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moonlit-tulip · 2 years ago

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Tales From The Runescape Economy: The Rise and Fall of the Blast Furnace Clans

For all the complexity of its supply chains and resulting market behaviors, the Runescape economy is in many ways very limited. Most significantly, it has nothing resembling lastingly-binding enforceable contracts. One can make whatever instantaneous two-person trades one wants and have a game-mechanical guarantee that both parties will, in fact, give the other what they said they'd give; but there's no similar mechanism for binding a person's future actions.

Because of this, there are many forms of complex economic organization one doesn't encounter in Runescape. There's no enforceable way to short-sell items; as a result, it's hard to turn a profit on a successfully-anticipated price crash, and the market is thus less efficient in updating prices downward than in updating them upward. There's no enforceable way to offer players venture-capital to fund short-term equipment or stat-leveling in exchange for a share of their longer-term profits gained through the aid of that equipment or those levels. Et cetera.

Despite this handicap, though, sometimes Runescape players manage some genuinely impressively elaborate feats of economic organization, to enable productive market activity above and beyond what the trade system and Grand Exchange might straightforwardly seem to enable. The most impressive such feat to have come to my attention, over the course of my time playing Runescape, was the rise of the Blast Furnace clans, which, over their year or two of operation, forever changed the shape of the economy around Smithing in Oldschool Runescape.

1. The Blast Furnace

At most furnaces in Runescape, one can smelt ores (supplemented, in some cases, with coal) into bars, gaining Smithing experience in the process, at a rate of one bar produced per 2.4 seconds. Taking into account the time spent running between the furnace and the bank (withdrawing ores and coal-if-applicable from the bank before running to the furnace, then taking the produced bars back to the bank before withdrawing the next round of ores), it's difficult to produce much more than 1,000 bars per hour, even for those ores such as silver and gold which don't require coal to smelt or otherwise have associated complications that might slow things down. Smelting is thus, under normal circumstances, a relatively slow process.

The Blast Furnace is a unique and specialized furnace which makes smelting far more efficient, both in terms of speed and in terms of resources. Unlike other furnaces, the Blast Furnace can take in an entire inventory's worth of ores / coal simultaneously, and process them all into bars simultaneously, rather than going only one bar at a time. Moreover, when making bars of varieties which require coal, it uses only half as much coal; steel bars made at the Blast Furnace require 1 coal apiece rather than 2, mithril bars require 2 rather than 4, et cetera. And, in the style of the most usable ordinary furnaces, the Blast Furnace has a bank right nearby. Where ordinary furnaces can produce at most 1000ish bars per hour, the Blast Furnace can get closer to 6000 if used at optimal rates.

Offsetting this advantage is a complication: unlike ordinary furnaces, which are permanently operational without requiring any sort of player intervention, the Blast Furnace requires maintenance in order to remain operational. It has components which can break, requiring repair; its internal heat needs to be regulated through a mix of "shovel coke into the stove" and "operate pump to send hot air from the stove to the melting pot"; also, it has a conveyor belt which needs manual pedaling to move the ores into the melting pot. On the whole, then, while the Blast Furnace, operated optimally, is an extremely fast device for smelting, there's a lot of logistical work that goes into operating it optimally.

For a time, there were essentially three major approaches by which people could handle that logistical work and use the Blast Furnace. One was to use the furnace solo, on a server with no one else around, and just eat the time costs of keeping it operational in between rounds of smelting. Another was to jump to one of the standard "everyone who wants to do massed-up Blast Furnace goes here" servers, which were full of many people all trying to use the Blast Furnace, all hoping that someone else would handle the maintenance for them while they go about their smelting. (These servers were, I think, among the more beautiful demonstrations I've seen of the Tragedy of the Commons, somehow managing in many cases to underperform even soloing.) And another was to try to coordinate a group of friends to run the Blast Furnace together on an otherwise-empty server, each taking on a share of the furnace-maintenance work, with sufficient social bonds in place that people wouldn't defect and just make bars without contributing to the maintenance; this was the most efficient among these three options if one could pull it off, but it was difficult from a coordination perspective and wasn't, in practice, something most people would be able to take advantage of very often.

Somewhere around 2014 or 2015—I wasn't active in Runescape in 2014, and wasn't paying enough attention in early 2015 to remember whether it had happened yet, but it definitely happened before July of 2015—a fourth approach was introduced to this field, one which outperformed the others by such a large margin that it shifted the Blast Furnace from an obscure piece of content which sat mostly unused despite its potential over into being one of the economic cornerstones of the Smithing skill: that of the Blast Furnace clans.

2. The Rise of the Blast Furnace Clans

The business model of the Blast Furnace clans most closely resembled the third of the models described above—the friend-group model—but it was depersonalized and taken to an extreme. In place of a friendgroup's members each taking on shares of the furnace-work as a cooperative endeavor while spending their time in between those chunks of work smelting, the Blast Furnace clan model had a much clearer delineation of duties: three furnace-maintainers maintain the furnace full-time and do no smelting whatsoever; arbitrarily many smelters use the very-consistently-maintained furnace at full efficiency, without needing to do any maintenance themselves, in exchange for a modest fee; and one coordinator sits in the middle of all of this, advertising the situation to the smelters, taking their fees, and passing shares of the earnings on to each of the furnace-maintainers. (Traditionally an even four-way split.)

The cooperation between the smelters and the coordinator-plus-maintainers team—which is to say, the part where the former paid the latter a fee in exchange for their services—was enforced, not by bonds of friendship, but by a tit-for-tat strategy on the part of the team: anyone free-riding on the furnace the clan was maintaining would be banned from the clan chat channel, which was where they advertised which server they were set up on at a given point in time; someone who did the free-riding thing once would thus set themselves up to forevermore need a laborious search through hundreds of servers to find where the clan was set up, each time they wanted to take advantage of the clan's services. The expected cost of such a search, in terms of time spent searching rather than smelting (and thus in foregone profits and experience), was larger than the fee for essentially anyone capable of using the furnace at all; thus the incentives pointed strongly in the direction of paying up.

(And, indeed, monitoring for free-riders was another of the central jobs of the coordinators, alongside their advertising and accepting payments and passing profit-shares on to the maintainers. Because that incentive system worked only as long as the "free-riders get banned from the clan chat" rule was enforced, after all.)

So, through the efforts of the Blast Furnace clans—which each generally did their best to keep a furnace-maintenance team running at all times, in order to keep customer loyalty—it became possible for people to use the Blast Furnace at full efficiency, no difficult Tragedy of the Commons-dodging required, in exchange for only a small fee per person.

This, in turn, had major effects on the economy around the Smithing skill more generally: ores and coal became worth more (since smelting them was more viable as a source of profit and/or experience), and bars became worth less (since the Blast Furnace's influx of users was driving bar supply up while simultaneously driving bar demand down (the main use of bars was as a source of relatively-fast Smithing experience, and the Blast Furnace offered that too, siphoning off some of the demand for the bars)). Which, in turn, made profit margins at ordinary furnaces lower and in some cases negative (since ordinary furnaces used up more coal per bar created than the Blast Furnace), feedback-loopishly siphoning yet more people to the Blast Furnace, until it became one of the central economic cornerstones of the Smithing skill.

3. The Fall of the Blast Furnace Clans

...and then problems started popping up. Or, more precisely, one big problem.

As previously discussed, the Blast Furnace requires maintenance in order to run efficiently. The conveyor belt needs to be kept moving; the pipes need to be repaired; the stove needs to be fueled; the air needs to be pumped; et cetera. And, most importantly: the temperature needs to be kept in the proper range. If it's too low, the furnace won't run, and the maintainers will need to pump more hot air in until it's back up. If it's too high, the furnace also won't run, and there's nothing to do but wait for it to drop down on its own.

So, one day, someone associated with one of the Blast Furnace clans had a bright idea: let's send someone to go sabotage our competitors! Someone associated with one of the clans went and started deliberately overheating the furnace-instance being run by one of the other clans. Because, after all, that way, their customers will be incentivized to look elsewhere and potentially come to us, right?

This worked out in thoroughly-predictable manner. Which is to say: the targeted clans started retaliating, and, before too long, the Blast Furnace clans were once again pretty evenly matched in terms of quality-of-product, except that quality was lower, because instead of ~100% furnace uptime, they were now offering only however much furnace uptime they could maintain through the occasional rounds of sabotage they underwent, which, while still very much higher than the uptime one could expect if bypassing the clans altogether, was noticeably sub-100%.

This went on for a while, and the game developers Did Not Approve; while they were fine with the Blast Furnace's prior state as a living example of the Tragedy of the Commons and of profits foregone through coordination-failure, the escalation from mere failure-to-profitably-cooperate up to direct sabotage was too much for them. Soon after the sabotage became a trend, they made an update to automatically kick people who overheated the furnace too much out from the furnace area temporarily; the clans responded by stubbornly continuing to sabotage one another, just with more saboteurs and/or more calculated pacing in order to avoid all getting kicked out too quickly.

Finally, after about a year of this mess, the developers ran a poll: should we add some NPCs to one of the servers who do the furnace-running automatically in exchange for payment comparable to that demanded by the Blast Furnace clans, and who block players from operating the furnace in any way other than smelting with it? (While still leaving other servers with the Blast Furnace unmanned-by-default, for players who want to take their shot at handling the coordination themselves.) The proposal passed with 87.8% of voters voting in favor; the NPCs were added; and, with that, the Blast Furnace clans fell to pieces, unable to compete with the NPCs service-quality-wise since they were subject to sabotage and the NPCs weren't.

4. Now

The Blast Furnace remains, to this day, an economic cornerstone of the Smithing skill. The Blast Furnace clans may have fallen, but their economic impact lives on through their replacement, the Blast Furnace servers. (What started out as a single NPC-maintained Blast Furnace server has now grown to fifteen of them, on account of that one's immense crowding.) The Blast Furnace servers fill much the same economic niche, albeit NPC-run rather than player-run, and with the side effect of doing some gold-sinking since the furnace-users' service fees are going to those NPCs rather than to other players.

For all that the new arrangement might fill the same economic niche and provide a higher-quality user experience, though, I remain somewhat nostalgic for the old days of the Blast Furnace clans, sabotage problems and all. They were one of the most complex bits of economic organization I've seen players set up throughout my time playing Runescape, and while the NPC-run servers may fill the same economic niche and lead to a very similar gameplay experience for the smelters, they lose that complexity, replacing it with a simpler and less interesting "pay coins to NPC and NPC does things" arrangement with no room for non-smelter participants in the exchange.

One day, I hope, the Runescape community will find some new opportunity to build other similarly-complex pieces of economic infrastructure. Ones which lack the "devolving into PvP and thus driving the developers to come in and undercut the player market" failure mode which ultimately sunk this one.

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moonlit-tulip · 2 years ago

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Tales From The Runescape Economy: Experience and Alchemy

In Runescape, as in many games, there exist a variety of tradeable items which are directly useful for the accomplishment of gameplay goals. Weapons and armor and potions and food, to aid one's combat effectiveness. Variously-fancy hatchets and pickaxes and harpoons, to aid one's resource-gathering effectiveness. Teleport items, to aid one's transit effectiveness. All sorts of narrow goal-specific items useful in the accomplishment of specific narrow goals, like box traps for hunting, grapples for terrain-traversal, partyhats for fashion, and so forth. These items vary in price, depending on how difficult they are to acquire; but it is, in general, relatively clear to see how they provide value to their users and how the demand produced by this value interacts with whatever limits might exist on their supply in order to determine whatever their prices happen to end up being.

Other items exist which aren't directly usable, but which serve as raw materials through which usable items can be created. And some of these items' prices are similarly easy to understand. Holy symbols are useful items for prayer and for a few more niche uses; unblessed symbols can be converted into holy symbols; at the time of this writing, the market price of holy symbols is 285 coins, while the market price of unblessed symbols is 82 coins. Holy symbols take small-but-nonzero effort to produce from unblessed symbols, unblessed symbols aren't useful for anything else, therefore they're worth less. So far, so simple.

But other items exist whose prices would appear entirely nonsensical, when viewed purely through this lens. Raw materials worth more than their products, such as gold ore, which has no use except to be turned into gold bars at a rate of one bar per ore: gold ores currently have a market price of 269 coins apiece, while gold bars are only 82 coins apiece. Weapons which, although technically functional, are almost strictly worse than other cheaper weapons: there is, to a first approximation, no situation where a rune longsword would outperform a rune scimitar in terms of damage output, and the two have exactly the same requirements to use, and yet rune longswords' current market price is 18,529 coins apiece, while rune scimitars' is 15,241.

Items with prices of that sort make up a relatively large fraction of the Runescape economy. And underlying them are, to a first approximation, two major forces: experience, and alchemy.

1. Experience

As a person plays Runescape, there are several axes along which their character can grow in capabilities. They can get richer and buy new and better equipment thereby. They can complete quests in order to gain quest-specific rewards, such as access to new areas, access to new magic, access to new items, and so forth. They can get various useful untradeable rewards from different minigames. And so on. Runescape is a large game; it contains many different avenues of advancement.

One of the most central of these avenues of advancement, though, is: they can go level up their skills. Level up Fishing in order become capable of catching more types of fish faster; level up Magic in order to be capable of casting more spells; level up Smithing in order to be capable of making more items with more-useful metals; et cetera. And, in all of these cases, the way to gain experience in a skill in order to level it up is to use that skill. You level up your Fishing by fishing; you level up your Magic by casting spells; you level up your Smithing by smelting ores into bars or hammering bars into usable items; et cetera.

As such, one contributing factor to the value of an item is the question of how much experience that item can be converted to how quickly. Going back to our previous example of the relative prices of gold ores and gold bars: gold ores are worth far more than gold bars. This is because smelting gold ores into gold bars yields Smithing experience, and moreover does so at a pretty fast rate if you're using the right methods. Part of the value of the ore is that it will yield that experience when processed; the resulting bar, although closer to the end-point of the production chain and thus in some limited sense 'more useful', lacks that value, since a gold bar can't be smelted in a Smithing-experience-producing fashion.

Similar reasoning applies to the values of many other raw materials in other production-chains. Leather is worth more than anything that can be crafted out of it, because the crafting process yields Crafting experience. Any given potion's ingredients, if tradeable at all, will consistently be priced higher the potion itself is, because the process of making a potion yields Herblore experience. Many sorts of tree seed are more valuable than anything produced by the trees grown from them, because growing trees is a relatively-fast source of Farming experience. Et cetera.

When exceptions to this pattern exist—when a raw material is priced lower than its product—this indicates that one of two things is happening. The first possibility is that the production yields negligible or no experience, and so this factor doesn't apply; this is the case, for instance, with the previously-discussed example of holy symbols, which yield no experience when being blessed. The second is that the product is in high enough demand, and time-consuming enough to produce, that demand for the end product outstrips demand for the experience produced in its creation; cooked sharks, for example, are worth more than raw sharks, despite the latter being a useful source of Cooking experience, because cooked sharks are high-level healing items in eternal demand by people doing combat-related activities.

Sometimes, though, an item might appear to be mostly or entirely useless as a source of experience, and mostly or entirely useless in terms of its direct gameplay functionality, and yet still be relatively highly valued. Magic longbows, for example, are almost never useful as weapons—magic shortbows, or adamant crossbows, will almost always outperform them in combat effectiveness, while being accessible to players of the same level—and yet, nonetheless, magic longbows are profitable to produce, yielding both Fletching experience and a small profit. (An unstrung magic longbow plus a bow string have a combined market price of 1152 coins, currently; a finished magic longbow, 1295. Stringing magic longbows is one of the standard ways to train one's Fletching, at high levels.) So what's going on here? Why the apparently-nonsensical pricing arrangement?

To answer that, we need to turn our attention to:

2. Alchemy

Runescape contains a great many spells that players can cast, given an appropriately-high magic level. Each spell cast consumes runes (which are consumable items whose main use is spellcasting), and yields Magic experience plus some sort of more direct gameplay effect. Some of these spells are straightforward combat or teleport spells with no market effect beyond "people buy runes for them in order to be able to use them in fights / during transit"; others are utility spells with various more-substantial market effects, such as the various jewelery-enchantment spells (which produce useful enchanted jewelery, thereby drive the prices of unenchanted jewelery in accord with the value of that enchanted jewelery, and from there indirectly drive the prices of gems as well), the spell Bake Pie (which, as an effective means of training Cooking and Magic simultaneously, has caused uncooked pies to be among the most expensive raw foods relative to their cooked equivalents), and far too many others to summarize here.

But the spell with by far the greatest impact on the Runescape economy is a mid-level spell by the name of "High-Level Alchemy". It can be cast on almost any item in one's inventory, at a rate of one cast per three seconds. Casting it consumes one nature rune, five fire runes, and the item upon which it's cast; it yields, in return, a moderate quantity of Magic experience plus a number of coins dependent on the specific item to be alchemized.

Alching—casting High-Level Alchemy—is a popular method for training one's magic. There is active demand for items to alch, above and beyond whatever value might be gained through the item-to-coins conversion itself. And, as a result of this, people are constantly scouring the market in search of maximally-efficient items to alch.

What this means is that an item's alch value—the number of coins yielded by casting High-Level Alchemy on it—serves, functionally, as a soft floor on its market price. An item's market price can wander arbitrarily high above its alch value; but, if it ever wanders more-than-slightly below its alch value, the item will be bought in bulk by alchers eager to make slightly higher net profit per cast.

This is the force underlying the previously-discussed cases of the rune longsword and of the magic longbow. A rune longsword's alch value is 19,200 coins, where a rune scimitar's is only 15,360, and thus the rune longsword has the higher market price despite being less good as a weapon. A magic longbow's alch value is 1,536 coins, and thus its market price can't dip substantially below that no matter how many more magic longbows are dumped onto the economy than people will ever have reason to use for purposes of actual archery. This is also the force underlying large fractions of the game's other items.

(Nature runes, for reference, currently have a market price of 190 coins apiece, and there are various items which make it possible to cast fire-rune-requiring spells without consuming any fire runes, so fire runes' market price is irrelevant here. So both magic longbows and rune longswords are currently alchable at small-but-not-large profit per alch. The longswords are the more profitable of the two as a side effect of being harder to buy at high volume (they're both more expensive and traded at lower volume, relative to magic longbows): buying items-to-be-alched at high volume is useful for alchers, and many of them are willing to pay a premium for it, even at the cost of lower net profit (or even, depending on the current state of the market, dipping into net loss).)

3. Conclusion, Plus an Aside on Inflation

Those twin forces—the pursuit of experience driving up the prices of raw materials whose processing yields experience in reasonable quantities, and the existence of High-Level Alchemy setting a floor on the prices of all items with non-negligible alch values—serve, together, to explain the vast majority of prices of items in Runescape which might otherwise seem oddly high.

(Most of the remainder are explained either by "this item is rare enough that people hoard it as a status symbol" or by "this item is traded at low enough volume that the legibly-tracked market price hasn't had a chance to update down to the true lower market price".)

But, after reading about how alchemy works, you might be going: "wait, the spell directly produces coins? And there are large numbers of people casting it all the time? How is this currency not undergoing constant massive inflation?" And this is a reasonable question, since coins are not, in fact, undergoing constant massive inflation most of the time, but rather only a relatively-slow sedate sort of inflation.

The answer to that is: people sure are producing lots and lots of coins on a constant basis, and this is one of the central inflationary forces within the Runescape economy. But there exist various deflationary forces counteracting it—generally referred to in the community as 'money sinks' or 'gold sinks'—which serve to keep the inflation rate relatively controlled and sedate nonetheless.

The most prominent money sink in Runescape is the Construction skill, which is used for, and trained through, the assembly of houses and of facilities therein. Most efficient methods of training Construction involve making furniture or doors out of planks, which are primarily produced by NPC-run sawmills and secondarily by players using the spell Plank Make; both sawmills and Plank Make consume coins in exchange for the conversion of logs into planks, deleting those coins from the player economy. Moreover, even when employing Construction in a non-training capacity, building fancy accommodations into one's house, many high-level pieces of furniture require various sorts of expensive supplies which can be acquired only via purchase from NPC shopkeepers, similarly deleting those coins from the economy. And there are a few things, such as the hiring of monsters to inhabit one's house's dungeon, which go a step further by consuming large quantities of gold directly, no shopkeeper-based indirection layer required.

(One notable high-level furniture item is a gold sink for one's kitchen. As in, a literal kitchen sink made of literal gold, costing slightly over 100 million coins in supplies. It's not useful for anything except looking pretty and being a money sink; but I very much appreciate its existence as a thing-that-can-be-built, nonetheless.)

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moonlit-tulip · 2 years ago

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Tales From The Runescape Economy: The Trade Limit

The year was 2007, and the gold-farming industry that had built up around Runescape was running out of control. Huge swarms of bot accounts, with game subscriptions paid for using stolen credit cards, were set loose to engage in every viably-automatable activity the bot-makers could figure out how to turn a non-negligible ingame profit on. The coins accumulated by those bot accounts were then sold, in exchange for real-world-money, to players who wanted to buy stuff ingame but didn't want to bother with the parts of gameplay that would have enabled getting those coins on their own.

This had a substantial negative effect on the game's economy and on the gameplay more generally—the bots' item-farming was devaluing most of the items it generated, and the swarms of bots made it hard for non-bot players to engage with the relevant sectors of content—but the more serious problem laid outside the game: the part where the bot accounts were being funded with stolen credit cards was putting the game's funding in danger. The banks which handled credit-card-processing for Jagex—the company which developed and maintained Runescape—took note of the unusually-large number of chargebacks on payments to Jagex, and responded by substantially raising their processing fees and threatening to cut Jagex off from their services entirely if they couldn't solve the issue. To protect their profits and thus their ability to keep running Runescape at all, Jagex had to do something to break Runescape's gold-farming industry.

For years, they'd been doing their best to ban bot accounts, as well as anyone they could identify as a participant on either end of the "exchange real-world money for ingame money" transactions. But their bot-detection tech wasn't nearly effective enough to prevent the bots from continuing to swarm throughout the game, and it is, of course, very hard to determine via purely ingame monitoring whether a given bestowal of coins from one player to another was or wasn't motivated by external-to-the-game financial transactions. Furthermore, Jagex's owners at the time had strong philosophical convictions to the effect that real-money-for-ingame-benefit transactions were unfair, fun-reducing for the playerbase as a whole by way of devaluing otherwise-impressive financial accomplishments ingame; thus they were unwilling to get into the gold-selling industry themselves and destroy the third-party gold-farmers by undercutting them.

Instead, they set out to alter the game's economy in such a way as to prevent substantially-imbalanced exchanges between players. If the gold-farmers couldn't give players the gold they'd accumulated, after all, they would no longer have a product to sell, and would be forced to give up and move into some other line of business. So, starting in late 2007, a series of game updates were made to systematically restrict the means by which players could transfer items to one another.

First, the Grand Exchange was added to the game, to serve as a source of legibility on items' market prices. Instead of allowing people to offer to buy/sell an item for arbitrary prices, as it now does, the Grand Exchange at the time of release was far more restrictive: people could offer to buy/sell for any price within 5% in either direction of its current estimate of the market price. An item with a market price of 100 coins, for instance, could be bought/sold for between 95 and 105 coins. (Also, there were per-item price ceilings and floors on many particularly-heavily-traded items; but this was largely irrelevant to the task of preventing uneven trades, and instead was just an artifact of some sort of misunderstanding on Jagex's part regarding what would make for a healthier market.)

Second, the game's main PvP system—under which people in a large region called the Wilderness could attack one another, and anyone who successfully killed someone else there would gain all items dropped by their target on death—was removed and replaced with a variety of other systems. Of those other systems, only one kept the Wilderness's "people drop the stuff they're carrying when they die and whoever kills them gains it" pattern, and that one was engineered to make it very difficult for a pair of coordinated players to seek out and meet one another for a fight without a substantial risk of being intercepted and killed by other uninvolved parties.

And third, the big one, instituted right at the beginning of 2008: a limit on inter-player trading was instituted. When trading with one another directly (as opposed to via the Grand Exchange), the sum Grand Exchange market prices of the items offered by each trade participant had to be within a narrow range of the sum prices of the items offered by the other participant (initially 3,000 coins, increased over the course of several subsequent updates to 60,000) or else the trade wouldn't be allowed to go through. Even within the allowed range, the game would remember imbalanced trades a person had performed for the next fifteen minutes, rate-limiting attempts to bypass the limit through use of multiple successive small trades. This same limit also applied to stakes at the Duel Arena, to transference of items via dropping them on the ground for others to pick up, et cetera.

These limits were successful at impeding the gold-farmers of the time, and thus successfully saved Jagex's finances and at least somewhat dampened the bot-swarms that plagued the game. (Although people botting on their own personal accounts remained a rampant problem for several years afterwards, until Jagex's bot-detection tech was given a big upgrade in late 2011.) However, this came at the cost of substantial economic damage, as the trade limit and the Grand Exchange limits together served to massively limit items' market liquidity; many new market problems resulted from the trade limit's implementation and persisted until its removal in early 2011.

In this post, then, I'll chronicle a few of the particularly-interesting market behaviors which emerged during the three-year era of the trade limit, with a particular focus on three areas: bad initial prices on newly-introduced items, price-manipulation clans, and junk-trading.

1. Background: Dynamics of a Trade-Limited Market Bubble

Let's start with some exploration of the basic market dynamics the trade limit brought about, by way of a question: with the trade limit in place, what happened when an item's true price—its 'street price', in the parlance of the time—diverged from its market price as tracked on the Grand Exchange?

If the street price was within 5% of the market price, there wasn't any problem; people could just pass it around at the street price unimpeded via the Grand Exchange, despite the trade limit. If the street price was substantially higher or lower than the market price, though, then problems arose. What problems arose, exactly, depended on which of 'higher' or 'lower' it was; but problems arose either way.

If the street price was substantially higher than the market price, then the item was very hard to buy and very wasteful to sell. Inevitably, there were a few unwise or impatient sellers each day who were willing to sell even at an artifially-low price, and so the item's market price did crawl up 5% each day and a few lucky buyers were able to get the item for cheaper-than-street-price through that mechanism. But many sellers instead waited for the price to rise, as it predictably was going to. This limited supply; thus, many buyers ended up stuck unable to acquire the item even at the maximum price they were allowed to offer for it. Everyone suffered, and no one got what they wanted, until the item's market price caught up with its street price and ordinary trading resumed.

If the street price was substantially lower than the market price, meanwhile, the converse happened: the item was very wasteful to buy, and very hard to sell. It still dropped 5% per day thanks to the unwise and the impatient, but many buyers waited for its market price to finish crashing before buying. This limited demand; sellers were stuck unable to find buyers; and, once again, no one got what they wanted until the market price caught up with the street price.

These patterns were common recurring ones, all over the market, throughout the era of the trade limit. Sometimes, players would figure out some clever new use for an item, driving its price upward; sometimes, developer comments about upcoming updates, or player discoveries about recently-added content, would lead to massive shifts in items' values; et cetera. Any time anything along those lines happened in a substantially street-price-altering way to some item, these problems would come up; different permutations of these problems tie into all three of the upcoming sections.

2. Bad Initial Prices

Runescape is a frequently-updated game. New items are introduced over time at a non-negligible rate. Before the trade limit, this presented zero problem for the economy; buyers and sellers would estimate how much they thought the new items were worth, if their estimates overlapped then transactions would happen, opportunities for arbitrage would be exploited, and pretty quickly the items would have widely-agreed-upon prices and could operate normally in the market from there.

The trade limit, though, went and messed all of that up. Suddenly, instead of the initial price on an item being a function of a decentralized network of players trying to make good trades based on their own estimates of the item's value, it was set by a single central source: whatever number Jagex set its initial Grand Exchange market price to, when adding it to the game. And, for all that Jagex tried their best to do vaguely-sensible price estimates for the items they released, they sometimes got those estimates really egregiously wrong.

Probably the most memorable example of this error came with the release of a weapon called Dragon Claws. Dragon claws were a rare drop from a newly-released relatively-challenging high-level monster. As a weapon for ordinary sustained use in combat, dragon claws were unimpressive, following in the footsteps of all the lower-level claw weapons that came before them. Unlike those lower-level claws, however, dragon claws had a very good special attack: four approximately-simultaneous hits of varying strength, with expected damage more than twice that of an ordinary attack, usable twice in quick succession before needing a 5-minute recharge. This special attack was very solidly among the best in the game, for players seeking to deal out large quantities of damage quickly.

And the initial price they set, on this difficult-to-acquire weapon with a top-tier special attack, was 150,000 coins.

For months following the release of dragon claws, every day, a few unwise or impatient players would sell their newly-acquired dragon claws on the Grand Exchange for the maximum price; which is to say, for that day's market price plus 5%. Every day, the market price of dragon claws would be 5% higher than it was the previous day as a result of those transactions. This process started the day dragon claws were first released; this process ended only months later, when dragon claws' market price finally peaked at about 40,000,000 coins before re-falling and stabilizing around 25,000,000. Throughout that time, dragon claws were almost entirely inaccessible to ordinary buyers; the only three ways to get them were to be one of the immensely-lucky people to get them underpriced via the Grand Exchange, to get them directly by fighting the monsters which dropped them, or to somehow talk someone into trading them to oneself for far less than the street price.

(Junk-trading, which I'll be discussing below, would have allowed for mitigation of the problem, but as far as I'm managing to recall it hadn't yet come into its own as a well-developed social institution as of dragon claws' release. Perhaps some early pioneers were already using it in order to sell their dragon claws at a more reasonable rate; but, if so, I have no recollection of it, despite having actively followed the Dragon Claws situation as a whole.)

Eventually, the market stabilized, dragon claws became accessible via ordinary market means, and everyone was happy except for all the people annoyed at the changes dragon claws' special attack made in the game's PvP meta. But. You know. It took months, for a process which would have taken somewhere between a few hours and a few days pre-trade-limit. And while this may be a particularly extreme example, similar things happened pretty routinely on a smaller scale with new items' releases. Newly-released items were among the more common subjects of the sorts of market bubbles discussed in the previous section.

(To be clear: the issue happened in both directions, not just the "item starts too low" direction. Dragon claws happened to start out underpriced; but, for example, rock climbing boots (which were a whole other economic fiasco, in ways which would be too much of a tangent to cover here, since the core of the fiasco there was not trade-limit-related) were started off overpriced, added to the game at a price of 75,000 coins before immediately crashing down to 45,000 in a similar if less-prolonged sort of process.)

Having, between last section's summary and this section's deeper dive, covered most of the major sources of ordinary accidentally-emerging market bubbles, let's now move on to the perhaps-more-exciting topic of deliberately-manufactured market bubbles!

3. Price-Manipulation Clans

With the illiquidity of the market, there was an opportunity for a very interesting sort of market-manipulation-centric pyramid scheme to emerge: deliberate manufacture of market bubbles by coordinated groups of players, to the profit of those in charge and to the detriment both of those below them on the pyramid and of those uninvolved parties who happened to want to purchase items from relevant corners of the market.

In theory, as seen from the viewpoint of a credulous low-level participant (in the "low in the pyramid" sense, not in terms of stats), the scheme ran like this: a bunch of people (including you!) are coordinating to buy a useful item at maximum price in bulk, thereby driving its market price upward while also giving you a large supply of the item. At a certain agreed-upon date, the bunch of you will then go ahead and start selling your supplies of the item, at the now-highly-inflated price, to those outside parties who are trying to buy the item in order to use it rather than in order to market-manipulate with it. Mass profits ensue for the market-manipulators to the detriment of those outside parties, with the side effect that as the market-manipulators dump their stock the item's price will return down to normal. Repeat with a new item. Also, if you recruit people to join in on the scheme, you get rewarded with a higher rank in the price-manipulation clan that's engineering it, and higher-ranked members get to be told earlier than lower-ranked members what the next item is and when the dump date is, so they can accumulate more of it before the dump date, be better-prepared to dump right on schedule, and thereby turn an even bigger profit.

(I'm possibly misremembering details of the ranking system? In particular, I'm fuzzy in my recollection of whether the "higher-ranked members get earlier information on dump dates" bit was standard in the major price-manipulation clans. But I've got the big picture right here, I think, even if the details are off.)

...this scheme, as described, is, of course, nonsense. Negative expected value, in a way probably made clearest by an example where there's just one person involved, manipulating the price of an item traded at low enough volume that one person can manipulate it: for every day's buying-up of the item you do in order to drive its price upward, you only get a day of sales at that newly-increaed upward-driven price before it re-falls, and you'll be selling at lower volume than you bought at, because no one wants to buy a clearly-crashing item if they can instead get away with waiting for the crash to finish first. (This isn't an efficient liquid market, after all; an item can be predictably going-to-be-priced-lower-in-a-day without having its price thereby drop immediately, and it's sensible to avoid buying such items unless one needs them particularly urgently.) So you'll end up turning a loss, needing to sell off decent chunks of your built-up stock only after the price is finished crashing; the actual winners, if you try that sort of market-manipulation, will be the third parties who get to sell to you at higher-than-usual prices while you're driving the price upward.

The real scheme, as viewed from above, didn't look like that nonsensical negative-expected-value story that the low-level members were told. The real scheme looked like:

Buy up a whole bunch of some useful item.

After a few days or weeks, tell the lower-ranked people to start doing the same; their influence starts driving the market price up a bit.

After another few days or weeks, tell the people still lower-ranked, the new recruits who have yet to bring in many recruits of their own, to start doing the same; their influence starts driving the market price up a lot.

Start selling all your stockpiled copies of the item at the new now-higher maximum price, where they'll be picked up by said lower-ranked members. In the meantime, start spreading word down the ranks of the Official Dump Date for the item, aimed to land a few days or weeks after you expect your own stocks of the item to be fully sold off.

When your stocks are emptied, start the scheme from step 1 with a new item, aiming to have that new cycle's second step land right around the dump date from this cycle.

In the days following the dump date, comfort all the low-level recruits who predictably got left with a large pile of expensively-purchased now-crashing item which they can't sell, telling them that this was a fluke and/or a product of sabotage by malicious mid-ranked clan members who dumped earlier than they were supposed to, and that surely things will go better on the next go-around.

...so, at their core, the price-manipulation clans were essentially a very large and elaborate piece of social infrastructure to funnel money up from the low-level victims to the high-level management. But, not content to mess things up only for those who made the mistake of getting involved, they went a step further by messing things up for the entire playerbase. Because, remember, they weren't just buying out items no one used, but rather buying out useful items. Anyone who wanted to buy the items for their ordinary purposes would be out of luck for as long as the manipulation was going on, stuck buying at inflated prices if they were lucky, or potentially unable to buy at all if the market was sufficiently swamped with buy offers from the price-manipulators pre-dump.

(Or, as sufficiently rich players eventually learned to do, made to keep large stockpiles of all useful items which seemed like plausible price-manipulation targets pre-banked, so that when the price-manipulators hit those items they'd be able to ride through the next few weeks on those stockpiles before restocking afterwards once they'd finished crashing. But this, too, was an expense: the expense of having some fraction of their capital tied up in backup item-stockpiles that only occasionally got used, rather than in liquid form where it could be turned towards other ends as convenient.)

Technically, this setup was against the game's no-scamming rule. In practice, though, the price manipulation clans' approach, wherein they scammed their targets through complex distributed economic processes rather than through more straightforwardly legible "talk person into making an unendorsed trade / unendorsedly going into a high-risk area while carrying valuable stuff"-type processes, left them safely out of the line of fire of Jagex's enforcement patterns; thus the price manipulation clans ended up being mostly unimpeded by the anti-scamming rule, and kept on doing their thing right up until the end of the trade limit. (At which point they rapidly folded, unable to keep up a convincing pretense of profitability for their low-level members in the face of a properly-liquid economy where there was no maximum buy price on items and where price crashes could happen in a span of hours instead of being drawn out over multiple weeks.)

4. Junk-Trading

Over the course of the last three sections, we've covered a range of market behaviors all following the general theme of "items' street prices and market prices are mismatched, and this causes problems". Let's now turn to the natural next step: if you're an aspiring trader in the era of the trade limit, how do you work around these limitations? If you want to buy something like dragon claws without waiting for its street and market prices to reach parity, for instance, what can you do to acquire it via mutually-beneficial trade, given that the trade limit prevents direct trade of the item at its street price?

The answer to this is a practice which came to be known as 'junk-trading'. It was a highly inconvenient kludge, and nonetheless a vast improvement over the strict constraint of the trade limit.

The core question which leads into junk-trading is this: suppose I want to buy some item whose street price is twice its market price, and which is expensive enough on an absolute scale that the difference between the two doesn't fit into my 60,000-coin unbalanced-trade allowance. One option is for me to wait two weeks while its market price crawls upward; but let's suppose I'm impatient. And let's suppose that I don't have any conveniently-generous friends who will sell the item to me for cheap; if I want the item, I need to pay for it in full. How can I do this, under the trade limit?

The core insight of junk-trading is this: at any given point in time, different items will be differently-misvalued, market-price-wise. Some items will be overvalued and others will be undervalued, simultaneously. To sell someone an undervalued item at a fair price, then, what you can do is pair it with an appropriate price-differential's worth of overvalued items (the titular 'junk', unsellable under normal circumstances for standard "selling overpriced items is impractical under the trade limit" reasons), selling the undervalued and overvalued items together as a bundle whose net market price is accurate even if none of its components' prices are.

Let's build a concrete example. Suppose I want to buy dragon claws, worth 30,000,000 coins according to current street price but thus far only 10,000,000 in terms of legibly-tracked market price. (This is possibly ahistorical; I don't remember exactly when the community figured out junk-trading, and it was plausibly only after the dragon claws incident was already resolved. But let's suppose it nonetheless, for the sake of example.) We can't just trade straightforwardly, or I'll only be allowed to buy the claws for a third of what the seller and I agree they're worth. And let's suppose that, in the meantime, price-manipulation clans have been doing their thing with prayer potions, leaving prayer potions recently dumped with a market price of 20,000 coins apiece while everyone knows their true value they're likely to crash back down to is about 10,000 coins apiece. All that needs to happen, then, to facilitate a fair trade, is this: the seller offers me dragon claws (market price 10,000,000 coins, street price 30,000,000) plus a stack of 2,000 prayer potions (market price 40,000,000 coins, street price 20,000,000). I offer, in return, a stack of 50,000,000 coins. And the trade goes through, as a genuine trade of 50,000,000 coins worth of value, even if the market prices happen to be misleading regarding how that value is distributed between the items.

This example also serves nicely, I think, to demonstrate why I say that junk-trading, despite its usefulness, was a horribly-inconvenient kludge. Because look at all the extra trouble that went into that trade, relative to the more straightforward trade that would be possible absent the trade limit.

For one thing, in that example, I needed an extra 20,000,000 coins of capital in order to be able to perform the trade; the need for junk-trading adds overhead to transactions, as compared with the slimmer junk-free transactions on items with accurate market prices (wherein no more capital is required than the value of the item being purchased).

And, for another thing, the player selling the claws needed to acquire those prayer potions somehow. The nature of junk-trading was that which items qualified as junk was in constant flux. Last week's junk would soon finish crashing and return to ordinary market status; identifying next week's junk in advance was a matter of speculative investment, of the sort which, if one could do it reliably, could also be done to more directly turn a profit, no junk-trading required. Thus the only two ways to end up with junk for junk-trading were being on the wrong end of a market crash (with junk-trading serving as a way to offload the crashing items before they finish their crash) and engaging in other junk-trading (I, having acquired those 2,000 prayer potions, could then proceed to use them as junk in my own junk-trading, if I preferred that over waiting for them to finish crashing and become salable thereby).

...and nonetheless, despite all that kludginess, junk-trading was still a massive boon to the economy. Because it really did enable something sort of vaguely resembling healthy market liquidity, at least among those traders able to keep a hold of sufficient junk supplies to engage in it on a routine basis.

5. Conclusion

The era of the trade limit was interesting. And, for all that I very much mean that in the "interesting times" sense of the phrase, for all that I'm very thoroughly glad that the trade limit is now far in the past and will, if all goes well, never return... well, it was, also, interesting in the fun sense. Fun to look back on in retrospect, to enjoy the elaborateness of its economic effects.

I don't know, exactly, what it was that changed between 2008 and 2011 to make the removal of the trade limit economically viable for Jagex. But, whatever it was, I hope those changes hold up forevermore, and that, for the remainder of my time as a player of Runescape and as a fan of its economy, I'll be able enjoy my memories of the trade limit as just that: memories, never again to be repeated in the present day.

#Archive #Runescape #Economics #Infodump #Tales From The Runescape Economy

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