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A Dying Economy?


Dummy991

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I've noticed there's always consistently a lot of posts when the inevitable refined price drop happens.

 

You'll have people on one side saying, "Keys are ruining the economy! backpack.tf, stop dropping the price of refined!"

 

And on the other side you'll have people saying, "This is a good thing! Now you can buy more cosmetics with just one key!"

 

I feel that both sides seem to have an incomplete vision of how the economy, or any economy works, how prices are determined, and such.

 

First off, the people on the "keys are ruining the economy," might have a point. People use backpack.tf to gauge their backpack value, and quite frankly, artificially determining refined price by key price simply devalues refined more than what was naturally happening on the market.

 

Through price conversions, you lose a little value in the conversion itself. You don't get what you put in when you convert US dollars into Japanese Yen or vice versa. You lose real value, even if in some cases you gain purchasing power, because as with any business, you are charged for services (the service in this case, of accurately converting your currency into a different currency). So when you base refined prices off of key prices in terms of refined and real US dollars, you end up devaluing refined, because keys will inherently be priced so as to provide the seller profit in terms of refined.

 

So basically, money-changing is inherently depreciating, and to base your currency's inherent value (instead of relative value, which is what you are getting), you are depreciating the currency which is refined in this case. When you combine that with the large trust placed in backpack.tf, you just create a downward spiral of distrust in the currency, which reduces its inherent value, which will then be lowered again by key price changes to retain profit from the depreciated refined currency, and then the site will lower the price of refined again to match the price key changers set to gain profit, depreciating refined again, and this happens over and over, destroying any value refined had.

 

Now, we would just find a new item to base as a currency, but then again, that's not the only problem with refined being artificially dropped in value by having its key-relative value be falsely equated with its inherent value. Items that are priced under a key are priced in refined. So when you lower the price of refined and shake people's faith in the value of refined, you simultaneously shake people's faith in the value of refined priced items. This causes a down-turn in the economy, as everything you owned just took a massive hit in value. TF2 items are now worth less in real value, and for a lot of people, that matters. Smart people will see this trend and cash out and invest their steam bucks elsewhere, or more likely, become fed up and give up on trading, and all those items in their backpack will sit there, and thus the economy will shrink.

 

Of course, the "keys are ruining the economy" people also miss the fact that refined prices will naturally fall due to the lack of a refined sink causing refined to continually grow in number, and thus decrease in value.

 

I know that the admins are approving these changes because they want to streamline their backpack pricing, but in the end, I think they're actually doing real damage to the economy by taking this shortcut. They either don't realize that their seat of authority creates a self-fulfilling prophecy of price, or they do and don't care.

 

See flaws with my analysis? Feel free to post them. Just a hint though, "lol you're wrong" is not a flaw in my analysis. Be specific and actually have criticisms. I'm not an economist, but these price changes haven't been following the market as it has been naturally progressing. This seems to me to be unintentional market manipulation.

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You seem to be confusing the devaulation of refined comapred to keys in the TF2 economy, and the recent price change of refined compared to US Dollars due to a policy change at backpack.tf. The latter was not a devaulation of refined's value but rather a correction of an inflated value. The whole "pricing refined using refined sales" thing started out when keys were ~3 ref and refined was like 40 cents, meaning people actually bought and sold significant amounts in cash at that value. Now that keys are 30 ref, refined is only worth 6 cents, and nobody wants to buy or sell it for cash since it just isn't worth the hassle. Therefore, the sellers that do sell refined sell it for an inflated price to compensate for the inconvenience of trading it. This makes the previous refined prices on backpack.tf, which used only refined sales, inflated, making the dollar value of everything on the site inflated.

 

One could argue that the decision to price everything in terms of refined (note that your backpack value is still calculated in terms of refined), then price refined in cash, was shortsighted, as it could have been predicted even in 2012 that refined would eventually become worthless. The whole cash pricing system should have been based on a cash price of keys, with lower tier items based on fractional amounts of that value, not the other way around. Nevertheless, it is how it is, and the developers have indicated that changing the backbone of the website at this point in the time would be immensly complicated and simply not worth the effort. They instead went with the workaround of pricing refined in cash based on key sales (as it should have been in the first place), causing a one-time decrease in the cash price of refined due to a correction of an error.

 

2 hours ago, Dummy991 said:

"This is a good thing! Now you can buy more cosmetics with just one key!"

That has more to do with the refined price in keys, which is a whole different matter and irrelevant to this discussion.

 

2 hours ago, Dummy991 said:

artificially determining refined price by key price simply devalues refined more than what was naturally happening on the market.

I will argue that the previous system of pricing refined created an "artifical" price, and that the recent correction allows a more "natural" price.

 

2 hours ago, Dummy991 said:

Through price conversions, you lose a little value in the conversion itself.

True, but with keys at 30 ref and key profit margins at 1 scrap due to immense bot competition, the margin for error is ~0.4% assuming key prices are kept current. I don't see this as a significant problem, compared to the much more serious problem, in my eyes, of refined being priced in increments of $0.01. With refined currently at ~$0.06, that means the smallest possible increment in price is almost 20%. This is a serious obstacle to the accurate pricing of items in cash on this site.

 

2 hours ago, Dummy991 said:

you just create a downward spiral of distrust in the currency, which reduces its inherent value, which will then be lowered again by key price changes to retain profit from the depreciated refined currency, and then the site will lower the price of refined again to match the price key changers set to gain profit, depreciating refined again, and this happens over and over, destroying any value refined had.

The "price" of refined on backpack.tf, which arguably has no use other than the site's internal cash pricing algorithms, dropped one cent. Do you see key/cash traders everywhere dropping their prices by 30 cents? No? I thought not, because the previous price of refined implied a wholly inaccurate key price of $2.25. The new value implies a key price of $1.95, which is much closer to the actual value of keys in cash.

 

2 hours ago, Dummy991 said:

TF2 items are now worth less in real value, and for a lot of people, that matters.

By "worth less" you mean a meaningless number on a website has decreased? Because I'm pretty sure whether you tried to cash out before or after the price change, you would have gotten the same amount of money, which in either case would have been less than the previous value, and much closer to the current value, assuming of course you got full price for your items.

 

also, lol you're wrong

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6 hours ago, MeFigaYoma said:

You seem to be confusing the devaulation of refined comapred to keys in the TF2 economy, and the recent price change of refined compared to US Dollars due to a policy change at backpack.tf. The latter was not a devaulation of refined's value but rather a correction of an inflated value. The whole "pricing refined using refined sales" thing started out when keys were ~3 ref and refined was like 40 cents, meaning people actually bought and sold significant amounts in cash at that value. Now that keys are 30 ref, refined is only worth 6 cents, and nobody wants to buy or sell it for cash since it just isn't worth the hassle. Therefore, the sellers that do sell refined sell it for an inflated price to compensate for the inconvenience of trading it. This makes the previous refined prices on backpack.tf, which used only refined sales, inflated, making the dollar value of everything on the site inflated.

 

One could argue that the decision to price everything in terms of refined (note that your backpack value is still calculated in terms of refined), then price refined in cash, was shortsighted, as it could have been predicted even in 2012 that refined would eventually become worthless. The whole cash pricing system should have been based on a cash price of keys, with lower tier items based on fractional amounts of that value, not the other way around. Nevertheless, it is how it is, and the developers have indicated that changing the backbone of the website at this point in the time would be immensly complicated and simply not worth the effort. They instead went with the workaround of pricing refined in cash based on key sales (as it should have been in the first place), causing a one-time decrease in the cash price of refined due to a correction of an error.

Traders do not sell refined for more than its worth due to some hassle special to refined. They sell it for more because as I've covered previously, you are charged for currency conversions since it is a service. This is regardless of whether it's keys or refined.

 

If we were to price keys based on the price refined sells for, would you have a problem with it? Yes. Why? Because it would be inaccurate for keys. The same can be said for refined.

 

The price of refined isn't based on the price of keys. Either way you get error whether you price refined by their standalone $ price or by their price through key price. Key price relative refined undervalues it. $ price relative refined you could definitely argue overvalues it, but then the same can be said for key price, because inherently, we're using keys and refined as currency, not products, so we're inflating their price when valuing them through conversion. Of course, no system is perfect, and it makes sense to price keys based on what people buy them for. But pricing refined's $ price based on keys? When people are buying refined for a completely different price with $ directly? This seems like a step in the wrong direction.

 

Quite frankly, the idea that the $ price of refined is inflated, while the $ of keys is completely accurate speaks of a bias towards keys being the one true currency when a lot of the economy you can't even use keys because they're worth too much. It's like we've got two separate economies; a refined economy and a key economy. The refined economy's prices are quite stable internally, but the key economy is constantly considering the refined economy's goods as worth less and less. I'll get into that in a moment.

 

7 hours ago, MeFigaYoma said:

The "price" of refined on backpack.tf, which arguably has no use other than the site's internal cash pricing algorithms, dropped one cent. Do you see key/cash traders everywhere dropping their prices by 30 cents? No? I thought not, because the previous price of refined implied a wholly inaccurate key price of $2.25. The new value implies a key price of $1.95, which is much closer to the actual value of keys in cash.

What you're describing is the problem of determining key price based on refined price, which I'm with you on. We should price keys based on what people are actually buying and selling keys for. Same for refined.

 

6 hours ago, MeFigaYoma said:

By "worth less" you mean a meaningless number on a website has decreased? Because I'm pretty sure whether you tried to cash out before or after the price change, you would have gotten the same amount of money, which in either case would have been less than the previous value, and much closer to the current value, assuming of course you got full price for your items.

Except people do in fact take backpack.tf price evaluations seriously. If you go on any trading website other than backpack.tf, you'll see them asking for "backpack.tf" prices. People who buy and sell backpacks use backpack.tf prices.

 

So if you wanted to sell your backpack, and it was worth $200 before, now it's valued at $173, because the price of refined decreased, and if you base the $ prices of items on refined (keep in mind, these items value is tied to the value of refined since they don't increase or decrease in refined) You just lost $27 in value. Yes, you would have gotten more money.

 

Let's say you have a craft hat worth 1.33 refined, price adjustment of refined didn't affect the hat's refined value, so it's real value in terms of dollars goes down. Your random craft hat is worth less than before.

 

It's funny when you consider a number meaningless, when currency is all about numbers. backpack.tf is the go-to place for item valuation. A change in a number here is far from insignificant, and especially far from being "meaningless".

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2 hours ago, Dummy991 said:

Traders do not sell refined for more than its worth due to some hassle special to refined.

They do though.

See here: http://www.tf2outpost.com/search/271288036 - only 7 total refined/cash trades bumped in the past day

http://www.tf2outpost.com/trade/29259918: buying a key's worth of refined from this user would cost $2.07, as opposed to the price of buying a key from the same user, which is $1.96.

http://www.tf2outpost.com/trade/28665529: buying a key's worth of refined from this user would cost a whopping $2.79, as opposed to their key price of $1.87

http://www.tf2outpost.com/trade/29210913: buying a key's worth of refined from this user would cost $2.40. They're not selling keys, but this is still way over market value for a key.

http://www.tf2outpost.com/trade/12419098: buying a key's worth of refined from this user would cost $3.00, as opposed to their key price of $2.00

http://www.tf2outpost.com/trade/27930668: buying a key's worth of refined from this user would cost $2.70

 

Now let's look at buyers: http://www.tf2outpost.com/search/271288106

http://www.tf2outpost.com/trade/28305518: you can sell a key's worth of refined to this user for $1.80 which is 5 cents more than their key price of $1.75 LOL

http://www.tf2outpost.com/trade/29195878: you can sell a key's worth of refined to this user for $1.50, which is 35 cents less than their key price of $1.85

http://www.tf2outpost.com/trade/18303623: you can sell a key's worth of refined to this user for $1.80

http://www.tf2outpost.com/trade/29262384: you can sell a key's worth of refined to this user for $1.35-$1.50 depending on volume

http://www.tf2outpost.com/trade/25674193: you can sell a key's worth of refined to this user for $2.19 lolwut

 

Note that this is the entire refined-to-cash market on TF2 Outpost, and refined is being bought for all kinds of prices, but consistently sold for more than keys.

 

Now let's look at the size of other relevant markets:

http://www.tf2outpost.com/search/271288169

http://www.tf2outpost.com/search/271288176

The key-to-cash market is at least 5 times larger than the refined-to-cash market.

 

http://www.tf2outpost.com/search/271288186

http://www.tf2outpost.com/search/271288188

The key-to-refined market is at least 15 times larger than the refined-to-cash market, and this isn't counting backpack.tf classifieds where most key-to-refined trading happens.

 

Now, based on this information, do you think we should price every item on backpack.tf based on a market with 5 buyers and 5 sellers and, most likely, less than one trade per day? Or should we use the market with 30 buyers and 30 sellers and many trades per day, then convert to refined using the market with 100 buyers and 100 sellers with, as mentioned before, a <0.4% margin for error in the conversion? I'd rather go with the latter.

 

3 hours ago, Dummy991 said:

The price of refined isn't based on the price of keys.

I'm pretty sure it is, actually.

 

3 hours ago, Dummy991 said:

we're inflating their price when valuing them through conversion.

This is a conversion with a <0.4% margin of error and a 15 times (probably 100 times realistically) larger market we're talking about.

 

3 hours ago, Dummy991 said:

Quite frankly, the idea that the $ price of refined is inflated, while the $ of keys is completely accurate speaks of a bias towards keys being the one true currency when a lot of the economy you can't even use keys because they're worth too much. It's like we've got two separate economies; a refined economy and a key economy. The refined economy's prices are quite stable internally, but the key economy is constantly considering the refined economy's goods as worth less and less. I'll get into that in a moment.

Keys are the one true currency. They have an intrinsic value, are directly linked in price to 75% of low-tier items and 99% of high-tier items through unboxing, and are semi-linked to the US Dollar since the only way to introduce new ones into the economy is to buy them from the Mann Co. Store. Refined on the other hand has almost no intrinsic value, is linked only to the other 25% of low-tier items (i.e. hats you can get through crafting), and everyone is printing more of it every day.

 

There are two separate economies, but the "refined economy" is not "everything worth less than a key", but only the items whose value is linked to the value of refined rather than the key (i.e. craft hats). For proof of this, have a look at some old prices on this website. In 2012, when keys were 3 refined, Strange Equalizers (linked to keys) were worth 0.05-0.11, and Team Captains (linked to refined) were worth 2 keys = 6 ref. Now that keys are 30 ref, Strange Equalizers are worth 1.55, and Team Captains are worth...6 ref. See what I mean? As you say, the refined economy's prices are stable internally, but the key economy is constantly considering the refined economy's goods as worth less and less, because they are.

 

3 hours ago, Dummy991 said:

Except people do in fact take backpack.tf price evaluations seriously. If you go on any trading website other than backpack.tf, you'll see them asking for "backpack.tf" prices. People who buy and sell backpacks use backpack.tf prices.

"Backpack.tf prices" refers to the in-game currency prices of items, not the cash prices as indicated by backpack.tf. If you're selling a backpack for cash, the buyer will look at what backpack.tf says your backpack is worth in keys, subtact 30% or whatever their profit margin is, then convert the keys to cash using their prefered ratio. At no point will they look at what backpack.tf says your backpack is worth in cash, unless their prefered key/cash ratio is $1.95 or whatever the key price derived from refined derived from keys happens to be in the future.

 

3 hours ago, Dummy991 said:

You just lost $27 in value. Yes, you would have gotten more money.

As I've said several times before, this is unlikely, and frankly if the person you're selling to insisted on using backpack.tf cash prices before the recent update they were stupid.

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