There is a website where people trade video games with each other and use points to do so. So you might put up a copy of assassin’s creed for 300 points, and someone will buy it from you and you get the 300 points. You then get to use those points to buy games yourself (maybe you want god of war on the PS2 for 100 points, etc.). They currently have a deal where you can buy points from the house half off, so I bought a bunch of them.
However, what service is the house offering when they sell you points? If I sell several video games on this website and earn 1000 points, I’ve added something of value (games). However when I buy 1000 points from the house, what value has the house added to the transaction? I give something of value to the house (money) to get something of value (points). I then use those points to purchase something of value (games). However what did the house bring to the transaction? I brought money, the seller brought games, what did the house bring of value? Why are the points worth anything? Is this just a small version of the global economy where things are only worth something because we all agree they are worth something?
That is like if I started up my own society and got to print my own money. What value have I given to society if I print up 100k of my own money and use it to buy things other people have made?
Will this (the house selling points rather than just letting people get those points by buying and trading games) lead to inflation of the point system?
On the subject, how do you start the economy? There was once a point where this website was brand new and had never traded a single game. So nobody had any points since nobody had ever sold a game. So where did the first points come from? If the economy on that website consists of 10 million points (as an example), where did those 10 million points come from? You can say ‘from selling games’, but where did the points to buy those games originally come from? Were they all sold by the house?
One service they are offering is liquidity, or to be more precise, a different form of liquidity that may be more convenient to you. (You may consider your used video games to be “liquid” but maybe it’s not liquid enough because it’s still physically stored at your house and not quite as immediately usable as a payment for transaction as “e-money” or “e-gold” or “points”.) Once converted to “points”, your “wealth” can’t be stolen physically from your house. So another “service” you might see they offer is portability (although one could argue “portability” as another variation of liquidity.)
Because you trust the website. You trust that they won’t make your points just disappear tomorrow on a whim. You trust that they won’t just add 1 million points out of thin air to another user of the website which makes your 1000 points worth much less.
Yes, in many ways. Each country’s central bank works like your video game exchange website.
Yes. And you can bet a website (or a government) run by humans will inevitably have human tendencies to inflate points or devalue currency. It’s an irresistible force.
Let me ask you this: where do the first points of a basketball or football game come from? Fiat money works like that.
I think you answered your question right there.
Lets say I see a game I want for 300 points. I don’t have 300 in my account because the games I have up are:
Only worth 100 points
Not sold yet
and 3) No guaranty they’ll sell
So I’ll buy 300 points to get the game I want.
As for how they make money, how much do you buy points for and how much can you sell them back for?
Why did you buy the game from the Web site instead of calling someone with the game and offering him money?
If that was too rhetorical, the answer is because you didn`t know anybody who was willing to sell the game to you, so you needed the Web site. That’s their value added.
Why would anybody buy a Sony television from Best Buy? Why not buy it from a large distributor like Ingram Micro or direct from Sony? Ingram and Best Buy aren’t adding much value to you as an end user. You have to buy TVs from Best Buy because Ingram only sells to retailers and Sony only sells to large distributors.
The only thing that makes this Web site any different from Best Buy is that it’s a two-way system so they implemented a points system. You can act like Ingram Micro and sell games to people or you can act like a customer and buy games. If they only sold games would you be asking what value they’re bringing to the transaction?
Just wanted to add that I realize this Web site presumably never takes title to the games, which is another difference from a normal store like Best Buy or any other. But that’s not really a meaningful difference anyway. The seller gets paid when it’s sold instead of selling directly to the Web site. It’s not unusual for a small company to have to sell on consignment to even a ‘real’ company. Selling your product to a sales channel and recognizing the revenue is desirable but it doesn’t differ in terms of the economic value compared to having a channel selling your product and getting paid when it’s sold to the end user.
To add to the prior posts, it may help to think of the website as a closed system. For example, assume there are 100 games for sale at 300 points each and 100 people with 300 points each in the bank. The total value of goods for sale is 100 x 300 = 30,000 points, and the total currency in circulation is 100 x 300 = 30,000 points. So, if all the buyers spend all their points, every buyer will get one game. (To keep things simple, don’t worry about what the sellers will do with their income points.)
Now, suppose the house sells an extra 10,000 points to a few buyers. There are now 40,000 points of currency chasing 30,000 points worth of games. The first couple buyers might be able to get their games for 300 points, but eventually the sellers will realize their games are selling quickly and raise their prices. A 300 point game might now cost 400 (or more) points.
Unless the house is adding extra product to the marketplace (i.e., adding more games), then increasing the amount of currency available will lead to inflation. This is the same as when a government prints more money without an equivalent increase in national productivity - all that happens is more money chases the same amount of goods, resulting in inflation.
As a final note, the house makes out great. They have real-world dollars in return for made-up points, the value of which will continually decrease as they continue to sell more points. My advice - spend your points quickly.
well, assuming people want to join your society, and that you can deliver the goods, you would give:
a) a system to lawfully adjudicate disputes and debts between parties, and a corresponding monopoly on the use of lawful force to resolve conflicts, especially economic ones.
b) a system to facilitate trade (and thereby enhance trade) by introducing a unit of exchange that does not cost much to transport or store.
There are 2 forms of currency on that site. Points and tokens. Each transaction requires 2 tokens (one from the buyer and one from the seller) that normally go for $1 each (they are $0.50 due to the sale). So that is where the house makes their money, off of the tokens needed for transactions which normally go for a total of $2 per transaction. They do thousands of transactions a day.
Normally the house sells points that more or less match what the game market is charging. When the house sells points, they normally go for 200 points for $10. That is about what games go for on half.com. If a game is worth 100 points, it generally is roughly $5 on amazon.com or half.com. If it goes for 500 points it generally runs in the $20-30 range. So there is no real incentive to buy points from the house since they are the same value as the points you get from selling your own games.
However now that points are half off on this sale, you can get more points by buying them from the house than selling your own games. In the past when I needed points I’d buy a game on craigslist or at a store sale and sell it on this site. However its cheaper to just buy points right now.
So instead of buying games from people IRL and adding those games into circulation to get points, I’m just buying points.
However, if someone with a 500 point balance in the system forgets about the sytem, suddenly dies, or is too lazy to “cash out”, those points effectively vanish, so the house is free to inject more currency to avoid deflation, no?
But… to continue the comparisons to real life, very little money (a negligible amount) is truly “abandoned.” If a grandmother with $100,000 in a bank account dies, then their heirs will come forward to claim it, or if all searches for rightful owners are exhausted, the state will take the unclaimed money after some amount of time (statute of limitations or whatever.)
The equivalent scenario for the video game website is to post a policy about points expiring on accounts that have no activity after 3 years. This would be similar to what airline frequent flyer mileage programs do.
In real life, to really make the money “disappear” from the system, you’d have to take printed money (cash & coins) and bury them in the ground or stuff them in a mattress. However… the government can also make this money “go away” – they can issue an edict issuing new currency to replace the old currency. The government could allow for a grace period of 1 year to let people use both old & new currencies. This provides a transition period for citizens to redeem all their old currencies for new ones. This drastic action would certainly flush out most of the remaining “underground” money.
The website is adding value by creating a marketplace. You’ll be able to find opportunities for buying and selling videogames there that you wouldn’t have been able to find on your own.
I do agree that their model, as described by the OP, will tend to be inflationary. Points can be added to the system by adding games or by adding money. But points can only be removed from the system by selling games. Eventually you’ll end up with huge piles of points chasing after a handful of games. The website should try to balance out the people who purchase points by allowing people to also sell points back to the website.
A little inflation can be good if it encourages people to use their points instead of hoarding them. The babysitting co-op which Krugman is so fond of referencing is a good example. Inflation expectations can cause people to buy games instead of waiting for the perfect game. This increase in buyers will attract sellers, which will lead to the economy growing and more choice for everyone.
I agree they add value, but that is what the tokens are for. A game might be worth 200 points and if you want to buy it both you and the seller have to use 1 token (worth $1 each) to make the transaction. So the house makes $2 off every transaction.
So the website does add value, but they get reimbursed for that value via the tokens they sell.
The points themselves are a different issue IMO.
I don’t think you can sell the points back to the house. They may change that though if inflation becomes a problem. I remember when the website first started I don’t think you could even buy points. So I have no idea where the points first came from that allowed people to start buying games. If the house wasn’t selling them, and nobody had any points from selling games (since there were no buyers with points), where did they come from?
I’m not understanding the confusion here. The website was the one that gave birth to the points. Right?
It’s like asking about the NFL football games and the 3 timeouts each team is given. Where did those timeouts “come from?” It didn’t “come” from anywhere. If the league changes the rules so that each team only gets 2 timeouts starting next season, where did that 1 subtracted timeout “go?” It didn’t “go” anywhere.
Both the points and timeouts are abstractions invented out of thin air.
I’d say this is the main danger of using a website like that: I’d be surprised if they weren’t doing exactly this, issuing free kickbacks of points to themselves, to friends or to favorite customers, or other such tactics. They run their own currency for god’s sake - they can print money! How many people would pass up the opportunity to print $100 for their friends at a whim? At that sort of level it wouldn’t even affect the inflation rate.
Effectively you’re doing a foreign exchange transaction, from dollars into a very small currency that’s managed by a gaming website and is potentially very unstable. That might be OK if you’re making your transactions quickly (send your game, get the points, buy another game straight away), but if you’re storing up a lot of points for long periods of time, it’s pretty risky. It’d be like changing US dollars into a currency like Congolese francs - you just have no certainty about what’s going to happen to your investment.
What you’re talking about are alternative currencies and there’s volumes of literature on the intricacies of running an alternative currency.
The easiest way to do this would be for the central bank to “back” the points currency by, for example, buying a bunch of games in cash and then selling them in points.
