The value of labour

16th February 2009 – 10.41 am

Heading in to New Eden I say hello to a couple of new corporation colleagues and pick up my newly completed production run of missiles to put on the market. Jumping in to my Badger's pod I take the missiles to the system and station that has proved lucrative for me only to find that someone else has undercut the normally inflated local prices for them to be comparable with other systems. Rather than undercutting the lower price and perhaps forcing depressed prices in the future I keep my price quite high and simply decide to let those cheap missiles sell out, which won't take long at that bargain price. It means my missiles will take a few more days to start selling but the extra ISK I stand to make will be worth it.

With my missiles up for sale I set a course for my home station to pick up the stockpile of minerals I found serendipitously that had been accumulated months ago and left unused. Rather than having to buy more minerals from the market to start my next production run I can instead use this dusty stockpile. It is tempting to discount the cost of the minerals from my calculations in working out the unit price of the finished product. After all, I haven't spent any ISK in getting them so it is all profit, the reasoning can be made. However, this is a false economy, just as it is when mining your own ore.

The idea that you can ignore the cost of minerals when selling goods if you don't buy the minerals can easily be shown to be wrong by considering how to maximise profits. If a mineral is selling for a certain amount of ISK per unit and you decide that, perhaps because you mined the ore, you can discount that cost from the produced item you may be able to undercut competition drastically, but if you are selling the finished item for less than the cost of the minerals on the market then you could have made more profit simply by selling the mineral itself. There is little sense in spending time and ISK running a production line if you can make more money more quickly by dumping the raw minerals on the market.

It should be clear that factoring the cost of minerals in to the price of the product is necessary in maximising profit. What strikes me about this is how functional the economic system is. There are no 'vendor trash' goods as such—effectively useless items added to the game solely to give a source of income to players—because just about everything has a purpose, even if this purpose is just to be broken down in to its constituent minerals to be used to make something more useful. Not only that, even labour has value.

In World of Warcraft it is common for labour to reduce the value of an item, probably to prevent rapid accumulation of wealth. For example, buying flour from a vendor and using the cookery skill to make bread ends up with a product that is sold to the vendor at less than the cost of the flour itself. This appears to be true for most crafting items in the game, the finished product being worth less than the constituent materials, and it makes the crafting system a tedious time-sink at worst. You end up spending time in order to reduce the value of items for the chance of increasing your skill, which tragically advances you to be able to continue the process of destroying value with more expensive materials. The only time value is seen in goods in World of Warcraft is when they are sold to players, not NPCs.

With EVE Online, it is important to note that, with only a few exceptions, any goods on the market are generally sold by a player and bought by a player. When a player buys the materials from the market and spends ISK on producing a finished item he can factor in the cost of that labour, add a profit margin and sell the goods for an overall gain. Because you are not buying from and selling to an NPC vendor ISK cannot be generated from nothing, which is how the contribution of labour can be valued. That is not to say the economic system is closed. ISK made from running missions, including loot and salvage, and gained from bounties is external to the system, but this too requires a form of labour.

Time spent creating goods is never time wasted, and it is always possible to sell looted or gathered items, or the minerals therein, for a reasonable price. Rather than spending time making essentially worthless items being an industrialist is to know that you are a necessary cog in the system, meeting demand with supplies and seeing the intrinsic value in time and materials.

  1. 3 Responses to “The value of labour”

  2. Couldn't have said it better myself.

    By Karox Lominax on Feb 16, 2009

  3. When I get seriously undercut by somebody, I always check the price they have listed against what it would cost me to produce the item.

    I did a run at production a while back and so have a few spreadsheets around to calculate the per unit price of production given the current prices on the mineral market. (Which, as you say, factors into the price whether you mine or buy minerals.)

    I find that, quite often, people list below my production price. So I buy up their stock and relist their stock and mine at a profitable price point.

    By wilhelm2451 on Feb 17, 2009

  4. The 'bargain' missiles were actually selling for a reasonable region-wide price, it's more that the local market has a curiously high profit margin that I am happy to exploit.

    I have indulged in a bit of reselling, though. Expanded cargoholds have a huge mark-up, despite still being relatively cheap to buy, and someone decided to dump some product on the market for a reasonable price. I bought them all and relisted them—in the same station, no less—only needing to sell a quarter of them at the new price to make my ISK back. I'm turning a profit on those goods now, so it is definitely worth looking out for bargains, as you point out.

    By pjharvey on Feb 17, 2009

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