Time Inconsistency in MMORGs or The Case Against the Burning Crusade
The big news of recent months for World of Warcraft fans was the introduction of an expansion to the game, permitting players to explore new areas, get new and better gear, increase their characters' level above the old limit. While many players welcomed it, some did not.
To see why, consider the situation of a long term player just before the change. His character—for simplicity assume he has only one—has been at level sixty for a long time. Since no higher level was possible he has put his time into acquiring elite gear, armor and weapons and such that increase the wearer's strength, magical ability, endurance. Acquiring that gear involved spending hundreds of hours, some of it in twenty or even forty man raids organized and scheduled on a weekly basis and running over a period of months, designed to let the character gradually accumulate items and status that could be used to acquire very high grade equipment. Through these and other efforts—the game provided several different ways of getting high grade gear, all difficult—the character acquired equipment that both made him more effective and got him status with other players. When another player sees him and looks at his gear, most of it showing as elite purple, it is clear that he has earned it.
Now comes the new upgrade. In ten hours of play in the new area a level sixty character can acquire as quest rewards two or three pieces of equipment, each as good as something that used to take a great deal more work to get. The player who stopped playing his first character at level sixty and switched to developing a new character—or even, as is rumored to occasionally happen, stopped playing almost entirely—can now get his character to the same level of equipment as those who put in many months pushing their level sixty to higher and higher levels of achievement. This makes the game more fun for some of us, but for others it feels as though all the accomplishments of the past year have suddenly turned to ashes, their treasured purples no better than the new, easily acquired, high level greens. A priori, one cannot tell if the change is on net a gain or a loss.
The interesting point is that it might be a gain for Blizzard even if it were a loss for the players. Sunk costs, as economists say, are sunk costs; there is no way of getting back all the time you spent acquiring elite gear. Even if your past efforts have turned out to be worth much less than you thought they were, there are now lots of new opportunities for new efforts to get new elite gear far better than what you used to have—if you are willing to spend enough time doing it. It was your past playing time that took the hit, which may not be an argument against continuing to pay Blizzard to continue to play in the future.
Readers who are economists will see where this is leading. In a full information zero transaction cost world, Blizzard would take the hit in advance; the knowledge that they were going to devalue purples in 2007 would reduce the incentive to acquire them, and the fun of acquiring them, in 2005 and 2006, and so reduce Blizzard's revenue in those years, giving them an incentive to take due account of the cost the expansion imposed on some of the most active players. But in the real world with its real limits, players do not know—Blizzard does not know—what future expansions will be like. Once 2005 and 2006 are past, Blizzard can, in effect, double cross some of its old players by devaluing their items, and it may well be in its interest to do so.
The logic is very much like the logic of rent control. One of its undesirable consequences is to reduce the incentive to build new apartment buildings. One possible solution is for the Mayor to announce that new buildings will be uncontrolled. But once new buildings are built, they are old buildings; the same political incentives that led to the initial rent control will give the Mayor, or his successor, an incentive to expand rent control to the buildings constructed since. Unless the Mayor has some way of committing himself to a long term policy of keeping them uncontrolled, developers will discount his promise to take account of his incentive to later break it, with the result that fewer new buildings will be built. Interested readers may want to look at the relevant chapter of my webbed Price Theory.