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PLEX =?= Giffen Good
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Wyke Mossari
Staner Industries
#1 - 2011-11-01 10:02:39 UTC  |  Edited by: Wyke Mossari
I got to thinking about the rise in PLEX prices from an economics stand point and it struck me it's acting like a Giffen Good, but I wasn't initially convinced, something about it didn't feel quite right.

Economists consider the following to be prerequisites of a Giffen Good.


  1. Consumption requires a substantial proportion of the buyers income.
  2. There is no realistic substitute.
  3. The good must be of inferior quality.


Also PLEX are not Veblen goods they confer no status.

A topic worthy of an interesting discussion I think.
Chevalleis
The Scope
Gallente Federation
#2 - 2011-11-01 13:14:32 UTC
"In economics and consumer theory, a Giffen good is one which people paradoxically consume more of as the price rises, violating the law of demand. " Haven't seen this kind of consumption rise, quite the opposite. As the prices increase, less people are able to afford plex, which results in unsubs.
Shanlara
Weatherlight Industry
#3 - 2011-11-01 14:21:31 UTC
Chevalleis wrote:
"In economics and consumer theory, a Giffen good is one which people paradoxically consume more of as the price rises, violating the law of demand. " Haven't seen this kind of consumption rise, quite the opposite. As the prices increase, less people are able to afford plex, which results in unsubs.


Which is the big concern among a certain among of people.
flakeys
Doomheim
#4 - 2011-11-01 14:29:13 UTC
Shanlara wrote:
Chevalleis wrote:
"In economics and consumer theory, a Giffen good is one which people paradoxically consume more of as the price rises, violating the law of demand. " Haven't seen this kind of consumption rise, quite the opposite. As the prices increase, less people are able to afford plex, which results in unsubs.


Which is the big concern among a certain among of people.


Those people would be the ones who can not afford the price paying with isk , wich when they leave will then make consumption less so the price will drop again.Irony overload , starve the poor ones to feed the rich.Now where have we seen that before Roll


We are all born ignorant, but one must work hard to remain stupid.
Florestan Bronstein
Ministry of War
Amarr Empire
#5 - 2011-11-01 15:04:40 UTC  |  Edited by: Florestan Bronstein
how does a giffen good work?

popular examples are rice (some studies in china) or potatoes (anecdotal reports from the irish famine).

poor people spend a large share (but not all) of their income on rice.
Rice prices increase -> people don't consume less rice, as rice is already the cheapest source of calories.
Instead they rice substitute for expensive, superior goods (like meat, vegetables, ...) and end up consuming more rice than before.

For PLEX the idea would be that people end up spending less ISK on ships, fancy faction mods, ... to keep their PLEX consumption constant (despite rising prices).

Similar mechanism as Giffen goods.
Heinrich Rosenmantel
The Goldman Sachs
#6 - 2011-11-01 15:13:42 UTC  |  Edited by: Heinrich Rosenmantel
Wyke Mossari wrote:


  1. Consumption requires a substantial proportion of the buyers income.
  2. There is no realistic substitute.
  3. The good must be of inferior quality.



Inferior doesn't mean anything quality wise, it refers to an inferior good -- which I've linked to a few lines down.

Consider what would happen if someone came along right now and posted a sell order for their 10,000 plexs for only 200M a piece. They would get eaten up instantly, first by the existing buy orders and then by people very happy to get such a good deal. Now consider of the same guy with 10K plexs tried to sell them for 700M. No one would buy them.

This shows that plex is a normal good that follows the law of demand. In order to be a giffen good, a good must be inferior -- which as a normal good this isn't.

http://en.wikipedia.org/wiki/Normal_good
http://en.wikipedia.org/wiki/Inferior_good

The current spike in plex hoarding is not a sign of it being inferior. It just means that people are anticipating even higher prices to come.
flakeys
Doomheim
#7 - 2011-11-01 15:19:09 UTC
Florestan Bronstein wrote:
how does a giffen good work?

popular examples are rice (some studies in china) or potatoes (anecdotal reports from the irish famine).

poor people spend a large share (but not all) of their income on rice.
Rice prices increase -> people don't consume less rice, as rice is already the cheapest source of calories.
Instead they substitute expensive, superior goods (like meat, vegetables, ...) for rice and end up consuming more rice than before.

For PLEX the idea would be that people end up spending less ISK on ships, fancy faction mods, ... to keep their PLEX consumption constant (despite rising prices).

Similar mechanism as Giffen goods.


However you are comparing rice , food wich is NEEDED for staying alive to paying a game with ingame currency wich can be solved by either not playing this particular game OR switch to paying with cash.

We are all born ignorant, but one must work hard to remain stupid.
Transport Sheep
CoonQuest
#8 - 2011-11-01 15:45:17 UTC  |  Edited by: Transport Sheep
flakeys wrote:
Florestan Bronstein wrote:
how does a giffen good work?

popular examples are rice (some studies in china) or potatoes (anecdotal reports from the irish famine).

poor people spend a large share (but not all) of their income on rice.
Rice prices increase -> people don't consume less rice, as rice is already the cheapest source of calories.
Instead they substitute expensive, superior goods (like meat, vegetables, ...) for rice and end up consuming more rice than before.

For PLEX the idea would be that people end up spending less ISK on ships, fancy faction mods, ... to keep their PLEX consumption constant (despite rising prices).

Similar mechanism as Giffen goods.


However you are comparing rice , food wich is NEEDED for staying alive to paying a game with ingame currency wich can be solved by either not playing this particular game OR switch to paying with cash.


Not quite as bad a comparison as it seems.
For example i have 3 accounts. Two of which i pay cash for.
I can not afford/am not willing to pay the third account with RL money so PLEX is a needed good in that case.
I have been more carefull in getting ships popped in pvp to prevent the situation where i can not or am not willing to pay the price for a PLEX.
So yes in my situation and probably some others PLEX is needed for at least one account if not all.

People tend to assume that if you can afford to pay for one account you can pay for 2 or even 3 or more. That is an assumption that is clearly wrong. Its not an all or nothing proposition.
Needed is relative to the context. No one said that food is needed or a good comparison. It did however illustrate very nicely how the mechanism works.
Lithalnas
Dirt 'n' Glitter
Local Is Primary
#9 - 2011-11-01 16:12:12 UTC
In my tinfoil conspiracy theory on the PLEX situation, demand has little to do with the price.

RMT isk is so cheap right now that 20$ in RMT isk is worth a 2 plex, I tend to think some people are using bots or buying isk. These players profit by using more accounts and can afford any price for plexes.

Solution: crack down on bots and RMT, make that price of RMTed isk go up so 1b isk is something like 60$ or more, thus makeing a PLEX purchase better value.

https://www.facebook.com/RipSeanVileRatSmith shoot at blue for Vile Rat http://community.eveonline.com/devblog.asp?a=blog&nbid=73406
Tasko Pal
Spallated Garniferous Schist
#10 - 2011-11-01 17:19:04 UTC
Florestan Bronstein wrote:


Rice prices increase -> people don't consume less rice, as rice is already the cheapest source of calories.
Instead they substitute expensive, superior goods (like meat, vegetables, ...) for rice and end up consuming more rice than before.


Except that this explanation makes no sense. If they substitute expensive, superior goods for rice, then they're consuming those in place of rice and hence, consuming less rice. That is the whole point of substitution goods, after all.
Florestan Bronstein
Ministry of War
Amarr Empire
#11 - 2011-11-01 17:35:56 UTC  |  Edited by: Florestan Bronstein
Tasko Pal wrote:
Florestan Bronstein wrote:


Rice prices increase -> people don't consume less rice, as rice is already the cheapest source of calories.
Instead they substitute expensive, superior goods (like meat, vegetables, ...) for rice and end up consuming more rice than before.


Except that this explanation makes no sense. If they substitute expensive, superior goods for rice, then they're consuming those in place of rice and hence, consuming less rice. That is the whole point of substitution goods, after all.

grammar fail on my part

in German the order of arguments for "substitute" is the opposite of the order in English.

German: "A durch B substituieren"
English: "substitute B for A"

will edit my post above, thanks for pointing out this mistake.
Julian Koll
The Kollektive
#12 - 2011-11-01 23:42:00 UTC
iirc giffen goods also requires the goods to increase in consumption. take that rice example. people eat more rice. now take plex. people dont consume more plex. they dont magically use 1.5 plex per 30d when they reach 500mil (or whatever).

however there are other theories which could explain a rise in plex trade. increasing income spread for one. or panic buys. or people simply trading them more often since they became a more common good.

gah, i need sleep. maybe i'll post something that makes more sense in the morning. nice idea however @wykke
Levija Saplina
Ken Interplanetary Communication
#13 - 2011-11-02 08:54:21 UTC
So you want to pretend you have some notions of economics and maybe finance, that you have studied this maybe ? Has anyone ever told you that in academic circles, quoting wikipedia is pretty much the same thing as holding up a sign that says in big letters : "Hey look at me I know jack **** but I can quote this and it must be true, so let's all pretend I know something so we can have a discussion in which I will not participate but get the credit for starting it even though I have no idea what you guys are talking about".

Wikipedia is **** and has literally no value when you do research or when you want to discuss anything remotely serious.

There are dozens of sites out there that you could quote from if you actually knew anything about economics or finance. Investopedia for example is the most dumbed down source for definitions of financial and market concepts and yet it rates as a 20/10 on the wikipedia scale.
Cyniac
Federal Navy Academy
Gallente Federation
#14 - 2011-11-02 09:06:57 UTC
Levija Saplina wrote:
Wikipedia is **** and has literally no value when you do research or when you want to discuss anything remotely serious.


Quoted for truth... a bit off topic I know, but I couldn't resist.
Companion Qube
Pator Tech School
Minmatar Republic
#15 - 2011-11-02 09:21:39 UTC
Levija Saplina wrote:
Has anyone ever told you that in academic circles, quoting wikipedia is pretty much the same thing as holding up a sign that says in big letters : "Hey look at me I know jack **** but I can quote this and it must be true, so let's all pretend I know something so we can have a discussion in which I will not participate but get the credit for starting it even though I have no idea what you guys are talking about".
The other reaction from academic circles is "oh god, you got trolled by a ninja wikipedia edit? What the **** kind of failure are you."
Levija Saplina
Ken Interplanetary Communication
#16 - 2011-11-02 09:27:44 UTC  |  Edited by: Levija Saplina
Also, so as to not be a complete *******, I thought I should indicate to you (OP) that Giffen goods are very rare, and as you might have read in your little wikipedia article, they have a positive elasticity. Which would mean that the demand of PLEX rises as the price rises, which has not been the case if you look at the market data of the past weeks.

In most cases, PLEX is still considered to be a semi-luxury good considering it represents the ability for someone to play an extra month of EVE. This not being a free MMO, PLEX is a commodity which allows players to keep playing it and by such it's in a limited supply position.

Whatever anyone might say, PLEX is bought outside of the game and brought in the game which means that it is limited to the amount of financial resources players have outside of the game. By definition it is limited (especially in today's environment) and unless we have half of EVE as RL millionaires (like me thank you very much) then buying PLEX still represents an investment limited by the money supply available to the buyers.

BUT what must be understood is that for a significant portion of the PLEX buyers, it represents a way to get isk at interesting rates. Which means that for the people who buy PLEX with RL money and then resell it vs ISK, PLEX represents a luxury product that they can afford and that will in the end give them their new faction battleship or their new super-capital ship etc.

The other alternative is subbing which comes up roughly at the same price for people who purchase PLEX (in RL money) so you have a perfect substitute for PLEX and that is subbing. The difference in price between the two : I would consider it to be non-relevant for those that use their RL money to purchase game time. The only difference is that PLEX can be transformed into ISK, subs cannot.

In the end the attributes of PLEX don't correspond in any way to what "economists" define as the conditions to a Giffen good.
Tasko Pal
Spallated Garniferous Schist
#17 - 2011-11-02 12:24:43 UTC
Companion Qube wrote:
Levija Saplina wrote:
Has anyone ever told you that in academic circles, quoting wikipedia is pretty much the same thing as holding up a sign that says in big letters : "Hey look at me I know jack **** but I can quote this and it must be true, so let's all pretend I know something so we can have a discussion in which I will not participate but get the credit for starting it even though I have no idea what you guys are talking about".
The other reaction from academic circles is "oh god, you got trolled by a ninja wikipedia edit? What the **** kind of failure are you."


Or as my advisor said, "Use Wikipedia, but don't tell anybody."