and the loss and recovery of T2-T4 items becomes much more common because the ACTUAL rational economic value of a recovered item is less than 50% of its actual manufacture cost (meaning I can repair it and sell it for a significantly lower price and still "make money" compared to a conversion to raw resources through recycling... this is subject to market flooding, but you can be a rational economic actor and sell recovered modules for MUCH MUCH less than original production cost).   The most immediate and noticeable effect of this is that a large class of items are always and irrevocably going to be impossible to profitably produce (which, in a player run economy, is in itself a bad thing) and eventually all commonly used items will be valued (rightly so, which is the BROKEN part) at far below production value.


(this might also produce a very weird reaction in resource prices since production value doesn't peg resource prices, economic (recycle) value does and it's significantly variant from production value...)

It also produces an effect that dropped items are significantly more used in PvP, which is a very complex point and I can't say if it's "good or bad", just that because some items will be comparatively significantly "undervalued" relative to items that are required to be produced through factories it will skew costing.




edit: To put numbers to it. If, hypothetically, the total cost of production of a T2 item is, say, 2m NIC (RE, Prototype, etc.), I have to sell it at higher than this price to make a profit. Say I sell it for 2.3m... with components accounting for 1m of that cost (we'll ignore most fixed costs as amortized over the life of the resulting CT...)

The bot its attached to is then lost in combat, and damaged, to be repaired for a cost EQUAL to the fixed cost of producing the item in the first place* to perfect condition.  At MAX recycling skills (afaik), i will recover at most half of the material that went in to the production, meaning my opportunity cost for recycling is a mere 500k.  Because these markets are perfect competition, I will always attempt to sell it at the highest price I can command... however due to OTHERs able to manipulate price as well, if demand outstrips supply at all, a rational market will eventually price the item at no less than average repair cost + recycle value, or 1.5m (repair equal to average overhead + 500k in materials out of the 1m put in to the original item), which is WAY, WAY under production cost.


Now, fortunately, demand will not outstrip supply to that point for MOST t2+ items in the near future, but for sufficiently useful/popular ones this will quickly become the case.

*This is, in my limited empirical testing, and after the repair cost nerf, and given there is a repair cost reduction skill, not even close)

6 Reply by Elirian (edited by Elirian 2011-07-12 05:55:49)

  • *
  • Agent
  • Offline

Re: Production is undervalued by game design

I'm still getting the same thing. You seem to be complaining that it's difficult to sell sand to the proverbial. If t4 modules drop like candy from beta npcs (I wouldn't know), then there's an issue. Otherwise, no problem.

BTW, PvP decreases supply, rather than increases. Some modules don't make it through the boom. There's an opportunity cost and quite a high risk involved in PvP. You're not calculating costs correctly if you are arguing that a rational actor would sell items obtained through pvp at below production value.

The point you make that eventually everything that is dropped by NPCs will be worth far less than anything which isn't could mean interesting things though.

7 Reply by Tyrus Dark (edited by Tyrus Dark 2011-07-12 05:57:45)

  • DERP
  • Agent
  • Offline

Re: Production is undervalued by game design

Elirian wrote:

I'm still getting the same thing. You seem to be complaining that it's difficult to sell sand to the proverbial. If t4 modules drop like candy from beta npcs (I wouldn't know), then there's an issue. Otherwise, no problem.

BTW, PvP decreases supply, rather than increases. Some modules don't make it through the boom. There's an opportunity cost and quite a high risk involved in PvP. You're not calculating costs correctly if you are arguing that a rational actor would sell items obtained through pvp at below production value.

A rational actor would attempt to make as much profit as possible, but the game mechanics are such that once the item has been collected from the wreck the actual economic value  (the opportunity cost of other uses of the item) decreases a significant amount (I'm willing to sell for as little as what I can recycle it for + the cost of repairing it, I don't WANT to sell it at that price of course, but it's rational to do so)

PvP does destroy some modules, but enough "make it through" to likely impact the market. When combined with PvE drops (like you I don't know the rate) it's likely to begin to devalue these items as well.

The system itself is designed in such a way that a "perfect economy" results in production being significantly more costly than the item is actually worth to anybody who didn't produce it. There will always be "some" discrepancy (as mentioned fix costs), but this is why repair costs are meant to offset that discrepancy... not an actual decrease in the amount of material that is obtained from the item.


edit: in a totally perfect system, I suppose, the item would recycle for the nominal 100% of commodities (this may require over-100%-efficiency factories to be reconsidered, of course, if they are possible), and the average repair cost of the module would offset the average fixed + variable overhead of the items.  Obviously this would be absurdly difficult to calculate given all the variables in the system, but that'd make each item economically worth the same to every rational actor.

8 Reply by Elirian (edited by Elirian 2011-07-12 06:41:58)

  • *
  • Agent
  • Offline

Re: Production is undervalued by game design

Tyrus Dark wrote:
Elirian wrote:

I'm still getting the same thing. You seem to be complaining that it's difficult to sell sand to the proverbial. If t4 modules drop like candy from beta npcs (I wouldn't know), then there's an issue. Otherwise, no problem.

BTW, PvP decreases supply, rather than increases. Some modules don't make it through the boom. There's an opportunity cost and quite a high risk involved in PvP. You're not calculating costs correctly if you are arguing that a rational actor would sell items obtained through pvp at below production value.

A rational actor would attempt to make as much profit as possible, but the game mechanics are such that once the item has been collected from the wreck the actual economic value  (the opportunity cost of other uses of the item) decreases a significant amount (I'm willing to sell for as little as what I can recycle it for + the cost of repairing it, I don't WANT to sell it at that price of course, but it's rational to do so)

PvP does destroy some modules, but enough "make it through" to likely impact the market. When combined with PvE drops (like you I don't know the rate) it's likely to begin to devalue these items as well.

The system itself is designed in such a way that a "perfect economy" results in production being significantly more costly than the item is actually worth to anybody who didn't produce it. There will always be "some" discrepancy (as mentioned fix costs), but this is why repair costs are meant to offset that discrepancy... not an actual decrease in the amount of material that is obtained from the item.

I definitely don't see where any modules can 'make it through'. Where are they coming from? PvP bots automagically spawned fully fitted? Someone built them, and any active pvper knows he is going to have to replace them at some point. If Y is the amount of modules that get lost when bots explode, PvP demands X modules and supplies X-Y modules, how does that devalue them? Still seeing the same thing. The only concern is whether everything is obtainable from NPCs. I don't know if that is the case but I doubt it.

Obviously ratting is a form of production, so the issue is whether it can produce everything at a similar cost to manufacturing. That's definitely a valid concern. Is it possible to gather the resources required to build a standard missile launcher in the amount of time it takes to obtain one (and the NIC to repair it) through ratting? Clearly not, and perhaps more modules need to go boom when the bot does.

Actually, rethinking that last section, perhaps it is possible, and the real issue is simply that supply is far higher than demand, which devalues ratting, not production, since gathered resources can be used on modules that are more valuable, while you don't get much say in what the rats drop. This scenario seems more likely, since I must have collected a thousand missile launchers in my short time in the game, and never used one. If I could kill guys that dropped t4 nexus mods, you can bet I would be doing that instead of flooding the standard missile launcher market to the point where they're only worth recycling.

Which puts us right back at square one. Don't build stuff that people can easily obtain for themselves. Mechs right now will net you 1.5+m each, plus I supplement my income with a small profit on titan ore mining charges. A few days ago someone somewhere was realising a profit on t4 small magnetics at 550k. With very little change in commodity prices, they're now selling for 1.1m. Build what people can't get for themselves. If you're in the business of shipping sand to the sahara (which btw, you're not, ratters are. manufacturers are more in general transportation wink), you need to find something else to do.

I don't think manufacturers are in a position to complain tbh. Log in, start production, go to work, NIC is waiting for you when you get home.

  • MORTE
  • Agent
  • Offline

Re: Production is undervalued by game design

Do not make things which are unprofitable, there are plenty of profiable things to choose from.

  • CIR
  • Agent
  • Offline

Re: Production is undervalued by game design

Your using a lot of text book economic terms, but the game isn't a fully realized market simulation, so you have to adjust real world market analysis to take into account fixed game mechanics.

Your missing a key element;

Modules only have a 50% drop rate from NPC's and players. So for every 1000 modules used in PVP, only 500 will be available. Assuming the demand remains constant, that is the PVP players choose to replace all 1000 lost modules, 500 will have to be newly manufactured to meet demand even if all the dropped modules where repaired and reused.

Considering that the majority of T4 modules lost in pvp are from self-suffcient beta corps and not from market producers, you can also assume that a large % of the dropped modules also end up in the hands of those beta corps and not the original purchaser, meaning that the % of market purchased modules needing to be repurchased is actually much higher than 50%.

Also, consider that a PVPer recovering loot is not interested in spending say 500K to repair an item so they can put it up for sale at 1M, since they require thier capital to be more fluid and not tied up in the market waiting for items to sell. We can assume however that if there were active buy orders for that item at 1M, they would. In any case, that will only supply at most 50% of the demand.

  • DERP
  • Agent
  • Offline

Re: Production is undervalued by game design

Arga wrote:

Your using a lot of text book economic terms, but the game isn't a fully realized market simulation, so you have to adjust real world market analysis to take into account fixed game mechanics.

Your missing a key element;

Modules only have a 50% drop rate from NPC's and players. So for every 1000 modules used in PVP, only 500 will be available. Assuming the demand remains constant, that is the PVP players choose to replace all 1000 lost modules, 500 will have to be newly manufactured to meet demand even if all the dropped modules where repaired and reused.

Considering that the majority of T4 modules lost in pvp are from self-suffcient beta corps and not from market producers, you can also assume that a large % of the dropped modules also end up in the hands of those beta corps and not the original purchaser, meaning that the % of market purchased modules needing to be repurchased is actually much higher than 50%.

Also, consider that a PVPer recovering loot is not interested in spending say 500K to repair an item so they can put it up for sale at 1M, since they require thier capital to be more fluid and not tied up in the market waiting for items to sell. We can assume however that if there were active buy orders for that item at 1M, they would. In any case, that will only supply at most 50% of the demand.

50% of the demand plus whatever drop rate is attainable from rats and artifact scanning.

NPCs don't have a "50% drop rate" they have an arbitrary loot table and more importantly spawn infinitely and bring a (theoretically) infinite supply of new goods to the market, given that they are on the drop table.

I agree that the game is not a fully realized economic simulation, but the fact remains that the economic system remains anti-producer due to the way recycling works.

If the "minerals I mine are free" crowd has any sway whatsoever, even bots will become long-run unprofitable to produce due to the inability to floor prices against actual mineral costs.


The core problem here is that it's economically unwise to make recycling limited to 50% of the "standard" production values of an item, particularly when most production realistically takes AT least and usually MORE than double that....

  • CIR
  • Agent
  • Offline

Re: Production is undervalued by game design

No. Your trying to turn modules into a commodities source instead of a commodities supplement.

  • TM-UAS
  • Agent
  • Offline

Re: Production is undervalued by game design

Remanufacturing doesn't seem to have destroyed primary production irl.