Inflation in World of Warcraft

Wikipedia defines inflation as a rise in the general level of prices over time. In most cases, inflation occurs when surplus money is streamed into the system. Governments sometimes try to bail themselves out of an economic catastrophe by firing up their mint and printing gobs of money. This causes prices for goods and services to rise while simultaneously causing the value of the currency to fall because of simple supply and demand. If more people are spending all that printed money, supply of goods and services goes down. The shortage causes prices to spike. If even more money is flooded into the economy, the trend continues: falling monetary values coinciding rising prices. If left uncontrolled, inflation can lead to such devaluation, the currency becomes worth more as supply of paper than as money and people lack the money to buy even the most basic of necessities.

Germany at the end of World War I is an excellent example of the effects of inflation. In fact, inflation reached such epic proportions in post-war Germany, it nearly collapsed the country's economy and government. Many historians point to Germany's hyper-inflation, nationalism, and resentment at paying war reparations as the foundation for the rise of Adolf Hitler and the Nazi party and therefore a fundamental cause of World War II.

Surprisingly enough, World of Warcraft is also a good example of inflation. Increasingly, MMOs are developing sophisticated economic systems embedded in their core gameplay. And make no mistake, most players expect a robust economic model that reflects a supply/demand market economy, including an auction house for them to buy and sell good from other players. I have heard that some MMOs have gone so far as to hire real economists to help advise them how to build and maintain their game's economy.

WoW's Patch 2.4 has had some some fascinating consequences on the game's economic model. To begin with, Blizzard expanded the number of daily quests a player can perform each day from ten to a whopping twenty-five. You don't have to be a financial rocket-science to speculate that's going to have some affect on the game's economy.

Indeed it has. If you check the auction house lately, you have probably noticed a spike in prices, particularly with consumables that are always in demand but have had fairly fixed price points in the past months. Primals are a great example. Before 2.4, most primals could be bought-out for around 20 gold. Post 2.4, the price is now closer to 30. Personally, I've noticed Superior Wizard Oil spiking in price. I could usually find a pack of five for around 7 gold, but lately I've had to pay more like 10 or 11. These are just a few examples; check the current prices of herbs, ore, and pots, and you'll likely track a rise in prices.

The reason for this is quite simple and bears a striking resemblance to the real world economy. Players have access to more daily quests then ever before and they can now complete twenty-five of them per day. Each daily averages around 10 gold. Consequently, players are earning more gold than they ever have before and they're spending it. Primals, at the old price of 20 gold each, are being snatched up quickly by players flush with twenty-five-daily-quests-per-day money. When sellers find their stock quickly depleted, they might first put more goods up for sale at the old prices. But they will find that stock bought up quickly too. Their natural, inevitable reaction: raise their prices.

And these prices will continue to rise until they reach a point where the majority of players' current income level can't meet the new price point. This is when prices will finally stabilize and become once again predictable, but higher than they were before all that new gold flooded the market.

I find it curious that Blizzard chose to deliberately inflate their economy. Yes, deliberately. They knew exactly what they were doing and they knew for certain the consequences of the daily quest expansion. I heard, though can't confirm, that Blizzard means to drive gold farming out of business. Gold farmers contribute to inflation because they sell quantities of in-game money for real world cash. This drives prices up for the same reason described above. The company has always fought (at least on the surface) the gold-farming industry and it would make sense that the post 2.4 economy is their new weapon.

Outside of that, I can't think of a good reason for this deliberate inflation. Prices will now rise permanently and players will have to perform dailies if they want to afford goods on the auction house. Might that be their ultimate rationale? Yet another carrot dangling in front of the ox-like WoW player base to keep them hooked and subscribed and playing?

It's not nicknamed World of Warcrack for nothing.