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Friday, July 18, 2014

Analysis: PLEX Prices

Recently quite a few people have been talking about the spike in PLEX prices, reaching a high of around 810 million Jita sell a few days ago. Kirith and Gevlon have recently analyzed the PLEX prices and player activity, respectively. Kirith's belief is that demand and supply have fallen; Gevlon believes only supply has fallen.

The truth is, both supply and demand have fallen but not at equal rates. Now as some of you may know, I am an economist in real life and my area of specialty is trade. After reading those two blog posts above, I decided to pull the data and do a miniature analysis of PLEX prices. I pulled the last year of PLEX data from EVE Market Data. The usual caveat about the analysis applies; it's only as good as the data, so I'm assuming that the data is relatively sound. 


A cursory look at the quantity versus the number of orders over time shows that both the supply and demand have fallen over the past year. Also, interestingly, the supply is always higher than the demand. This has implications for the market that I will discuss later.



It's abundantly clear after applying a simple linear trend to the data that the supply of PLEX has fallen at a faster rate over the past year than the demand for PLEX. If you have taken a first year economics course at any university, you will know that supply falling faster than demand will increase the price of the good. However, you should also know that if we are at a point where there is more supply than demand, there should be downward pressure on the price of the good. So, we have two opposing market forces at work here. What do we observe happening in reality?





The average PLEX price has been steadily increasing over time. However, the gap between supply and demand has also been decreasing over the past year and has simultaneously become less volatile. So, what's been going on in the PLEX market? This is market correction happening in front of our eyes. We have a case of the market being outside of equilibrium. Luckily, the price impact of the decrease in PLEX suppliers has been off set by the fact that we have more PLEX supply than demand in the game. While the price has still been increasing, the fact that demand is less than supply means that we aren't seeing higher spikes in PLEX prices. In fact, the current PLEX spike is less than it would be if there were less PLEX suppliers in the market.

The (sort of) good news is that with the declining gap between suppliers and buyers, we will reach an equilibrium in the market at higher prices and a lower overall supply. An equilibrium in the market would mean that prices would stabilize, albeit at a higher price than they are at now. The bad news is that if the number of suppliers continues to decrease after reaching that equilibrium, we're going to see much higher spikes in PLEX prices in the future. If we continue on our current trend, we could be seeing PLEX prices at 1 billion ISK in one year from now. We don't know how long it will take for the market to stabilize. Only time will tell.

13 comments:

  1. I would love a followup from your point of view of why some people think PLEX investment is a good reserve for ISK, and if you think its a good idea.

    Also, linked your post from mine. :)

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    1. That's an interesting subject, I've seen people like croda investing in PLEX to use up his spare ISK. I can definitely tackle this subject, I've pulled down the data already.

      And thanks, appreciate it! :)

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    2. Think the idea is that PLEX is a proxy for game time. Investing in PLEX isn't so much a hedge against in-game inflation, but rather a storage of wealth that is transferrable into game time.

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    3. You're right, but if you look at people like croda who invest in PLEX to do something with ISK that is otherwise sitting there not making any additional ISK, the fact that it is transferable into game time has no bearing. For example, he's holding 72 PLEX right now and it's driving a good part of his increases in wealth, solely due to the price increasing.

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    4. right, it may very well be an investment to convert back into ISK at a later date. My point is that, while PLEX may not always go up in value, it will always be convertible into game time. Game time is 30 days and costs $14.95 USD. Always has and will likely never go down. Thus PLEX is, at its core, a proxy for $14.95 rather than being tied to minerals or some other in-game item that can fluctuate based on CCP mechanic changes. I'm not saying it's a great future investment, and past performance is no guarantee of future results, but it is stable. It will always be worth no less than 30 days of game time.

      Uhg, just woke up and coffee hasn't kicked in yet so bear with me. I guess what I'm saying is the lure of PLEX is not only that it has seemingly always gone up. It is that it is tied to something that has exhibited almost no variability over time and that all players seek: game time. That makes for a better wealth storage than some other random item that could change at the next expansion. If any of that even remotely makes sense.

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    5. Ah yes. I wasn't sure what you were saying there for a second but now I understand. You're absolutely correct. It's the same reason why people invest in gold, there is inherent value behind it besides the fact that it just appreciates in value. Truth is, the market could crash and these guys would be out of their ISK, but at least they'd still have 30 days for each PLEX they bought. That's something, at least. Definitely better than a random item with no other value.

      I do wish I could track how CCP's sales impact the PLEX market. I'd love to know if the supply increases and causes prices to stabilize or even temporarily decline for a period of time. But I know that data doesn't exist out there unfortunately.

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  2. What exactly is the data you are using for supply and demand? I know you said its from Eve Market Data, but how are they determining supply?

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    1. I'm assuming that it's the number of PLEX available for sale on the market, as gathered from players' caches, etc.

      I was reading elsewhere on EN24 where someone was saying that the inventory of PLEX in someone's container should count as supply - I'll correct that here, that's not a factual statement. By definition, PLEX in someone's container who has no intention of selling it does not constitute supply. This is of course different from those who are holding it now because they aren't satisfied with PLEX prices but will sell it if prices increase.

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    2. Yeah, that isn't supply anymore than the guy who can only afford 350 mil for a PLEX is part of demand. You have to be willing and able.

      Anyway... so your quantity for total supply is all PLEX listed for sale? And then for demand it is what, all those listed as Buy orders? I ask because I've been trying to get a better handle on supply and I just don't think the data is there to support it. However, I'm open to the fact that I am totally misreading something.

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    3. I believe (and am hoping) that demand is the number of completed orders from the market window. I hope it isn't buy orders, because that doesn't tell me anything. Supply is (should be) the number of PLEX available in sell orders.

      That's the biggest issue with these third party sites, I'm never 100% clear what they mean. Their data is quantity and orders, I changed it to supply and demand respectively.

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    4. Only two numbers I really care about to know whether the upward pressure is rational: How many PLEX are created each day/week/month and how many are consumed. That would be the best indicator of whether mass amounts are being hoarded and whether core demand and supply are rising or falling. To hell with the market data. I was the back office data. But we ain't never going to get that info.

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    5. I'd love to get a hold of that also, it would be a very interesting analysis. Shame that it's kept under wraps.

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  3. I'd venture that the number of players who pay for their subscription and buy PLEX to augment their in-game income is declining. This subset of the population are chiefly casual players who have been most negatively affected by the changes this year.

    In short, EVE now has more free riders competing to buy a smaller pool of PLEX with in-game currency.

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