Tuesday, 29 November 2011

Faucets, Sinks & Pumps - Balancing the Economy pt 2

In ecology, we have the concept of the water cycle. The short version is: water evaporates from the ocean, condenses into clouds, the clouds get too heavy (or hit a mountain, etc) and fall out of the sky as rain. The rain flows downhill, starting as trickles here and there, gathering into creeks, flowing into streams, then rivers, then eventually flowing out to the ocean, where it once again evaporates.

In EVE Online we have an “ISK cycle”. There is no huge pool of ISK from which some evaporates, but we do have ISK faucets in the form of CONCORD bounties on NPCs, insurance for ships destroyed, etc: faucets are like rainfall, where the ground is the EVE economy and the rain is the ISK. There are ISK sinks in the form of sales taxes, broker fees, alliance sovereignty fees, loyalty point stores, etc: sinks are like the ocean: the fresh water flows out there and is never seen by the land again.

In the real world, water will naturally flow to the ocean due to the force of gravity. In EVE Online, ISK only flows when there is a difference in potential represented by a person having a need or desire that can be fulfilled by exchanging ISK — the ISK flows "downstream" to the supply-side, while the needed or desired thing "flows" to the demand-side: the nearest equivalent in our water-cycle analogy is that water flows down while gravity flows up. Or something. These differences in potential are the driver for activities such as PI, manufacturing, invention, mining, etc. These activities are ISK "pumps": the activities themselves do not produce ISK, but ISK will come to the miner to pay for the ore they've mined, ISK will come to the inventor for the useful T2 thing they've invented, and so forth.

When adding some new activity to the EVE, the game designer has the choice of making this activity an ISK faucet, ISK sink, or ISK pump.

Here's an example of a situation: let's say we're adding an NPC encounter (yeah, I know). We can choose to reward the player with ISK as a bounty: this is an ISK faucet. We could choose to reward the player with LP: this is an ISK sink. We could also choose to have the NPC wreck drop objects such as modules, tags and salvage. These items are ISK pumps: someone else will buy the tags from us in order to pay for items in an LP store. Someone will buy the salvage and modules from us to use in manufacture. Of course modules are evil because they are a non-mining source of minerals, but that's a different story to the ISK cycle one that we're exploring in this post.

With incursions (my pet peeve for the moment, slightly ahead of off-grid boosters, but that too is a different story), the game designers opted to leave out the ISK pump items: Sanshas Nation NPCs drop no loot, and produce very poor salvage. The rewards are LP and ISK, almost in the appropriate proportions to spend in the CONCORD LP store. Items from the LP store represent an ISK faucet traded for an ISK pump: ISK is spent, but much more ISK is traded when the item is sold. The LP only represent an ISK sink when they're spent though.

Now it's all well and good to have this vocabulary of "faucets" and "sinks" and "pumps", but there's something missing from that. Go grab an atlas and look for Brazil. Find the Amazon river. You'll notice something interesting about that river: mainly that it is very long, and secondly that it has a huge catchment area (i.e.: Brazil). This is common amongst rivers around the world: they have a catchment area, tributaries, and a mouth or delta feeding out to the ocean. That is to say, the river part of the water cycle (which I'm using as the analogy for the ISK cycle) has geography. The water faucet is geographically separated from the water sink.

One example of the geographically separated faucet and sink in EVE happens in the mineral flow: we have Arkonor, Bistot and Crokite exclusively in null sec. They are mined and refined to minerals which are then hauled to hisec and sold for ISK (that is of course a simplified version). The minerals are worth selling because there is no other source of them. That is to say that the geographical separation between the point of supply and point of demand ensures that this particular ISK pump has a huge difference in potential, expressed as ISK.

Another example of a geographically separated faucet and sink is dog tags. Many missions involve killing members of an empire faction. These ships have no CONCORD bounties (obviously), but drop tags. You might run missions against the Gallente in deep Caldari or Amarr space, and end up with a supply of tags. These tags will be used in LP stores or they might be bought by NPC corporations. The individual pilot might not want to exert the effort to deliver the tags to the appropriate station, so an opportunity opens up for someone else to put up a buy order in popular missioning stations, thus introducing another ISK pump. The further away the stations are where these tags can be traded or sold, the higher the incentive to sell the tags in the mission stations instead of cashing them in.

So for every ISK pump, one factor which influences its potential to shift ISK between wallets is the geographical separation between point of supply and point of demand of some item that can be bought and sold.

Now imagine two countries. These countries are more or less equal in most respects: people do the same kinds of work, get similar salaries, pay similar rents, etc. There is one major aspect in which these two countries are different though. In one country, there are cake shops everywhere. You can't walk a hundred metres without finding another cake shop. Cakes are pretty cheap in this country, to the point that people routinely feed half-eaten cakes to their dogs and chickens. In the other country, there is one cake shop. It turns out that this one cake shop is in the exact centre of the biggest city in the country. In fact, that city grew where it is and as big as it is because everyone wanted to live close to the only cake shop in the country. Cakes in this country are expensive. There are specialist cake cutters whose main income is derived from very skilfully and artfully cutting cake at parties. There are specialist cake transporters who engage in the hazardous task of transporting cake from the cake shop to the outer edges of town, where entire neighbourhoods will pool funds to buy a single cake, allowing the participants a wafer-thin slice of this luxury item. People have come to blows over the last slice — nay, the last crumb — of cake in a household.

I use cake in this example because most people like cake. In EVE Online, the “cake” is any commodity that is in demand. If there is a lot of the stuff, the stuff will be cheap (e.g.: tritanium). If there isn't much of the stuff, people will have wars to get some (or to be in control of the source), for example technetium. That is to say: scarcity is also a determining factor in the value of a good. Thus scarcity also determines the potential to shift ISK between wallets, thus the power of a particular ISK pump. In some cases, scarcity can be artificially introduced: the prime example is the Goonswarm's blue ice interdiction.

My last example of an ISK pump value generator is simply the volume of an item that can be moved. Some items are very valuable because they are scarce: you will only need to sell one Caldari Navy Invulnerability Field to make about 500M ISK on the sale. Conversely, you could sell about 200M units of tritanium to make the same amount of ISK. Just because an item has little value by itself, doesn't mean there's not a profit to be made: when it comes to making ISK, quantity and quality are equivalent.

But wait! There's more!

As an exercise, go check out the Making ISK guide on the EVElopedia and see if you can classify each of the activities as ISK faucets, pumps or sinks.

If you can think of other conditions which would increase the ISK-moving potential of a particular ISK pump, please comment here!

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