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Endless inflation post patch?
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Samroski
Middle-Earth
#1 - 2014-04-30 03:41:18 UTC
It is expected that all items will show a small percentage (single digit) increase in price after the summer patch as manufacturing cost is going up.

As the new formula for calculating manufacturing cost includes the base price of the item, increasing price will result in increasing manufacturing cost, and this would be an endless loop, resulting in endless inflation.

Somehow I am very concerned about this and hope that my reasoning is incorrect.

Any colour you like.
mechtech
Ice Liberation Army
#2 - 2014-04-30 04:01:26 UTC
I don't know the math, but I believe this is modeled as a convergent infinite series. That is to say, the increase will be smaller and smaller with every pass of the loop, eventually converging on a value that I think is (10/9)x.

1: 100 mineral cost + 10% = 110
2: 100 mineral cost + 10% of (1) = 111
3: 100 mineral cost + 10% of (2) = 111.1
4: ... = 111.11
5: = 111.111

Looks like it's converging at 10/9 quite quickly with a 10% tax, and it's certainly not an infinite increase.
Abidal Trekt
Caldari Provisions
Caldari State
#3 - 2014-04-30 04:08:24 UTC
From the blog:

Quote:
Price of output is based on the system used for calculating values in killmails, which is also used to manage bounty and Factional Warfare (FW) kill payouts. We're very aware of the risk of price manipulation, but we're pretty confident this system is robust in this regard.


I suspect if things were getting outta whack to the point where there was too much inflation in the economy, all they would need to do is adjust their Price of Output calculations, making them more resistant to price fluctuation.

There will always be "endless inflation", the new Industry won't put the game's healthy inflation into some crazy situation. I for one am not concerned.
Hesod Adee
Perkone
Caldari State
#4 - 2014-04-30 05:06:48 UTC
Manufacturing costs are an ISK sink. How does increasing an ISK sink cause inflation ?
Samroski
Middle-Earth
#5 - 2014-04-30 05:51:48 UTC
mechtech wrote:
I don't know the math, but I believe this is modeled as a convergent infinite series. That is to say, the increase will be smaller and smaller with every pass of the loop, eventually converging on a value that I think is (10/9)x.

1: 100 mineral cost + 10% = 110
2: 100 mineral cost + 10% of (1) = 111
3: 100 mineral cost + 10% of (2) = 111.1
4: ... = 111.11
5: = 111.111

Looks like it's converging at 10/9 quite quickly with a 10% tax, and it's certainly not an infinite increase.

Thank you for the reassurance.
Hesod Adee wrote:
Manufacturing costs are an ISK sink. How does increasing an ISK sink cause inflation ?

I have little understanding of economics. Thought that any increase in manufacturing cost would get passed onto the buyer, resulting in increase in price of the item. I presumed that increase in prices of all items would be termed inflation.

Any colour you like.
Vaerah Vahrokha
Vahrokh Consulting
#6 - 2014-04-30 06:51:55 UTC
Samroski wrote:

Hesod Adee wrote:
Manufacturing costs are an ISK sink. How does increasing an ISK sink cause inflation ?

I have little understanding of economics. Thought that any increase in manufacturing cost would get passed onto the buyer, resulting in increase in price of the item. I presumed that increase in prices of all items would be termed inflation.


Look under the hood. Who do you see rubbing his hands? Good ole Dr. Eyjo!
He said long ago that if he could not steer EvE's economy with the "good manners" he'd implement additional measures (somehow he reminds me of Mario Draghi, ECB chief banker).

Here we go, sensible ISK sinks are entering the system and they hit a bit more those who use faucets (the NPC corp people, usually "soloing, missioning, ratting about" => ISK faucet).

The end result is to drain ISK out of the system, basically once the oversupply will be tamed a bit, then prices will correct. How much is not known to anyone, but this is a starter.
I could imagine the next step would be to also implement additional sinks in markets trading, but we'll see.

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Hesod Adee
Perkone
Caldari State
#7 - 2014-04-30 08:19:24 UTC
Samroski wrote:
I have little understanding of economics. Thought that any increase in manufacturing cost would get passed onto the buyer, resulting in increase in price of the item. I presumed that increase in prices of all items would be termed inflation.

To take a simplistic is that the more ISK there is in the Eve economy, the more inflation that has happened. That means that:
- ISK sinks, where ISK is taken from players and destroyed, reduces inflation.
- ISK faucet, where ISK is created and given to players, create inflation.

Any time you receive ISK from NPC bounties or selling to an NPC buy order is an ISK faucet.

Any time a player sends you ISK via give money or the in-station trade window is neither a sink or faucet.

Any time you trade with another player over the market or contracts, the fees and taxes are an ISK sink.
When you buy an item with LP, if that also comes with an ISK cost it's an ISK sink. So FW, while it earns a lot of ISK for the FW pilot, is an ISK sink.

Now the price of manufactured goods might remain the same after these changes settle. The price of minerals might go down instead, allowing manufactures to maintain their current margins and sale prices. Or the price of manufactured goods might change, leading to the price of goods changing. Probably some goods going one way, others going another. But I'm not going to make any predictions.
Adunh Slavy
#8 - 2014-04-30 09:45:41 UTC
Samroski wrote:
I have little understanding of economics. Thought that any increase in manufacturing cost would get passed onto the buyer, resulting in increase in price of the item. I presumed that increase in prices of all items would be termed inflation.


The value of a ship or module, or anything, is based on its value to the buyer, not the costs incurred by the producer.

The immediate impact of increased build costs is less production and not increased sale prices, when something costs more, people do/buy less of it. Prices will only rise when supply of goods reduces; the price changes will not be even across the spectrum of goods (not necessarily a bad thing, elasticity.) The time line of how this manifests is anyone's guess, and very likely different goods will have different timings.

In Pre-Expansion, some prices will likely try to advance on mania in the search of greater fools. And do so in an environment of increased production as manufactures attempt to front-run the coming change. There could be a short term over supply post-expansion that pushes prices lower. Costs up yet over supply to sell off.

Furthermore, making the sink drain larger, while not increasing the size of the faucet, can only result in the ISK supply growing less rapidly, the ISK supply however will continue to inflate.

Holding 50% NAP in cash, is probably wise right now.

Necessity is the plea for every infringement of human freedom. It is the argument of tyrants; it is the creed of slaves.  - William Pitt
Oska Rus
Free Ice Cream People
#9 - 2014-04-30 19:08:52 UTC
The cretor of this thread should read something about sums of infinite geometric sequences. Spoiler alert: the result is usually single digit number.
Sabriz Adoudel
Move along there is nothing here
#10 - 2014-05-01 00:27:51 UTC
mechtech wrote:
I don't know the math, but I believe this is modeled as a convergent infinite series. That is to say, the increase will be smaller and smaller with every pass of the loop, eventually converging on a value that I think is (10/9)x.

1: 100 mineral cost + 10% = 110
2: 100 mineral cost + 10% of (1) = 111
3: 100 mineral cost + 10% of (2) = 111.1
4: ... = 111.11
5: = 111.111

Looks like it's converging at 10/9 quite quickly with a 10% tax, and it's certainly not an infinite increase.



This in the short term.

In the medium term, there's also the reduction in the rate of increase of ISK in the economy as a factor (caused by the introduction of this new ISK sink).

Still I do not see either of these being major economy-warping factors, especially as they act in opposite directions to each other. Certainly the effect will be smaller than the announcement of battleship tiericide was (or the smaller spike after the Titan massacre in B-R), and even that wasn't huge.

I support the New Order and CODE. alliance. www.minerbumping.com
Felicity Love
Doomheim
#11 - 2014-05-02 05:04:48 UTC
... cough, cough... moon minerals... big change in jump fuels consumption coming... cough, cough...

"EVE is dying." -- The Four Forum Trolls of the Apocalypse.   ( Pick four, any four. They all smell.  )
Dinsdale Pirannha
Pirannha Corp
#12 - 2014-05-02 06:13:40 UTC
Hesod Adee wrote:
Manufacturing costs are an ISK sink. How does increasing an ISK sink cause inflation ?


Because you have not read the blogs, and have no understanding of awaits every high sec player?
admiral root
Red Galaxy
#13 - 2014-05-02 18:41:27 UTC
Dinsdale Pirannha wrote:
Hesod Adee wrote:
Manufacturing costs are an ISK sink. How does increasing an ISK sink cause inflation ?


Because you have not read the blogs, and have no understanding of awaits every high sec player?


Talking about yourself again, Dinsdale?

No, your rights end in optimal+2*falloff
Sabriz Adoudel
Move along there is nothing here
#14 - 2014-05-02 23:01:41 UTC
Dinsdale's confused, nonsensical comments often put a smile on my face.

Does that make me a bad person?

I support the New Order and CODE. alliance. www.minerbumping.com
Vaerah Vahrokha
Vahrokh Consulting
#15 - 2014-05-03 07:02:42 UTC
Sabriz Adoudel wrote:
Dinsdale's confused, nonsensical comments often put a smile on my face.

Does that make me a bad person?


No. Blink

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