Mudflation

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Mudflation is an economic issue that exists only in massively multiplayer online games. Mudflation occurs when a more recently acquired or introduced item makes an existing item lose significant value. This is most common when a game releases a new expansion, as expansions tend to have better items.

There are also times when a game has created its own currency to facilitate trade. A form of electronic currency is used between players to buy and sell goods or services. An exchange rate between this electronic currency and a real world currency, such as the United States Dollar, often determines the valuation of the game currency from players buying and selling the game currency for US Dollars.

Problems with the fundamental economic model of the game start to become apparent when a continuous decline in the valuation of the game currency never seems to end. Day after day, month after month, the valuation of the game currency drops, which usually leads to mudflation in the economy. Often the problem can be traced back to the game owners/designers, who have set up a policy to give away the game currency to its members as a game function, with little to no way to actually remove money from the economy. This policy causes an ever-increasing amount of game currency in circulation, leading to more game currency being sold and forcing the price down. One example of this decline is with the Linden Dollar, used in the game Second Life

In August/September of 2004, the exchange rate between the Linden and US Dollar was about US$5.80 for 1000 Linden Dollars. As of February 2006 (18 Months Later), the exchange rate has declined to US$3.57 for 1000 Linden Dollars, almost a 40% decline in value. A current valuation snapshot can be found here: LindenX Graph.

Not all virtual economies experience mudflation though. Although most currencies do show a steady decline in the value of their currency, World of Warcraft has actually seen an increase in the value of Gold over time according to GamePriceWatcher.com which provides historic graphs for many virtual currencies.

The word is a portmanteau of mud and inflation. The term became popular during the height of the MMORPG Everquest's dominance, coming into common usage after the release of the Ruins of Kunark expansion. Many people believe its origin lies with one area within the expansion distinguished by a large mud-hole that became a popular place to farm money (see farmer (gaming)). Its actual origin was many years prior with MUSH -style games (commonly referred to as "MUDs" or Multi-User Dungeons by their players) that also suffered from the same currency supply problems.

[edit] Money sinks

Money sinks are features of the game designed to combat mudflation by removing money from the game rather than adding to it. For most games, every time a monster is killed some money and/or an item (that can often be sold for money) is created out of thin air. This event happens over and over, thousands of times every day and is the major contributing factor to mudflation. Money sinks are designed to permanently remove some of this money from the game to combat this effect.

Some examples include:

• Buying upgrades from the game;
• Buying food, potions and supplies from the game that will be consumed during play;
• Buying services from the game such as healing, item repair, transportation throughout the game world, or storage space (or storage time) for current or extra items;
• Selling items to NPC "pawnbrokers" who resell them to other players at a substantial markup.

For example, in Dungeons and Dragons Online, players can mail items to other characters, have curses removed, or gamble with NPCs, all for an appropriate fee.

Final Fantasy XI reversed its inflationary trend by cracking down on gil farmers that were involved in RMT (Real-money trading). After many months of stability, trading prices began rising quickly, with the cost of most items doubling or tripling around the end of 2005. With many players complaining about their decreased buying power due to the inflation, the game operators decided to eliminate hundreds of RMT players. Without a reliable source of in-game currency, internet sellers of currency had to raise their prices. Also, a great deal of currency was removed from circulation in this process. Within one or two months, most trading prices fell back to their previous equilibrium.

[edit] Dynamic money sinks

One shortcoming of many money sinks is that they can't keep up with rate at which the players create money through normal play, so mudflation, while slowed by the sinks, eventually takes over. One idea is to program the game to ratchet up the cost of money sinks as the supply of money goes up, in hopes of finding a homeostasis for money coming into the game and money going out. The challenge of dynamic money sinks is that care must be taken to make sure new players aren't priced out of the market for virtual goods and services needed to play the game effectively. World of Warcraft uses a repair system to act as a Dynamic Money Sink. For a starting character, repair costs are very small. As the character progresses, repair costs get more expensive to counter the increased money gain. Another example of a Dynamic Money Sink in World of Warcraft is the fee charged to use the auction house. A percentage of the sale price on all auction house purchases is taxed by the game, removing that money from the system. Because it is a percentage, in times of inflation more money will be removed from the system, helping to curb the inflation.