Economics and You

I'm Chloe Aster of Midgardsormr. This blog is meant to be guidance for players who are beginners or intermediately experienced with the player market in game, and I will use principles of economics to explain how the market works, and how to work the market! Don't forget to check the About and Contact pages if you're interested, or just want to get in touch.

[ffxiv-economics]

Barriers to Entry

When deciding to pick up the hammer, loom, or any other crafting main hand, you must to be aware of what effort you’ll have to put in before you can start getting reasonable returns. This is a simplified explanation of barriers to entry, which is an important economic concept that determines pricing and production. Put simply, barriers to entry is the idea that you can’t pick up a level one crafter and make a high quality Rakshasa Ring of Fending. In real life, barriers to entry prevent people from easily entering a market, and by existing, they protect the revenues and profits of the existing firms in that market. I’ll be going over the major barriers to entry for crafters, and why they’re important to consider when deciding to craft.

The first, and probably largest barrier to entry involved in crafting is level. The current level cap in Final Fantasy XIV is 70, and this also holds true for all crafting and gathering jobs. Because you can’t level crafters using dungeons or other instances, you have to rely on levequests and intense grinding. (There’s a really good guide for leveling crafters here.) However, the level of your crafter isn’t the only level you have to worry about, since you also need to have a disciple of war or magic at 70. If you haven’t progressed through the main story, you won’t be able to accept your crafting/gathering job quests, and it will be extremely difficult to procure materials from later areas. In addition to this, if your crafting job of choice isn’t at max level, you won’t be able to access the high level recipes needed to compete and profit in the crafting market.

The second large barrier to entry is gear. Procuring the best gear is extremely important for crafters, even more so than for disciples of war and magic. Gaps in gear for the battle jobs can be made up for in skill, but crafters need to be best in slot if they want to be able to produce high quality goods. Gear provides an extremely high proportion of Craftsmanship (Stat that determines progress), Control (Stat that determines chance to high quality), and CP (Mana for crafters). These three stats are more important for crafting than skill, though a bad crafter won’t be able to utilize them properly. The three main crafter stats are a large and literal barrier to entry for creating individual goods, especially starred crafts that require a specific amount of each stat and a different rotation to make.

One of the most overlooked barriers to entry of high level crafting is the cross class skill system. This involves using skills from other crafters that can only be obtained via leveling them. In order to execute a proper rotation, you need to level the respective crafters to obtain extremely important skills, like Piece by Piece, Byregot’s Blessing, and many more. Below I’ve included an image of the most standardized cross-class skills. It’s very important to factor in this time sink, and it’s highly recommended that even after this you should level all your crafters to max, since not every rotation at max levels uses the same skills, and what’s ‘optimal’ is very subject to change. Rumination, for example, is widely seen as an in-optimal skill, but has been widely used in recent endgame rotations.

In conclusion, it’s important to factor in the amount of investment you’re going to be putting in when deciding whether or not to craft. Consider all of the above, and any other foreseeable costs when deciding to not only pick up crafting, but investing in anything overall.

Sources:

https://www.investopedia.com/terms/b/barrierstoentry.asp

https://ffxiv.consolegameswiki.com/wiki/Crafting

Yugana Mizu of Midgardsormr

Jenna Sydal of the Balance

[ffxiv-economics]

Scarcity and How it Fits In

Five key assumptions drive the economy and allow us to simplify and analyze the economy the way we do. Probably the most important of these is the idea of scarcity. Simply, scarcity represents that society will have unlimited wants, and limited resources prevent them from realizing it. This ties in very closely to the second assumption, trade-offs. Because of scarcity, everyone must make choices. Every choice involves giving up something to gain something else, and even time can be given up. For example, if you decide to go eat dinner at a fancy restaurant instead of a fast food joint, you’re giving up the extra money in exchange for a presumably nicer meal and environment.

I bring this up because scarcity plays an interesting role in Final Fantasy XIV. Since in a sense there actually IS an unlimited supply, different factors play into scarcity than normal. Scarcity, and by extension, our concept of an economy, is built upon the idea that resources are limited, and people will make choices as a result. So how is it that an economy can function in a game where you can technically possess an unlimited number of Void Nuts? (Technically you can only have 1,888,110 Void Nuts at a time, but an unlimited supply can exist at any given moment.)

The first factor to account for is gil limitations. Gil is extremely hard to come by through normal means, as the game is very stingy about giving it out through quests or normal content. The best way to come by gil is by selling on the market board, but gil is more accurately represented as a function of time. The more time you invest into crafting, fighting, doing quests, or just playing the game, the more gil you get.

The second driving force for the economy is crafting. Despite a theoretically infinite amount of materials existing, it takes a skilled and well-geared crafter to turn them into the highest end goods for consumption. In a sense, crafting is an investment, where you dedicate time and resources to create powerful gear, potions, housing items, or almost anything else the game has to offer. Other players will pay in-game currency for crafters to make gear for them, to avoid having to spend their time leveling and gearing to do it themselves.

In the end, it all boils down to time. Even normal loot drops from a level one monster will sell on the market board because the time it takes to teleport to the area and kill that monster can be valued higher than the listed price to a high-end crafter.

To conclude, Final Fantasy XIV’s economy essentially runs on time as its primary currency. Getting a crafter leveled and geared, making actual goods, getting monster drops, and even just doing content for the measly gil it gives is all an investment in time that returns in in-game currency. Scarcity functions in Final Fantasy XIV because in exchange for goods on the market, players must give up their time.

Sources:

https://www.investopedia.com/terms/s/scarcity.asp

https://www.youtube.com/watch?v=2izx5W1FAEU

[ffxiv-economics]

The Value of Tomestones; Are They Worth Your Time?

Tomestones are the secondary form of currency in Final Fantasy XIV, and they are only obtained by completing dungeons or trials in game. As with any in-game currency, it is possible to grind get more. The question becomes, is it worth converting them to gil? And if so, how much are they worth?

There are three kinds of tomestones at any point in an expansion; Poetics, and two others. Poetics are used to replace all older tomestones, so even though there have been twelve tomestones over the course of three expansions, all outdated tomestones are compressed into them. These hold low value, as all things you can purchase with them are at least an expansion old, and are mostly irrelevant. They’re better off spent on leveling gear and glamours than materials for the market.

The second kind of tomestone changes in name often, since it is the downgraded version of the third tomestone once a new one is released. Allagan Tomestones of Mendacity are the current middle tomestone, and these are more relevant than poetics, since they are used to buy gear that is 30 or less item levels below the current best. There isn’t much to say about them aside from them being a less valuable and utilizable version of the current tomestone.

The third would be the ‘current’ tomestone, which at the moment is Genesis. This tomestone will always be the highest valued of the three, but it is actually possible to quantify this tomestone. Since this tomestone is used to purchase some of the best gear in the game, obtaining it is limited to either 450 or 900 tomestones per week, depending on when in the expansion it is. Because there is limited access to these tomestones, it creates an active demand for the goods that are only available from the tomestone vendor. As such, a single crafter only has access to a certain amount of each combination of materials per week. Because of this, it is possible to ‘value’ tomestones around the tomestone-bought crafting materials that can be sold on the market board.

In order to value them, it’s necessary to know which of the materials is most relevant in crafting recipes. This is rather simple to do, as all you need is to quickly check on the recipes added during the same patch as the tomestones. From there, check which of those have tomestone mats (materials), and which sell the best. Determining which good sells the best is done through the Purchase History (shown below) menu for each respective good. Once that’s determined, simply check the market board page for the correct material, and take the average of the prices to figure out how much each individual material sells for in gil. Then you divide the gil amount by the tomestone amount, and get an approximate value for how much gil each tomestone is worth. 

If you’re adept at applying other principles to the market, it’s even possible to sell tomestone mats at certain times to maximize profit. Using this method, you can easily determine whether your tomestones are best suited for buying gear, or if you need a pinch of cash, buying materials for the market.

[ffxiv-economics]

Undercutting and You

Undercutting is one of the primary economic concepts that sellers utilize in Final Fantasy XIV, knowingly or not. Undercutting is simply offering a good or service for cheaper than a competitor. This by itself isn’t bad, and is in fact a large part of how the economy returns to equilibrium. However, Predatory Pricing, the type of undercutting most commonly utilized in game, is an extremely harmful practice to the economy, and should be avoided in all circumstances.

The most common instance of this occurring in-game is a single gil undercut, where a seller will look at the marketboard, and sell their good for one gil less than the lowest seller, in order to sell faster. This can also be expanded to a much larger scale, where sellers can hoard many materials and flood the market at a lower price, sometimes with a gap of more than a thousand gil in an attempt to control it.

Viewing undercutting as profitable isn’t exclusive to the Final Fantasy XIV community, but is also widely believed in the MMO community. In this World of Warcraft forums, a player says “I'll almost always take the lowest price I see on the [market] and basically put my items up for between half and 2/3's of that price… If you are consistently undercut, I'd say you need to adjust your perception on an item's value.” Because equilibrium naturally settles, selling that far below the lowest value only serves to drive the economy down with no gain. The seller turns less of a profit, and purposelessly brings down the value of a market.

There are also many quantifiable disadvantages to undercutting. Predatory pricing is illegal in the real world for that reason. It leads to price wars, in which two or more parties drive down their prices in a market in order to drive the other out. Undercutting makes markets more vulnerable to monopoly, where one party will be in full control of pricing and supply. The issue with undercutting in this type of market is that there aren’t any costs to maintain business, and so nobody can sustain a market for long enough to force another out to gain profit in the long run. In essence, sellers only manage to drive the value of their markets down in the long run without accomplishing any profit in the short or long run.

The only upside to undercutting is consumer side, which is counter intuitive to the view that undercutting benefits the seller. It can give consumers leverage over the market, enabling them more choice when shopping around. However, those benefits are extremely limited in a formatted economy like the market board, and so the buyer’s control is limited to the normal workings of equilibrium.

In conclusion, undercutting serves no purpose but to lower the value of the market in the long run. Lazy and predatory pricing lead to a smaller profit in the short run, and don’t accomplish anything productive or conducive to business in the long run besides decaying the economy.

Sources: https://www.investopedia.com/terms/p/predatory-pricing.asp

https://www.investopedia.com/terms/p/price-war.asp

https://us.battle.net/forums/en/wow/topic/1765533001

[ffxiv-economics]

Patches and the Supply Curve

The supply curve, graphed in blue, is the second component that makes up the equilibrium. Directly after a patch (an addition or change to content into the game), the movements in the supply curve are easily noticeable, and noticing these changes is key to making a profit. An important distinction to make is that in this case, the supply itself is not changing. There isn’t a physical change in how much of a good exists, but how much of it is being put on the market by suppliers is subject to change.

A shifter is one of six factors that can cause the supply curve to move. The curve moving is different than a movement along the curve. Movement along the curve happens when the price or amount supplied changes, but when the curve shifts, the amount supplied at all prices changes. The blue lines below represent randomly selected prices, and show that the supply is increased at all prices, instead of just one.

The first shifter of supply is the Price of Inputs. Once new gathering gear is introduced, the price of older gear will fall. Because gear is the primary input in gathering, all the materials gatherable by the older gear will likely increase in supply. Since the newer gear will have better stats, it will be cheaper and easier to gather the older materials used in creating the older gear, meaning that the price will drop.

Improvements in technology is the second shifter of supply. In a similar example to the last, if new gear is released that is better than the previously best gear, it will become easier to gather older and newer goods. As it becomes easier to gather, the amount of materials supplied will be increased,

The third method that shifts the supply curve is the size of the market. As the market size increases, the number of sellers will generally increase to fit the size of the market. The inverse is also true. When a current patch has overstayed its welcome, a “patch drought” will occur, and players tend to unsubscribe until new content is added. For an extended period of time the player base tends to drop until a new patch arrives, and the supply curve will shift to the left, representing a drop in supply as a result of the shrinking market.

Time is the fourth method, but it is the least manipulable. Simply, as time passes, firms increase capacity and increase supply. As the game is exposed to more people over time, the player base increases. This increases the supply, resulting in a shift rightward. 

The most relevant shifter to be aware of as a seller is Future Expectations. If you as the supplier believe that demand will be highest in the near future (eg. If a gatherer believes that a new piece of gear in the next patch will be crafted with a certain material), they will increase production of the good immediately to anticipate the incoming demand. Vice versa is also true, where a supplier will lower supply in the near future in anticipation of high supply in the further future.

The last shifter is Government Policies, but that doesn’t really apply in-game. Taxes are minimal and barely apply, and there’s no manual subsidy or tax systems in place. Since it’s all automated, and barely has an impact, it’s not very important in-game.

With all of these in application, it becomes possible as a supplier to predict changes in supply, and profit on these. In conjunction with demand curve shifters, being able to apply these concepts is one of the first steps to making a large profit on the market board.

Sources:

https://www.intelligenteconomist.com/supply/

https://www.investopedia.com/university/economics/economics3.asp

[ffxiv-economics]

Patches and Demand

Being able to predict demand is dependent on your ability to understand the workings of the demand curve. The demand curve is ever changing, and these changes are most easily noticeable directly after a major patch. In this post I’ll be going over the five ways the demand curve can shift, especially concerning anything a patch adds that impacts the market board.

There is a difference between a shift, or a movement, of the demand curve and normal movement along it. A shift changes the demand at all levels, not just at the current price. This means that something moving along the demand curve will change the demand only at the new price, but a shift in the curve moves the curve entirely, and changes demand at all prices. This site explains the difference between the two more in depth than I can in one paragraph, but I have also included some info-graphics to help explain.

The first shifter is a change in Tastes or Preferences. Eureka Logograms represent this concept easily. These are items that drop in Eureka Pyros or Hydatos that give you special actions to use in Eureka, and you can buy and sell them on the market board. As they continue to patch in Eureka content, the demand for those logograms will remain high, since people enjoy doing Eureka. However, once they stop patching in Eureka based content, the demand for logograms will decrease, as people will prefer other content over the staled Eureka content.

The second is a change in the Number of Consumers. This is important because player count booms whenever a patch drops, and falls slowly after the initial date. This will cause a rise in demand in most relevant markets at the initial patch drop (Food, Materia, new Crafted Gear, etc.), that will likely decrease over the course of a patch.

The third is a change in the Price of Related Goods. This means that goods related in use have related demand curves. So, if a new piece of crafted gear is introduced with a patch, and it is more expensive than the previous best crafted gear, the demand for Materia will rise, since it is a complementary good and can be affixed five times to crafted gear.

The fourth is Income, which is more simple to apply than the others. As income increases, people are able to spend more, and so demand increases. Since there aren’t “jobs” in the traditional sense in game, it’s harder to track income. However, there is income through the market, and the gil the game provides you through progression is also a form of income. Therefore, it is still relevant to keep track of.

The fifth is Expectations of Prices. If consumers think the price of a good is change in the future, they will take that into account when making purchases. As an example, if a consumer believes that the price of a good will drop in the future, they will wait until it drops to purchase it. On the other hand, if they believe the price will rise, they are likely to purchase more now.

[ffxiv-economics]

Equilibrium, Disequilibrium, and Why it Matters

Market Equilibrium occurs when market supply equals market demand. It is the ideal point for purchasing and selling goods for suppliers and consumers. Equilibrium automatically adjusts to shifts in supply and demand, and quantity demanded and supplied will adjust to meet it, regardless of circumstances.

Profit is the driving force that makes equilibrium work. Since equilibrium is the profit maximizing point in a market, or the point where if a producer sells a good, it will net the most profit. Despite profit driving equilibrium, it is impractical to sell any given good at the highest possible price. Assume the following graph concerning Hawk’s Eye is true, where both the supply and demand of Hawk’s Eye are marked as the two lines on this graph. 

Hawk’s Eye is an extremely highly valued material to crafters, as it requires a max level Miner with the best possible gear to gather it. In addition, it is used in a wide variety of the highest end crafted gear possible in the game, and so the demand for it is very high. On my server, Hawk’s Eye sells for about 1,000 gil a piece. Assume, for the sake of explanation, that the equilibrium price is higher, around 1,500 gil as shown above. (For this example I will be excluding high-quality Hawk’s Eye, since that would be considered a different good.) What would happen to the Hawk’s Eye on my server, considering that it’s well below the equilibrium price? 

A shortage would occur, as shown on the above graph. This shows that the demand (at 4,000 units) is much higher than the supply (at 2,000 units). Crafters would rush to the market boards, buying out the Hawk’s Eye until the perceived value for Hawk’s Eye becomes less than the price for it on the market board, thus re-balancing the market to equilibrium. 

The inverse is also true, as shown above. If the Miners that gather the Hawk’s Eye set the price to 2,000 gil a piece, the demand (at 2,000 units) will be much lower than the supply (at 4,000 units). Crafters will refrain from buying it, as their perceived value of Hawk’s Eye is much less than the price the gatherers have set. In order to sell for a profit, they will have to lower the prices until they reach equilibrium again.

Viewing the past sales of a good, and taking the average of the highest and lowest numbers is the easiest way to find a relatively accurate equilibrium. The number will always be higher than the lowest seller, but because of the equilibrium, you will be able to make a higher sale than if you were to undercut the lowest seller, in exchange for waiting a slightly longer period of time.

Source

[ffxiv-economics]

Basics of Supply and Demand

Hello, future gillionaires. My name is Chloe Aster of Midgardsormr, and as much as I would like to tell you that there’s an easy way to get rich quick in Final Fantasy 14, it’s important to understand how the economy works before you start to manipulate it in your favor.

The primary concept that all of economics is built on, and all markets, in game or not, follow, is called Supply and Demand. To put it simply, Demand refers to how much of a product or service is desired by a given population. Supply, on the other hand, is the representation of how much of those products or services are available for consumption or exchange.

The reason why these two concepts are so important is because of the Laws of Supply and Demand, which are theories that explain how the two interact. The law of demand states that as long as all external factors stay the same, the higher the price of a good or service goes, the less people will demand it. This is the same as the market board in-game, where goods are sorted by price. Excluding quality, which would be counted as an external factor, why would you buy a crafting material that costs 10,000 gil, when you could buy the same material for 1,000? In addition to this, if the price difference is that large, you are more likely to buy more of it for the sake of future investment.

The law of supply is extremely similar. It states that the higher the price for a good is, again independent from external factors, the more people are willing to supply it for a market. Since the majority of all goods on the market board that sell stem from the gatherers (Fisher, Botanist, and Miner), they are the ones who control the supply. Since gathering high level materials costs not only time, but GP (A slowly regenerating resource, like mana for gatherers), it’s impossible to infinitely farm the higher level gathering nodes with any sort of efficiency. Proper usage of this theory leads to gatherers evaluating market prices, and choosing to gather materials that sell for the most, before putting this up.

All of this comes together to create what is called a Market Equilibrium, where supply and demand meet. In essence, the equilibrium is the point of balance where the amount of supply and demand are even, and so an optimal price is reached. At this point, sellers are maximizing profits, and consumers are getting everything they need. This point is in constant fluctuation, however, and can take some extra effort to figure out where it is in application.

Understanding these concepts is the basis of understanding the workings of any given market. As you take your first steps into economics, you come closer to being able to manipulate the market for your own profit.

Most of the general information and definitions in this post were found at: https://www.investopedia.com/university/economics/economics3.asp