Dota 2 item market

Discussion in 'DotA Chat' started by ru40342, Nov 17, 2012.

  1. ru40342

    ru40342 Well-Known Member

    This article is about the market of dota 2 item trading. All information provided are based on official information provided by Valve (dota 2 store).

    The market of dota 2 item is interesting to analyse and can yield various findings, which can be used for buyers and sellers in this market to achieve market equilibrium.

    Post Olygopoly
    The market of dota 2 items is an excellent example of post oligopoly, similar to other goods and services such as fast food, financial services and insurance services. Although some aspects of it resemble classic monopolistic (large number of sellers etc.), two aspects, the degree of power of the dominant seller (in this case, Valve); and the homogeneity of the goods offered, affirm its statue of post oligopoly.

    Price Determination
    Post oligopoly has one very simple characteristic, price determination. Dominant seller, such as Mcdonald’s in fast food industry, Coke in the “cola” industry etc. has the absolute power of price determination and other sellers simply follow its price / close to their price. The dominant seller sets their price based on the demand they receive from the buyers and since they are the most powerful seller, they have the ability to manipulate buyers.

    The reference prices (hence, the market price) of steam store items (couriers, bundles, keys etc.) are the price demanded by buyers as perceived from Valve, making it the most suitable price to be followed by other smaller sellers (in the dota trade forum). Under perfect market condition, a $10 item should be worth two of $5 items and vice versa. However, this is not the case.

    Market Failure
    The trade posts from most dota 2 trade forums, aka offers from buyers and sellers, are perfect resemblance of market failure. The source of the market failure demand side shock (as with most other macroeconomic conditions). Buyers often offer price that are way below market price (I’ve seen many offer 1 key for a courier worth 4-5 times its value). That is not a problem under perfect information condition. Sellers should have the information to ignore such offer.

    Source of Market Failure - Information?

    However, in this market, as with many post oligopoly markets, information is very scarce. This has negative psychological effect to the sellers and they misinterpret such market failing condition as ideal and accept it. That’s the reason we see many sellers offer some couriers for 2 keys, a discount of 50% under market price.

    However, a crucial difference between dota 2 items market and normal post oligopoly market is that both barter system as well as monetary system are used for normal transaction. Since barter system are harder to regulate, and information of barter system is harder to monitor, dominant party and regulatory party should be given the responsibility to regulate it (example of such system is international trading where both systems are implemented. Hence, every industry needs a worldwide regulatory market for international trading to prevent fraud / discrimination).

    In a way, the problem of market failure for dota 2 items market resemble labour market discrimination where certain labour are exploited and paid relatively low wages by firms (since most sellers of item obtain them either through playing dota 2 game, or through purchase, the costs of obtaining item are the price of labour, or wage)

    In short, this condition is called “market friction”. Refer Mortensen (2005) and Pissarides (2000) for more information on market friction. Both of them won the Nobel Prize in Economics in 2010).

    Short Run Solutions

    In economics, there are two good short term solutions. First, the dominant sellers / regulatory party (both are Valve) can improve the information condition of the market by providing more references to both buyers and sellers. Such move can help adjust the market back to the equilibrium and ensure short term stability. Buyers and sellers can refer to the market price whenever in doubt (this has been done as discussed earlier, since Valve already listed the price of all items in numerical terms, hence buyers and sellers should be able to use simple calculation to determine the prices under barter system). However, such information can be diluted with the categories of items available. For example, the Fireborn Odachi (priced at $4.99) are categorised as “mythical” while the Axe’s Sylnasher the Winged Axe (priced at $5.99) is categorised as “rare”. These terms perhaps provide misleading information during normal transaction. Unless there are important reasons, the categorical system (common, uncommon etc.) should be abolished as they can be misleading. Numerical price is more than enough to serve as reference (perhaps categorical system only implemented when items are not available in dota 2 store such as Pudge’s hook or Tiny’s ice skin).

    The second short term solution (and the more extreme solution) to such problem is to implement price control system. Since the source of the problem of such market failure is the demand side shocks, the regulator (which is Valve, again) can implement price-floor control. Floor price can be set to ensure market failure is in manageable level in short run. Hence, price cannot be manipulated under certain level. This will ensure the rights of either party to be protected. Floor-price is implemented in many good/service markets and labour market (minimum wage).

    Long Run Solution
    However, the best long run solution for such problem is the automatic adjustment of the markets (buyers and sellers), aka invisible hand. Market price will be reached when both buyers and sellers fully understand their powers and information. Under most markets this is doable in the long run. However, dota 2 items market possesses difficulties to reach such long term equilibrium as the life of this game may not be long enough to reach such scenario. Furthermore, players of dota 2 may not have the initiative to ensure market failure can be corrected. After all, as quoted by John Keynes himself, in the long run we are all dead (in this case, the game is dead)

    So, all and all, I hope this article can provide an insight of dota 2 item market (from my perspective). I truly hope to be able to help correct the market failure that encountered by the market now. Besides, hopefully this article can provide information for buyers and sellers in their trading of items.

    p/s: I am doing my phd in economics (monetary and econometrics) and a lover of dota / dota 2. I plan to write an article of dota 2 item market soon and this is the early abstract of such article. I welcome any comment from anybody including troll comment.

    To the moderators, I am not sure of which sub-forum to post this article so i am posting it in "dota chat".
    Last edited: Nov 17, 2012
  2. Quiesce

    Quiesce Well-Known Member

    Oh wow, I'll take a look later, but this looks interesting.
  3. CynthiaCrescent

    CynthiaCrescent Well-Known Member

    Well, here is well, or Marketplace sticky.
    But I prefer this to stay here, and I'll upvote if this could be anymore reddit.
  4. Shdwridr

    Shdwridr Well-Known Member

    Nice read :)
  5. InvokerofTime

    InvokerofTime Forum Manager

    I'll leave it here, and as an economics buff myself, i confirm this is not waffle.
  6. ru40342

    ru40342 Well-Known Member

    Nice to know that other economic nerds play dota 2 :)

    I heard economic nerds just sit in the basement in front of their computer staring at statistical outputs or biting their pencil while trying to solve a complex differentiation model haha.
  7. jesusatan

    jesusatan Well-Known Member

    Thanks for the article. You probably put a lot of effort.
  8. ru40342

    ru40342 Well-Known Member

    Well I love dota 2 and economics so this is ok. Modelling this market would be 1000000000000000000x harded tbh haha.
  9. IHateLeavers

    IHateLeavers Well-Known Member

    wall of text, s1 make TL;DR pls :D
  10. ru40342

    ru40342 Well-Known Member

    I am sorry for such long and boring text haha. Wait until u read my final article on such topic. I guess economists are boring after all haha. U will probably think the text part is the most enjoyable (compare to the methodology and the analysis ) haha.
  11. wzuni9a

    wzuni9a Well-Known Member

    Keys are more valuable relative to dropped items given the same in-store price for the reason that there is relative shortage of supply. Keys never drop, so supply is entirely dependent on users who purchase them. We can safely say that there are far more players who don't spend on keys than those who do, yet they all play games and thus produce dropped items in the long run.

    Mythical rating probably refers to how often it drops, and is not dependent at all on store price. Therefore, we can assume that more $5 rares will drop than $4 mythicals.

    Demand for each item is also dependent on the how good the item looks, which is a subjective value. As per your example, the Fireborn Odachi may be more valued by players because it changes the character's animation, a rare trait for an item. Thus, it may be traded for items with higher shop cost.

    One last point: Due to Diretide item farming, there has been a huge influx of items. This will surely reduce prices for the dropped items relative to keys, but barter between items should remain stable.
  12. Uncle_Zhuge

    Uncle_Zhuge Well-Known Member

    Every MMO faces the same problem. I doubt what you suggest can solve a decade long issue. Traders will always find ways to intentionally make their offer looks better. If not, they will hold until an appropriate moment before trading them for a higher value.

    That is why, just don't bother with cosmetics too much. Play the game as it is, a Tidehunter, Sven, Juggernaut or Axe without all the fanciful stuff still look very pretty.
  13. Thunderbolt

    Thunderbolt Banned

    thats the real cancer of PD, not trolling, noobs or anything. its posts about non gameplay or balance related stuff like market items which no one needs to buy or equip your hero with at all and heros (not) having "personality" be it because of voice set or background story.

    go fuck yourselves with these kinds of posts.
  14. luckycandies

    luckycandies Well-Known Member

    OP, be ready to get a lot of flame from upset faggots that manipulate the market via smurfs.

    Sad to see how easily people get swayed by the market
  15. wzuni9a

    wzuni9a Well-Known Member

    It's a PhD article. Fuck higher education, amiright?
  16. ru40342

    ru40342 Well-Known Member

    Err... ok. Does that mean that every country has inflationary problem so central bankers can just sit there playing dota 2? (haha troll comment hope you don't mind :p). Well in reality maybe most central bankers are sitting in front of their computer playing dota 2 all days. (matchmaking with bernanke!)

    The point is that you are exactly right (about all MMO...). I can only try my best to use what I know to try to give more information to as many players as possible so that the market hopefully can adjust itself one day without regulation. I doubt as well to the significance of my article (god knows when I can finish it haha) but I see the need to address this problem to as many people as I can.

    ---------- Post added at 05:18 PM ---------- Previous post was at 05:16 PM ----------

    Haha thanks for the comment. Well I won't play dota 2 if I don't like to troll. However we are talking about finding solutions to the problem we facing so better don't joke!

    U can invite me for a game and see how my AA sucks haha. cheers!

    ---------- Post added at 05:20 PM ---------- Previous post was at 05:18 PM ----------

    Thanks for the comment haha. Well give me your best shot faggots!! lol

    hopefully my article can help some people in anyway :)

    ---------- Post added at 05:22 PM ---------- Previous post was at 05:20 PM ----------

    Haha you are very funny. Although I am doing my Phd, but this is not my thesis haha (I will be killed by my sv if this is the one)

    This is just a noob article to address a problem to a game I know and love. Not even worth a nationwide journal don't worry.

    TBH fuck higher education from me too. They are eating me alive...

    ---------- Post added at 05:39 PM ---------- Previous post was at 05:22 PM ----------

    Thanks for the reply. IMO, first of all, I do not agree that keys are scarce compared to dropped items. Since the total supply of the market largely controlled by the dominant firm (in this case Valve), supply of the items are relatively stagnant. To say that they are not dropped hence they are more valuable is like to say that money(wage) worth more than the input of labour, hence the firm can pay less for it? Think of this situation as such: the players that get the dropped items as labours and the players that want to trade keys for items as the firm. Does that make more sense?

    For your second point: same answer. If you want the item, you either play more or you pay with real currency or virtual currency (including key). So the dropped rate does not actually affect the market price much as it is always available in dota 2 store.

    Third point: exactly. That's the reason baby rosh is valued higher from Valve than other couriers although they have the exact same function. Since Valve already factor in that aspect, and since they are the dominant player in this market, we follow their price and take it as market price.

    Fourth point: again same answer. The total supply of the market does not actually affected by drops from diretide as Valve is still the largest supplier. If Valve feels that oversupplied is happening they will drop their price or face a possible loss / lower profit. Remember all the items are digital items and the total supply is hard to imagine.
  17. InvokerofTime

    InvokerofTime Forum Manager

    Keys are like an exchange rate for money, so if a large supply of items (e.g. from diretide) appear, then keys are going to become relatively scarce. And no, key market is not manipulated by valve, the best way to think of it is by currency exchange rates imo.
  18. ru40342

    ru40342 Well-Known Member

    Keys are exactly like exchange rate for money (I prefer to call it virtual money in dota 2, same as chips in casino). The biggest problem that most people do not get is the total supply of items. Total supply is not about total items owned by demanders, but total items produced by the sellers. Since dota 2 items are digital items, total supply will not be significantly affected by the diretide (especially if you think of the fact that diretide is just around 20 days while dota 2 has been going for more than a year). So all and all the ratio of key to items are hardly affected by diretide imo.

    Just imagine any oligopoly market. Do you see market price getting lower as production continues?

    Lastly, I do not say key market are manipulated by Valve. I am saying the supply of keys are dominated by Valve.
  19. InvokerofTime

    InvokerofTime Forum Manager

    1. normally it takes about 2-4hrs to get one item, in dtide, it takes about 20minutes on average. I have got more than 80% of my items from dtide, (nb i started about 2months before items started dropping)-I have also heard from traders that dtide has dropped the price of items pretty spectacularly.
    2. being digital has nothing to do with it, all it means is that valve can make as many of them as they like with no costs.
    3. I believe we are discussing the secondary market, so valve does not dominate the supply of keys.
    4. there will be more items, but also more players so the price will remain roughly the same.
  20. lanterna19

    lanterna19 Well-Known Member

    This is a lot interesting...add thread to favorites.
    I wanna see how far this will go. Maybe changes will start after this :)