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Anti-inflation in the TF2 Economy

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Today the crafty econonerds at Mann Co. announced that they would retire a bunch of the very first hats introduced to TF2 back in May of 2009.

I remember that day - getting my first Huntsman, arching arrows from base to base in the first stage of Pipeline, and admiring the lucky souls who received the very first Pyro Beanies. Ah nostalgia.

So much has happened in the TF2 economy since - many, many new items, player to player trading, the Steam Workshop, a plethora of 3rd party sites enabling sales of items for real money, and recently the official way to do the same - the Steam Community Market.

But one thing has remained constant - inflation.

With every active player getting 14 new items (0.77 ref) every week by simply playing the game, and a near zero marginal cost of "producing" new items, it's kind of like the Federal Reserve printing money continuously (which, thanks to the "global financial crisis", the real Feds are actually doing). It's the reason why metal prices only ever fall - the price of something given infinite supply is fundamentally zero.

There are several effects of this first step Valve is taking towards limiting item availability. Most traders seem to care about the price effects on these particular items so let's look at that first.

Everyone knows that price is a function of supply & demand.

In the immediate future the demand side for these items will spike due to speculators who feel the price of these items will rise once the supply is limited in future. Also, anyone who wanted these items already has them, or will buy them before they become limited. So one would expect an immediate but perhaps temporary price rise.

But immediately after these items are no longer available I don't foresee any further rise in the price because consumer demand will simply not exist. Very few consumers want these hats which is why their prices are so low, and new demand for these items could only come from new TF2 players.

But there is a more important effect. By cutting off the availability of these items Valve is signalling that it won't allow the economy to debase itself by providing infinite supplies of everything. I think that is more important than the micro effects on the prices of the individual items.

We should see, longer term, that all prices rise due to the implied threat that supply will become limited at some point in future – up til now everyone has worked (read: priced) on the assumption that supply is limitless which is why many items have pathetically low values. There is also the fact that the Mann Co. Store currently sets a price ceiling on every item.

Fun-having players may view this as a negative as the prices of the hats they want will go up. But ultimately it's in everyone's interest that the TF2 economy is strong – Valve relies on it for income to pay the salaries of the engineers & artists who provide game updates, and community item & map makers rely on it for income too.