Economics of the Cartel Market: Bioware should lower prices to increase profits

[announcerharris]

No demand curve is entirely elastic. You are assuming that the price is set on the elastic portion of the demand curve.

 

Yes, based solely on conversations with friends who play the game.

[Frozenshiva]

Yes, based solely on conversations with friends who play the game.

 

I think we can BOTH agree that is an entirely unrealistic point to start from when creating arguments for this kind of debates.

It's an enclosed circle and the sample pool is extremely small. It's like saying " a friend of a friend said that..."

[Goretzu]

Think of it this way: if they dropped the price of the Valiant Jedi set (for example) in half, enough additional people would buy it that Bioware would actually make more money.

 

Yep, with effectivly $0.00 production cost on Cashshop items it is not about the mark up, it is about the maximum sales.

 

With real goods you have to cover all your expenses so it can't work like this, but in a cashshop.

 

 

$18.00 Santa mount sells 100 units = $1800 profit.

Same mount at $2.00 sells 100,000 units = $200,000 profit.

 

 

Personally I think the Cashshop prices should be slash across the board by at least 50%, and even then I think some should be account-wide not per character.

[Fornix]

There's plenty of research going into this field, analyzing on per country base what sort of levels of investments players do on average and also showing the steep climb in income generated through it.

 

For example in European countries the top 10% of paying players spend an average of 100$ on F2P titles, the next 40% spends like 20$ or so I believe it was and the remainder 50% spend like just 1$ on average.

 

In other words, roughly half of the average playerbase to these sort of F2P titles is willing to pay roughly 20$ or more (I'm not sure whether that includes subscription costs or not, but I would assume so). Whilst the rest, pays practically nothing.

 

Now if you sell for 20$ to 50 people, and sell nothing to the other 50 as they do not want to pay that much, you still make 1000$. However, if you now lower the bar to 1$, so everybody is willing to pay, you sell for 1$ to 100 people. You make 100$. It doesn't take an economist to realize 100$ is less than 1000$.

 

What you ought to do next is play in on human psychology. Sure, that single 10$ item is something the 1$ person is not willing to by. However, if suddenly it's up for 50% or 75% off for a limited time offer, many of them will strike.

 

TL;DR permanent lowered prices are bad for business, however flash sales may do its charm.

[Goretzu]

There's plenty of research going into this field, analyzing on per country base what sort of levels of investments players do on average and also showing the steep climb in income generated through it.

 

For example in European countries the top 10% of paying players spend an average of 100$ on F2P titles, the next 40% spends like 20$ or so I believe it was and the remainder 50% spend like just 1$ on average.

 

In other words, roughly half of the average playerbase to these sort of F2P titles is willing to pay roughly 20$ or more (I'm not sure whether that includes subscription costs or not, but I would assume so). Whilst the rest, pays practically nothing.

 

Now if you sell for 20$ to 50 people, and sell nothing to the other 50 as they do not want to pay that much, you still make 1000$. However, if you now lower the bar to 1$, so everybody is willing to pay, you sell for 1$ to 100 people. You make 100$. It doesn't take an economist to realize 100$ is less than 1000$.

 

What you ought to do next is play in on human psychology. Sure, that single 10$ item is something the 1$ person is not willing to by. However, if suddenly it's up for 50% or 75% off for a limited time offer, many of them will strike.

 

TL;DR permanent lowered prices are bad for business, however flash sales may do its charm.

 

 

 

Flash sales may work (in that they increase sales - so for say a game on Steam they may be sensible), but looking at the DvD and MP3 market you cannot beat sheer VOLUME OF SALES (and DvDs actually have production cost too! ), especially with something with a $0.00 production cost.

 

DvD and MP3 have pushed new profit records not by being expensive, not by fire sales, but by simply being cheap enough that a vast amount of people think "eh, why not?".

[Fornix]

 

 

 

Flash sales may work (in that they increase sales - so for say a game on Steam they may be sensible), but looking at the DvD and MP3 market you cannot beat sheer VOLUME OF SALES (and DvDs actually have production cost too! ), especially with something with a $0.00 production cost.

 

DvD and MP3 have pushed new profit records not by being expensive, not by fire sales, but by simply being cheap enough that a vast amount of people think "eh, why not?".

 

Comparing the sale of digital products in item shops to the sale of movies and songs is comparing apples to oranges. As there is no free alternative to the cartel market items, you'll always pay. Whether it's with cartel market items or time investment in the form of credits on the GTN. Whilst the entertainment industry has to directly compete with the free alternative, downloaded tracks and films.

 

And volume of sales doesn't work in the western world where quite a large portion of players is willing to pay, and quite a large top end is paying in the order of 100$.

 

Cheaper items much more apply to for example the Southern American or Asian market where the top end spends roughly 10$.

 

It is the western spending power which keeps these sort of prices high. It is that same reason as to why in China they could get monthly subscriptions to several MMO's for roughly 1 - 2$ whilst here we always paid closer in the order of 15$. These sort of prices are adjusted for maximization of profit, and that's dependent on our spending power and what players are actually spending.

[Goretzu]

Comparing the sale of digital products in item shops to the sale of movies and songs is comparing apples to oranges. As there is no free alternative to the cartel market items, you'll always pay. Whether it's with cartel market items or time investment in the form of credits on the GTN. Whilst the entertainment industry has to directly compete with the free alternative, downloaded tracks and films.

 

And volume of sales doesn't work in the western world where quite a large portion of players is willing to pay, and quite a large top end is paying in the order of 100$.

 

Cheaper items much more apply to for example the Southern American or Asian market where the top end spends roughly 10$.

 

It is the western spending power which keeps these sort of prices high. It is that same reason as to why in China they could get monthly subscriptions to several MMO's for roughly 1 - 2$ whilst here we always paid closer in the order of 15$. These sort of prices are adjusted for maximization of profit, and that's dependent on our spending power and what players are actually spending.

 

 

Actually in DvD and MP3 it's been doubly proven in that people will buy stuff WHEN then may be able to get it for free.

 

Which is exactly what is being said here, the profit values are way off, Bioware EA are trying for obcene profit margins, that are only going to backfire in the long-term (much like they orginally did with the DvD and MP3 industry till they woke up and changed their pricing structure).

 

 

Both in DvDs and in MP3's companies HAVE found it works exceedingly well in the Western world, the only problem the movie industry had was Blu-rays, but they've realised their pricing was well off on that too now.

 

Again selling 100 DvDs for $10.00 doesn't bet selling 1000 DvDs for $5.00 so long as you're production costs are low enough. And cashhop items production costs are effectively $0.00.

[Fornix]

Actually in DvD and MP3 it's been doubly proven in that people will buy stuff WHEN then may be able to get it for free.

 

You're still missing the point. There is NO alternative on the cartel market. Yes, people are willing to pay for DVD's and music, as long as the cost isn't too high to their liking. However, on the cartel market it's like going to a club. You know you're going to be paying 5$ for a beer or 8$ for a double vodka, regardless of the fact that you can buy half a crate of beer or half a bottle of vodka in the store for that price. You simply have no other option there.

 

As a result, many people will pay those exagerated prices. The cartel market, is no different. If the cartel market would be selling 1 million credits for 20$ and you had credit farmers selling 1 million credits for 1$, then it'd reach the territory of MP3 & Film price drops. But as that's not the case, these item shops can keep on raising their prices till the point on which the number of players paying starts dropping again.

[Goretzu]

You're still missing the point. There is NO alternative on the cartel market. Yes, people are willing to pay for DVD's and music, as long as the cost isn't too high to their liking. However, on the cartel market it's like going to a club. You know you're going to be paying 5$ for a beer or 8$ for a double vodka, regardless of the fact that you can buy half a crate of beer or half a bottle of vodka in the store for that price. You simply have no other option there.

 

As a result, many people will pay those exagerated prices. The cartel market, is no different. If the cartel market would be selling 1 million credits for 20$ and you had credit farmers selling 1 million credits for 1$, then it'd reach the territory of MP3 & Film price drops. But as that's not the case, these item shops can keep on raising their prices till the point on which the number of players paying starts dropping again.

 

 

I'm not convinced a lack of competition means people will accept price gouging, indeed it was that very thing that fuelled the inital piracy problems with CDs and DvDs (companies artificially rigging prices artificially high - which had been going on since at least the 1950's).

 

Now there is no free option, but that still doesn't mean people will pay $18.00 for a terrible mount (which should have been free), or even over the odds (compared to other MMORPGs) for cosmetic gear.

 

Companies can trick consumers with stuff like gambling bags, but even the most naive of consumer eventually wakes up to that.

 

Sustainability-wise getting people to buy more not only makes more profit, but it retains happy and loyal customers, something price gouging does NOT.

[Fornix]

I'm not convinced a lack of competition means people will accept price gouging, indeed it was that very thing that fuelled the inital piracy problems with CDs and DvDs (companies artificially rigging prices artificially high - which had been going on since at least the 1950's).

 

Now there is no free option, but that still doesn't mean people will pay $18.00 for a terrible mount (which should have been free), or even over the odds (compared to other MMORPGs) for cosmetic gear.

 

Companies can trick consumers with stuff like gambling bags, but even the most naive of consumer eventually wakes up to that.

 

Sustainability-wise getting people to buy more not only makes more profit, but it retains happy and loyal customers, something price gouging does NOT.

 

You may find this an interesting read:

http://casualconnect.org/mag/summer2012/CGA_F2PGames_Report.pdf

 

Additionally it's source data:

http://www.superdataresearch.com/ (although not all free).

 

It shows you the ARPPU from several countries as an example in the first file.

[AsheraII]

And cashhop items production costs are effectively $0.00.

Well, I wouldn't say that. The costs aren't extravagant, but still, expect even a simple retexture to cost about $500 - $3,000. That's salery for designers, reviewers and testers, write-offs for the computers being used, central heating & airconditioning, etcetera. I know some of you might say that you could make one in an afternoon. Well, maybe you could, and should look for a job in that line of work. But practically, one seemingly simple retexture can easily take a week. Adjusting colors and shades, attaching some extra objects as flavor details, cross referencing how it behaves with Unify Colors and having to swap your entire pallete around because some things mess up royaly or simply don't unify (they could actually improve that part of the testing, some items seem to have this reversed, with the primary, larger surfaces unifying to a secondary color and vice versa).

 

The revenue depends entirely about how often the re-texture is being sold.

Take the Outlaws set for example, it's pretty popular, and costs about $10. If the cost of that outfit lays around $1,000, then they'd have to sell 100 of those to break even. Now I suspect they easily sold a thousand of these. Still, that's 10% cost. Not counting the development or maintenance of the store itself. The Cartel Store itself I'd estimate at having cost about 20-30k, with another 1-2k a month for maintenance.

[VegaPhone]

Think of it this way: if they dropped the price of the Valiant Jedi set (for example) in half, enough additional people would buy it that Bioware would actually make more money.

 

I think you miss the point, and psychology of the pricing.

 

In business, prices set the tone for something unique and of value. Its has a psychological impact to know it is something rare and more difficult to attain, and less likely everyone has... and therefore more people buy it.

 

So the rares should be priced as rares.

 

This is the pricing models for niche markets in marketing and management, they teach this stuff. The reason why it may not make sense is when the individual is a thrifty spender and does not care about exclusives. Then their perspective has a bias... but the 'market' is based on the certain demographics and the logic of the pricing as well. And as explained, it makes it harder to attain increasing its value.

Edited December 24, 2012 by VegaPhone

[Goretzu]

You may find this an interesting read:

http://casualconnect.org/mag/summer2012/CGA_F2PGames_Report.pdf

 

Additionally it's source data:

http://www.superdataresearch.com/ (although not all free).

 

It shows you the ARPPU from several countries as an example in the first file.

 

I'm always waring of people selling things, especially selling things that are supposed to make "me" money.

 

Well, I wouldn't say that. The costs aren't extravagant, but still, expect even a simple retexture to cost about $500 - $3,000. That's salery for designers, reviewers and testers, write-offs for the computers being used, central heating & airconditioning, etcetera. I know some of you might say that you could make one in an afternoon. Well, maybe you could, and should look for a job in that line of work. But practically, one seemingly simple retexture can easily take a week. Adjusting colors and shades, attaching some extra objects as flavor details, cross referencing how it behaves with Unify Colors and having to swap your entire pallete around because some things mess up royaly or simply don't unify (they could actually improve that part of the testing, some items seem to have this reversed, with the primary, larger surfaces unifying to a secondary color and vice versa).

 

The revenue depends entirely about how often the re-texture is being sold.

Take the Outlaws set for example, it's pretty popular, and costs about $10. If the cost of that outfit lays around $1,000, then they'd have to sell 100 of those to break even. Now I suspect they easily sold a thousand of these. Still, that's 10% cost. Not counting the development or maintenance of the store itself. The Cartel Store itself I'd estimate at having cost about 20-30k, with another 1-2k a month for maintenance.

 

The costs are effectively $0.00.

 

There is a very small design cost, in the case of the Santa Mount very small indeed (an intern and 3 hours worth of PC electricity ), but after that there is NO production cost at all.

 

Even for the most complex of stuff your $1000.00 design cost seems exceedingly steep, unless they are paying VAST wages per hour, especially as most of the stuff is just re-coloured or stuff that was made in Beta and removed.

[Goretzu]

I think you miss the point, and psychology of the pricing.

 

In business, prices set the tone for something unique and of value. Its has a psychological impact to know it is something rare and more difficult to attain, and less likely everyone has... and therefore more people buy it.

 

So the rares should be priced as rares.

 

This is the pricing models for niche markets in marketing and management, they teach this stuff. The reason why it may not make sense is when the individual is a thrifty spender and does not care about exclusives. Then their perspective has a bias... but the 'market' is based on the certain demographics and the logic of the pricing as well. And as explained, it makes it harder to attain increasing its value.

 

 

There's some logic in that, but then it falls down with the Santa mount price, or indeed the valient jedi armour as that is never going to be rare, simply because it is so much better than the similar armour many classes can (or totally cannot) get.

[SithVeritas]

Think of it this way: if they dropped the price of the Valiant Jedi set (for example) in half, enough additional people would buy it that Bioware would actually make more money.

 

I agree. Cartel crap is ridiculously overpriced.

[Nonnolol]

Because these items are luxuries, both in the game and in real-life, the demand for these cartel market items is elastic

 

And how do you know this? What data are you drawing from to reach this conclusion? Your entire argument rests on the assumption that the demand function is highly elastic, but you have failed to actually substantiate this assertion in way whatsoever. It sounds like you were, for whatever reason, suddenly compelled to show off your newly discovered knowledge of basic microeconomics.

 

Also, a 'luxury good' is a good for which the demand rises as income rises. It has nothing to do with demand elasticity.

[Glorthox]

By now people need to understand that Bioware / EA don't give a crap about their gamers. All of the outstanding bugs, catering to the cartel market, long wait times on the phone with customer service, etc. If they really cared all of the bugs and server stability would have been fixed by now and they wouldn't have to lie or mislead people about the expansion. They did say at first that the expansion was going to be free.

[Mazikeen]

Snipped post

 

Do you seriously think EA/Bioware is not monitoring the number of purchases and adjusting costs as they see fit? Do you really think that they have not considered the basic rules of economics? Really?

 

Why do people who have no data to support their theories feel the need to act like they know better?

[Mazikeen]

By now people need to understand that Bioware / EA don't give a crap about their gamers. All of the outstanding bugs, catering to the cartel market, long wait times on the phone with customer service, etc. If they really cared all of the bugs and server stability would have been fixed by now and they wouldn't have to lie or mislead people about the expansion. They did say at first that the expansion was going to be free.

 

1) Things change. Get off the 'free expansion' bit and suck it up. It's $10. If you think nothing ever changes then you're either under 18 and lack any right to complain about how real life works or over 18 and simply blind.

 

2) I have seen fewer bugs in SWTOR than any other MMO, aside from Rift, that I have played in a decade. It seems to me at least half of these 'bugs' are due to your rigs, not due to the game being buggy. And no, I do not have a top-end $3500 rig with 3 screens, etc.

[Glorthox]

So people need to spend a lot of money upgrading their computers with all of current upgrades to play a game?? I may upgrade my graphics card, but that is an easy less money problem fix. Some of us don't have the money for current computer upgrades.

[MediumD]

Why do people who have no data to support their theories feel the need to act like they know better?

 

That's called Mount Stupid.

 

I think the cartel items are overpriced, meaning they are not set at the market clearing price or the equilibrium price. BioEA might have data indicating otherwise--maybe hordes of people are paying $20 to get their hands on valiant jedi, for example--or they're just guessing high.

[Goretzu]

Do you seriously think EA/Bioware is not monitoring the number of purchases and adjusting costs as they see fit? Do you really think that they have not considered the basic rules of economics? Really?

 

Why do people who have no data to support their theories feel the need to act like they know better?

 

Yes.

No.

Because SWTOR is very, very, very expensive on the Cashshop compared to competitior MMORPGs, including Warhammer Online which was run by Bioware EA for a couple of years.

[kamed]

Do you seriously think EA/Bioware is not monitoring the number of purchases and adjusting costs as they see fit? Do you really think that they have not considered the basic rules of economics? Really?

 

Why do people who have no data to support their theories feel the need to act like they know better?

 

No point arguing with people here on the threads is pointless since they are usually set in one way. If your post has any semblance of reasoning or logic that could point to supporting your side, the opposition always chooses to ignore it and move on as if it never happened.

 

Internet forums are more like a bathroom walls, people say whatever they feel like and there's hardly any intellectual back and forth going on.

Edited December 31, 2012 by kamed

[Fornix]

I'm always waring of people selling things, especially selling things that are supposed to make "me" money.

 

The data they provide is in no way supposed to make you money, it's a mere market analysis. It's not a get-rich-quick scheme. It's relatively standard practise for that sort of data to be paid data, as the analysts desire to provide their family food as well .

 

So people need to spend a lot of money upgrading their computers with all of current upgrades to play a game?? I may upgrade my graphics card, but that is an easy less money problem fix. Some of us don't have the money for current computer upgrades.

 

Yes, that's the way computer gaming works. Every year games release which are increasingly demanding, it's standard practise. It's already bad enough that they can't optimize game engines to their full extent without leaving behind those players who do not upgrade. But in all honesty, if you can't upgrade your PC hardware at least every 3 years, you're better of doing the industry and PC gamers a favor by switching to consoles.

 

A lot of the current performance issues are coming from people with 4GB of RAM, even though 8GB of RAM was already well affordable with the introduction of WAR in 2008. Many people are still using DX9 graphics cards and then complaining on lag even though in 2006 the first DX10 graphics cards have already been introduced, let stand simply using a DX11 card which have been introduced somewhere late 2009 or early 2010. Not to mention players using HDD's rather than SSD's, even though SSD's have been introduced in 2006 and are quite affordable since 2009, currently going for as cheap as around 70 ~ 80$ for a very decent model.

 

Not to mention CPU wise the ancient tech some people are using.

 

BioWare trying to compensate for that by making the game compatible with that sort of junk easily rips off about 30% of potential performance, the rate which is frequently seen by making the simple move in games to switch from DX9 to DX11.

 

Not to mention the benefit the game can have by being allowed to use extended RAM usage on 64 bit systems with 16GB+ RAM. A lot of loading screens on planets could be taken out as the game could much more freely use all of the RAM in one go what it needs to, without needing to worry about passing the RAM limit which causes 32 bit systems to simply close off the client abruptly.

 

TL;DR Games would have a lot less performance issues if people would just start upgrading their junk so developers don't have to aim for 10-year backwards compatibility anymore.

[Goretzu]

The data they provide is in no way supposed to make you money, it's a mere market analysis. It's not a get-rich-quick scheme. It's relatively standard practise for that sort of data to be paid data, as the analysts desire to provide their family food as well.

 

People wanting to sell you stuff, sell you what you want to be sold.

Edited December 31, 2012 by Goretzu