This article explores how the theory of perfectly competitive markets, which you may have encountered in an introductory economics course as a college student, applies to auction houses in games. The article analyzes how the game’s auction house embodies some of the characteristics of a perfectly competitive market, but also has limitations that differ from the real world, and suggests ways to compensate for them.
When I was in college, I took an introductory economics course by accident. It was a great opportunity to learn about the high-level concepts and different theories of economics. Although I initially found the subject to be rather difficult and complicated, I came to realize how closely economics is connected to our daily lives. Among the many theories, there was one that particularly resonated with me: the perfectly competitive market.
At the time, I often found myself in a quandary when buying things. I always had to think carefully about “is it economical to buy this thing here?” Why would I do this? The reason was simple. I wasn’t sure where I could get the best deal because prices weren’t unified. The same item was priced differently in stores, online, and even in different stores on the same street. I would ask myself, “Why?” but I couldn’t find a clear answer. Then I took an introductory economics course and was introduced to the theory of perfectly competitive markets, which provided me with one answer to my question.
In order to understand complex economic structures, economists create simplified models with various assumptions. One of these simplifications is the perfectly competitive market. A perfectly competitive market assumes that the number of market participants is large, market participation is free, and all participants have complete market information and product knowledge. It also assumes that each market participant has minimal influence on the market as a whole, and that prices are set by perfect competition when the goods being bought and sold are homogeneous. In such an idealized market, the law of one price is established and price discrimination is eliminated.
While theoretical perfectly competitive markets are hard to find in the real world, I decided to apply this concept to auction houses in games. An auction house in a game is a place where goods are traded, and each player is both a seller and a buyer. In-game auctions have a few unique features that make them different from their real-world counterparts.
First, the auction house has information symmetry. In the real world, when buying product A, there may be price differences based on an individual’s ability to access information, but in a game, all players have access to the same information. This causes prices to converge to a certain point, and the law of one price applies. Second, the market in a game is an individual-driven market. In the game, each player participates in the market as an independent economic entity and can freely enter and exit the market. This realizes one of the main characteristics of a perfectly competitive market: free entry and exit.
The above analysis shows that the auction house in the game has the characteristics of a perfectly competitive market. However, just because an auction house in a game approximates a perfectly competitive market does not mean that it is a perfect market. Just like in the real world, in-game markets have limitations and problems. For example, because in-game currency has a different value system than real-world currency, cash payments can have a significant impact on the in-game economy. This creates a situation that is far from ideal for a perfectly competitive market.
In addition, game patches can also cause significant changes in the market. When a new patch is released for a game, items that were previously worthless can suddenly become highly valuable, or vice versa, items that were highly valuable can suddenly become worthless. These changes make price formation in the in-game market dependent on external factors, which is inconsistent with the characteristics of a perfectly competitive market.
There are several ways to address these limitations of in-game markets. First, it is necessary to protect the value of in-game currency by regulating cash payments. It is important to limit the inflow of cash payments in order to reduce the difference between the value of the currency and the real world and maintain market order. Second, it is necessary to analyze the volatility of the market by observing patches and the period between patches. Patches represent the evolution of the game and make changes in the market inevitable, but if we can predict and manage this volatility, we can build a more stable in-game economy.
Through the in-game auction house, I realized that the theories I learned in economics don’t just stay in books, but can be applied to various situations we encounter every day. Although it takes place in the virtual space of a game, there are similar laws and principles at work in the real economy. This experience deepened my understanding of the practicality and importance of economics, and taught me that the insights from perfectly competitive markets can be applied to both the real and virtual worlds.
