Tf2 Economy - How long will it last?

[CombustibleMelon ¤MBM¤]

Sadly, I think it may die in a couple of years too. ;c

 

Lots of items appear to be dropping in price. Just looks at the latest changes.

I noticed that the other day also

[Nietzsche]

Let me put it this way: If the tf2 economy were a foreign country's economy I would be very nervous about investing in it. TF2 is a an unregulated market with a currency band exchange rate (think renmibi) that has no bottom to the band.

 

This makes tf2 super-vulnerable to inflationary spikes. The keys to USD exchange rate is capped at $2.50 (Mann Co.) and the closer the actual exchange rate gets to that price the more hesitant I will get about having assets in the tf2 market. That is, the real risk to the tf2 economy is not that keys get too cheap but instead that they get too expensive and hit the cap.

 

Let's run through the hypothetical scenario:

1) The Key to USD exchange rate hits $2.50 and holds. This could happen organically (look at the Steam Community market prices right now), through a removal of the risk-discount in paypal transactions (fewer scammers, automated key to USD exchange sites), or some sort of price manipulation (something like the Russian Money Laundering ring again).

 

2) Inflation continues per the usual (drops cause natural inflation) and is also driven by a higher demand for keys at their maximum price (there's no better time to cash out than when market key prices match mann co key prices).

 

3) The ref to USD rate continues to drop due to inflationary pressure, keys start climbing from 8 to 9 to 10 to 15 or 20 ref because there's no room for them to move up relative to their peg.

 

4) Textbook self-fulfilling prophecy type hyperinflation sets in as people, expecting ref to decline further relative to the now fixed keys/usd exchange rate look to switch their holdings to keys. This further increases the price of keys in ref and the next thing you know we see things like 50 ref per key as people try to cut their losses. All non-key items would face similar pressures.

 

5) Key hyperinflation begets expectations of more hyperinflation and people continue to demand keys or cash out directly. Large and medium scale traders may be willing to cash out at massive losses if they expect inflation to continue further. The cashing out craze leads to people demanding ever more stuff for the same sum of USD or keys (functionally the same thing if the ceiling price holds). [insert item here] to key rates get astronomical and traders exit the market.

 

A few things Valve can do that might stave off the collapse:

1) Raise the price of keys in the Mann Co. store: removes the ceiling and caps keys at $3 or more. Eventually inflation catches up and key prices have to rise again. This creates a bubble that eventually pops (who would pay $15 for a key?). The game either switches to a different currency that's a true float (buds or something) or the economy collapses and does not recover after the bubble pop.

 

2) Decrease the rate of drops - this would decrease the inflation rate, thus presenting a possible solution to inflation. However, Valve is unlikely to ever eliminate drops or introduce deflation (deleting items from backpacks) so there will always be some upward pressure against key caps.

 

3) Covertly manipulate key prices down - valve can make infinite keys for free and then sell them via backchannels without altering the price in the Mann Co. store. They could literally create an outpost thread offering infinite keys for $2. Key prices would drop but the ceiling would remain in place and the day would be saved unless they were found out in which case #4 might happen instead.

 

4) Overtly manipulate key prices down - it makes little intuitive sense (why would a company with demand for a product at $2.50 offer it for $2.00) but overtly manipulating keys down would result in an immediate downward pressure on key prices. This would have the effect of functionally moving the price ceiling down which would make everything worse - now keys hit a cap at $2.00 and the rate of item depreciation relative to USD accelerates. Additional capital flight might occur from all the people who have seen their holdings of keys drop by 20% in the blink of any eye and who lose confidence in the market.

 

TL; DR: prices going down is much better for tf2 than prices going up. The biggest threat to the tf2 economy is hyperinflation which is nearly inevitable in the long run. People blaming things like a new set of miscs or new types of items are missing the forest for the trees. 

[Grimes]

-snip-

 

Holy shit that's informative.

 

Economics major?

[Slocumruls]

-snip-

What you say mostly applies to things valued in ref. Anybody trading in key+ level items barely even cares about the key:ref ratio. It is not really an exchange rate since the two are part of the same economy and effective "nation". Ref is simply a commodity item just like strange parts or mvm tickets. Sooner or later someone will use it to craft hats or put it in a chem set or something similar. Keys primary role is now for trading purposes instead of unboxing so it is the actual currency and the only "exchange rate" that matters is from Keys/Buds to Real World Currency. 

[The Walking Wingull]

I'd start worrying when tf2 is no longer on the top current games on steam list. as of writing this, there are 75,000 people in game right now. I'd give it at least 4 years, or until the next team fortress game comes out.