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Friday, June 7, 2013

T2 Prices Are Rising and It's Saving Our Economic Butts

One of the things I am liking about Odyssey so far has been the near total lack of gross market speculation leading up to and following Odyssey's release. It's been nice for a change to see things pretty much stay the course. I can find no indication of any attempts to corner the market as in times past, and I like that - alot. Though a free market means anyone can pretty much to anything they like, abuse of that market is detrimental to all in the long run. It isn't always true that the rich get richer and all that, but it is true they have the power to bring the economy down around everyone's ears. Let's have a look at the current state of New Eden's economy, why I think the changes in Odyssey were really made and why they may save our economic butts.

The common wisdom has been for some time that the Organization of Technetium Exporting something-or-another (OTEC) has been making prices rise in the T2 market. I think at first, this was the case. Inflation was caused by limited supply because of this grand supply side maneuver. But it was a short lived inflation, just as I said it would be.
You can see the prediction in that initial price slump. That's where everyone ran to faction and deadspace mods. Then the price sorted itself out as people adjusted to the new pressures. But for the past year, prices in the T2 market have been generally falling and certainly not increasing. Demand has increased but prices continue on a negative or neutral path. Remember the Hulk cost analysis some people did? Have a look at the 1-year trend for Photon Microprocessors and Hulks.
That's stagnation, not inflation and it's also no good for an economy. We may all hate it, but inflation is a necessary economic control system. It's one that has to follow the Daedalus Principle, also known as the Golden Mean. Inflation in the one to three percent range allows for profit and growth, and I don't mean in raw numbers produced in anything. I mean in increased business and diversification. New Eden's economy has had none.

Odyssey has attempted to correct this problem. What Odyssey did, if you don't already know, is this. Please read it if you like but the tl;dr is CCP replaced the requirement for Technetium in T2 production with four new metamaterials you can get from all over New Eden null-sec and low-sec. This effectively breaks OTEC and corrects the terrible economy it created.

"What?" you ask? Yeah, OTEC was a really, really bad idea and I now have 20/20 hindsight to support that position. With OTEC, production was restricted to just one organization. But with no way to effectively impose production restrictions on individual members, they simply produced themselves into oblivion. There was no mechanic to stop it other than self control and that doesn't strike me as a Goon strong point. This was a serious threat to the New Eden economy, possibly more dire than botters as they have the same effect but one is sanctioned play. And never forget this is a game. Having game items that are too cheap literally cheapens the game. It makes it no fun. To draw a parallel with another sad game, when everyone can be a Jedi Knight, or triple master trader/manufacturer in my case, what's the point?

Furthermore, there's a lot of ISK in the New Eden economy and ship prices, especially T2 prices, were just too low to absorb it all. When I was a new bro it took me a month to make 100 mISK and replace my first lost Hulk. Today new bros are making a billion ISK in their first month. I followed a link from a blog to a noob post about doing just that station trading. I should have saved that link but you'll just have to take my word for it. It has never been easier than it is now to make ISK in New Eden. And all that ISK could cause inflation under normal situations, but with unlimited resources it actually causes the opposite.

What would the price of oil be if everyone got all the oil they wanted? There would be a glut and that glut will cause prices to drop as suppliers try to keep their cash flow going. It wouldn't matter that the supplier was in a cartel. Hasn't that always been OPEC's problem? And if we got all the oil we wanted, and had enough money to buy most other things, we'd all be driving petroleum guzzling vehicles - the T2 items of real life if you want an analogy (or even if you don't.) And as long as oil prices kept dropping, the cost of the vehicles would drop right along with them and anything else made from petroleum. That is really bad for business. Businesses have fixed costs, mostly labor. They can only accept so low a price before they go into the red. It works the same way for Eve industrialists - minus the labor perhaps. But I know of some industrialists who pay people to haul for them, etc. so perhaps not. Anyway you look at it though, there is a minimum cost of business in New Eden and we were dropping closer and closer to that event horizon.

Now there is a safeguard against this threat. The rate at which these metamaterials can be reacted is fixed. They have a built in supply restrictor which takes will power (or lack thereof) out of the equation. I've read a few "why, oh why" types of comments both in blogs and on reddit and I think the answer is relatively simple. CCP realized if capsuleers were not going to restrict their production of raw materials, CCP would have to do it for them. That's why reactions are now regulated. To curb the inexhaustible supply problem. You could also lump the gravimetric anomaly change into this as well. The more miners get blown up, the lower the supply. And even the change to high-end ores can be explained by this reasoning. If you can get all the tritanium you need where you are (this is not an inexhaustible supply and has the same gravimetric control,) you don't need to hire haulers. That lowers a business' operating costs, providing they are mining in cheap ships. It's a bad business choice out there not to. So if the null-sec industrialist makes sound choices, it's easier for them to remain in the black under the new system. Taken altogether, these things put New Eden's economy on a much more sound footing; making it more real than it has ever been. Yes, I am liking it alot.

Currently production of the new metamaterials is just ramping up and the market prices are still high and unstable. The current price after four days is approximately 30k ISK for Photonic, Plasmonic and Terahertz and 60k ISK for Nonlinear. Nonlinear Metamaterials is the only one showing an increasing trend line, but with only four data points don't read too much into that. I'd go with buy orders as the litmus, which are running 20k to 30k ISK. You'll see approximately a 25k ISK price settle out for all metamaterials in the near term is my guess. That should be high enough to generally increase T2 costs, but price isn't the real point. Supply is the point and keeping it restricted is best for the economy in the long run. Capsuleers will still buy ships. They will still pony up the ISK. And industrialists will adjust their prices accordingly while remaining profitable: their pricing supported by a much truer supply and demand mechanism. And we will all prosper.

Fly Careful


  1. There are a number of problems with this - yes a few newbros are able to make a billion in a month - but the biggest question from most newbros continues to be 'how do I make isk?'.

    Also, I don't think the average new player who just goes through the tutorials and doesn't quickly find their way into one of the better player corps actually learns how to make isk.

    Secondly, the reaction rate is arguably fixed too low for these new intermediate products.

  2. So, I get where you're coming from, and I agree up to a point, but I think the real story is far more complex.

    For T2 ships and their components, I think we've actually been seeing a falloff in demand over the past 18 months or so. This is due in part to the rampant speculation that's taken hold at every major change (for example, I know one guy who's *still* trying to sell off the thousands of skiffs he made during the mining barge changes), but also due to the fact that New Eden overall has been through a relative period of peace. People simply haven't been losing the really shiny ships as much as they used to, and that's resulted in reduced demand and increased supply - ie, a lower market equilibrium on a lot of things. There are a lot of EVE players, even die-hard PvP types, that are very risk-averse when it comes to ship loss, and while they'll happily welp T1 ships all day long, seeing them pull out those shiny T2s is increasingly becoming more rare.

    I'm not sure the grav site change was intended to correct an oversupply problem either. One of my alliance mates observed that it's nearly impossible now after the patch to find an "ore site" that hasn't been cleared completely out - if anything, more people are doing these sites faster. There's not a set number of anomalies that can spawn every day - when one despawns, another spawns somewhere else. So in essence, more people are mining in these sites now, at least in hi-sec. It's only been a few days so that might change, but as it stands, mineral prices are actually dropping a bit because of all the increased activity.

    It's probably way too early to predict what's going to happen to asteroid minerals, but what I personally would really like to see is for tritanium and especially pyerite to drop back down to something closer to drone-loot price levels. If this happened, it would help push more mining out to lowsec/nullsec ores, which, while it might be painful for some miners, would encourage corporations and alliances to head out to those areas in a more organized way as well. Overall, I feel like that would promote a healthier population in both areas, and set the stage for new features that expand on the idea of colonizing space. That said though, I'm not really sure whether the mineral changes are going to push trit and pyerite down that far, or how quickly. It's going to be interesting to watch.

  3. Something else to consider is the effect of the T1 ship rebalancing. With T1 ships becoming more effective overall, T2 ships get worse in relation. So the cost/effectiveness ratio of T2 ships are going down, which means less demand, lower prices.

  4. So how does this affect Robotics? I've noticed my sales dropping off and prices falling, but I'm not sure if that is just my local market, and I need to start hauling, or if it is because of reduced T2 production generally.


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