Economics

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This is a funny subject to bring up in a video game, but if you're going to do Manufacturing, or any Industry activities generally, you're going to bump into the limits of the economic model of EvE. The game developers work hard to maintain a balanced economic system -- they have a professional economist on staff, and publish quarterly economic reports -- but there are real limits to what they can do.

The More-or-Less Official View

The game developers tend to explain EvE's economics like this:

New Eden is a massive world with a huge population forming a capitalist market. This means there is very limited state controlled (NPC) production of any kind. Most items are manufactured by players from minerals mined by players and sold in a thriving market.

In practice, things are nowhere near that simple.

The Messy Reality

OK, most items are manufactured and sold by players -- with certain important exceptions:

• Skillbooks (seeded daily to school stations or through LP stores)
• T1 BPOs (similar to skillbooks)
• Datacores (used for T2 and T3 research; obtained in a time-limited way from R&D agents/missions).
• Containers (seeded to stations).
• Meta-0 through Meta-4 modules (loot from missions).
• Officer/deadspace modules (loot from missions).

Faction items (Caldari Navy Raven, etc.) are a mix of player and NPC production -- some items can be purchased through LP stores as blueprints.

Note that the only things that are exclusively player-manufactured are ship hulls, and T2 and T3 modules.

Note that the supply of the last 4 items on the list is generally constrained by two factors: (a) how many missions are run, and (b) how often the item is provided as mission loot. More missions run leads to more stuff available for sale, without any manufacture being performed. Skillbooks and blueprints appear to be sold in a manner that maintains price stability and high availability, which is relatively simple because these are monopoly items (with zero manufacturing cost).

NPC Production, or mining a better iPod

The wide availability of meta-0 through meta-4 modules is viewed by many as a major economic problem in EvE, since any of these are equivalent or superior substitutes to T1 manufacture, which produces meta-0 items. Indeed, many meta-4 modules are superior to the T2 variants of the same item. Since lots of people run missions and sell the loot, the inferior manufactured T1 item price plummets. Eventually, it's more profitable to reprocess the item into its component parts -- which means missioning is now a substitute for mining.

By analogy, imagine you could manufacture an 8GB iPod, but everyone in your city could dig in a city park and mine an iPod, up to 20GB, in a few minutes. Manufacturing iPods might become totally impractical -- and people might start breaking iPods down to get plastic and batteries.

Which is what happens in EvE, roughly speaking.

Most T1 manufacture actually destroys economic value in a large part of the EvE universe.

Ship hulls are one of the few exceptions here, since there are vanishingly few ships given out as mission loot. Also of note are items which have no meta 1-4 variations, offering only T1 and T2.

Inefficient Markets

Eve's population and markets are huge and well-developed for a video game, but in real-world economic terms, the markets are small, fragmented, and highly inefficient (in the technical sense). They're also subject to the equivalent of massive disruption by the game developers, which you may equate to the state or to acts of God. Hauling as a career will let you exploit and correct some of those inefficiencies, and this is the basis of the station-trading profession -- so be aware of the ways in which EvE's markets fail, because that's where you'll make your money. Consider using external sites like Eve-central, that can help you discover a lot of trading and hauling possibilities.[1]

Why inefficient markets are good for you

• Hauling is a potentially lucrative career -- bring stuff to where people will pay for it. Create markets where some things are not offered (did you know that each skillbook is seeded only in a few stations?)
• Move packages for other using hauling contracts
• Station Trading lets you arbitrage your time against other people's convenience -- if you have what they want, they won't care that you picked it up more cheaply last week.

God made more rocks; or, why the price of tritanium crashed

The economics of manufacture can also be complicated by game decisions. CCP mounted a major campaign against macro miners in the winter of 2009. This would ordinarily raise mineral prices, as less is being mined. They tried to compensate by creating more veldspar rocks per belt in highsec systems, and overdid it. The price of tritanium (refined from veldspar) crashed from around 4.1ISK per unit to 2.4. Now, this demonstrates that the market will respond properly to availability -- but since developer decisions drove the price change, it also demonstrates the vulnerability of the system to external forces.

Market Manipulation -- If you can't find the sucker at the poker table...

Eve's markets are fragmented and small (with the possible exception of Jita). This means that there can be considerable spread between buy and sell orders, and that a small number of orders may move the market in a big way. Even in Jita, it's not uncommon to see that prices of certain high-value items move over time in a wave-like manner. What's happening is that someone is driving the market -- buying out low-priced items and reselling the items at a higher price. Eventually, they let the price drift back to lower levels, then start buying again. End users of the item, who may only buy once, won't want to wait, or won't notice the pattern.

Real World Concepts to Know

Opportunity Cost

Opportunity cost is an economic principle that defines the cost of doing something as the value of what you could have done instead, but now cannot. The greatest example of this in Eve is to debunk the myth that “minerals I mine are free”. Because the minerals used to manufacture could have been sold on the market instead, they should always be valued at their respective market prices, regardless of the source.

Some players with high skills make significant ISK by buying modules from players not aware of this principle, reprocessing them, and selling the minerals.

This also applies to production chains such as PI and T2 manufacturing. Frequently one can make more ISK by manufacturing lower level PI products or T2 components (such as graviton pulse generators used in T2 scourge missiles) than by completing the production chain.

Opportunity cost is most frequently described in currency, but always remember that the greatest cost of any action is TIME.