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Wednesday, September 25, 2013

The "Price Floor" Update: An Economist's Point of View

Hey, IBarrageI here.

With this new Price Floor update on Roblox, it's forced me to actually use my A-Level in economics to good use. Of course that's not a bad thing. (I think)

In this post I'll be looking at the benefits and drawbacks to this update, in a detailed and economic way. This means I'll be using a lot of words and confusing diagrams (All of which I'll be explaining as we go along). Sit sit back relax, and let me do all of the work.

First off, I'll say this right now. This is not all bad, despite the negative comments. The point of a price floor (Which is more commonly known as a minimum price) is to stop the demand of, lets say a high quality shirt, going down without as many competitors trying to under cut prices. Because, as a consumer, you are more attracted to lower prices it even doesn't matter if you're rich or not, because lower prices in a common consumer market, lower prices get more sales.

With low prices leading to more sales, this means that players who price their clothing according to quality, lose sales due to an amazingly high amount of cheaper competitors. The price floor acts as an equalizer.

The adding of a "Price floor" is actually something that is used in real life as a form of government intervention, an in our case, the government is ROBLOX.

Benefits

Despite the complaints, there are many benefits to this. But many of which are limited.

The Builders Club Incentive

Ok, this update is an incentive to purchase Builders Club. That fact is proven in the blog post about this update.
Although this might seem like a drawback at first, once I explain.

It may sound like an scheme set up by an evil corporation, but it is essentially a way to push users to experience the benefits of Builders Club. And believe me, there are plenty of benefits. This fact alone is one whole benefit.

The Leap into Graphic Design

Once again, this is a benefit about incentives. The increase of prices makes users want to make their own clothing. And for this, I shall explain with the power of diagrams.

The above diagram is one that shows how the market works under the price floor.
At the top of the diagram shows a gap, this is "excess demand", which essentially means, that there are people who want the clothing, but can't afford it or just don't want to purchase it for that price.

This excess demand is what makes people try to fill their own demand, this means more graphic designers.
This incentive to create is what will make players understand the true sense of inepenance. The added idea that there is no-one to undercut their prices is an added incentive to create their own content. Though, this of which requires builders club. Which will move me onto the drawbacks.

Drawbacks


There are quite a lot of drawbacks to this update many of which are already apparent.

Needing Builders club

Before, I mentioned that the incentive to buy builders club was a benefit. This time it's a drawback.

As everyone knows, Roblox is a free to play game (to an extent), and character customization is something any user can do. I'm sure many of you remember the first time you bought your first shirt. And probably buying a Visor or the free Red Roblox Cap, and getting a shirt to match. With this update, new users will be unable to experience much of the character customization due to the prices of everything being out of their reach. A big downer indeed.

Sales dropping

This one is annoying to the ones who actually make a large amount of R$ and Tix from clothing, e.g. Kestral

Here's the diagram from earlier:
"Q1" represents the market average sales. With the price floor in place, quantity sold decreases to Q2. This decrease is what causes the problems. It's alright selling at this price, but if your main market is aimed at new players, then sales will be completely diminished.

Meaning an income for a player who markets like this, has completely dried up.

Entrepreneur? What's that?


This is a big problem for me to a sense.

A long while ago, Roblox posted this to their blog. Although that post was directed at place building, it was the same for clothing. "If people like it, they'll come back for more".

The entrepreneurial side of clothing was about thinking "What price will get me the most profit?", "How could I increase my prices without losing sales?", "How could I be the next big clothing brand?". These are all questions that players are faced with when selling their clothing. This was what the post was making reference to.

Though, with the price floor, the entrepreneurial side of clothing has now diminished and has been dumbed down. As now it feels like now all clothing is now at a completely set price. No need to do anything, just put it up for sale, leave it and hope for the best. This is what upsets me the most.

All of these drawback do appear to outweigh the benefits in the fact that  it all goes against the idea of ROBLOX being a free game.

The price floor itself is rather redundant in the fact the intervention it is supposed to do, has turned itself into a marketing tool for Roblox.

Although the price floor is a good idea, a lower value should of been chosen 5 - 10 R$ would of been more reasonable, but the sheer fact that one builder club member can't even afford 1 piece of clothing with only their daily R$ seems too outrageous.

Thanks for reading.
IBarrageI