Chapter 9: Market Structures

In year 5 of JC if you take economics, you will be going through a topic on market structure, which depicts the different types of market structures that exist; perfect competition, monopolistic competition, oligopoly, and monopoly (which was discussed on chapter 3, and therefore I will not be elaborating that much on it). This chapter is mainly targeted at my juniors, as most of the content present in this chapter would have already been taught in the year 5 syllabus. I will not be covering profits in this chapter because it is really hard to explain, and I will leave it to your economics tutors to give you a more detailed tutorial on subnormal, normal, and supernormal profits, though it would be great if you are willing to do research on profits by yourself. Just keep in mind that in the long run, perfect and monopolistic competitive firms earn normal profits, while oligopolies and monopolies earn supernormal profits.

In the world D/E/I, when the market used to be much more vibrant and filled with much more interaction, the differentiation of these types of firms could clearly be seen. The first type of market structure I would be talking about would be on perfect competition. Perfect competition is a scenario where everybody sells the same thing at the same price. Firms in perfect competition are unable to set a price for themselves because they do not have the market power in this situation. The reason that they do not have market power is because there are too many firms selling the same thing. If any firm were to raise their prices above the current price, their customers will simply buy it from another firm. Such examples are either rare or impossible to find in this dynamic world of ours, so the closest that I can think of would be the currency exchange. In the maple world however, perfect competition can be seen amongst the NPC weapon and armour shop in Victoria Island, of which they sell the same thing at the same price. The practical reason for doing so is clearly because the developers want it that way. In theory, these shops sell the same thing at the same price because consumers would simply just spend a minute’s walk/jump to another city that sells it at a cheaper price. Basically, it sucks to be a firm in a perfect competition.

The next market structure which is much more realistic, and can be seen almost everywhere in our lives would be monopolistic competitions. In a monopolistic competition, every firm has this small ability to differentiate their product. In other words, make the things they sell a bit different from the other firms, but still of the same type. To clarify this point, just take the milk tea that gong cha sells, and the milk tea your school canteen sells. They are both milk tea, but different in quality, and thus explaining the different prices. Of course other factors such as rent and cost of production matter as well, but let’s just take it at face level. With the small ability to differentiate your product comes this small market power that allows you to determine the price of the goods you sell, without having a devastating impact on your quantity demanded. An example in Maplestory would be the potion shops all over Maplestory, and perhaps the difference between pills and potions. At more high end areas like the path of time, potions there cost more than when you buy it at Orbis or at Victoria island. This is due to the fact that these shops are located inside high level areas, catering to the richer, higher levelled community that are too lazy to travel to another continent to buy their potions at a cheaper price. Besides, in the time taken to travel, they could have possibly earn the amount “saved”.

Product differentiation also occurs in the free market in terms of how well scrolled an object is. Obviously the better scrolled your weapon, the more power you have in controlling its price, and if your weapon is simply badly scrolled, it would definitely have to go cheaply. From personal experience from crafting androids, I witnessed a customer bargaining for a cheaper price for my android because it has the sign at the bottom “Crafter: Rafflessin” (Rafflessin is the IGN for my level 120 Nightwalker with level 10 smithing). Of course branding is important, and since I wasn’t really a brand name, people were not inclined to pay a higher price. (In the end I just sold the customers the materials required to craft the android, and asked him to do it himself).

Oligopoly is another type of market structure that is very applicable to our modern world, as well as the maple world. Oligopolies are a few firms, each with large market power, selling the same genre of goods. An example would be the fast food industry in Singapore, where you can see giants like MacDonalds, KFC, Burger King etc. who dominate the fast food industry (Of course many small firms exist, but their market power is not as strong as those companies listed above). Oligopolies, being very large, are able to reap huge internal economies of scale, meaning that they are able to produce their goods at extremely low prices relative to the smaller firms. As you can see, the paper and ink required to produce the packaging for your medium fries at MacDonalds, cost more than the fries it contains, which explains how much they are earning by selling to us $2.70 for one packet of fries - probably more than 1000% profit. Oligopolies, if unable to differentiate their product substantially, such as oil and petrol, do not have much incentive to increase their prices as consumers will simply just go to other firms. If Shell has a 5% increase in petrol prices, and there is a Caltex right beside the Shell Station, I would rather purchase from Caltex. If they were to decrease their prices, other oligopolies would follow suit, and a price war would occur. A price war is an occurrence when firms just keep lowering their prices to match the decrease in prices of other firms, resulting in a loss of profits for all firms, but an increase in consumer’s surplus (Buyers are happier). After some time, the firms will realise that the price war is pointless, and will end up colluding with one another, and setting higher prices.

Bringing it to the maple context, have you been to Ardentmill, only to see 2 intermediate extractors side by side? If you are a fervent camper at Ardentmill (like me 2 years ago), you can see that if the extractors both have different prices (Extractors are a service provided by the owner of the extractor, that allows users to extract item crystals out of their unwanted equipment), the consumers using the extractors will obviously use the cheaper extractor, even if the difference is just one mesos, because consumers are rational, and terribly cheapskate. Over time, these 2 extractors will consistently lower their prices to obtain all the demand, until the point where both the owners of the extractors realise that they are making a loss through this price war. So what do they do? They privately chat to each other, set the price of using the extractor at 10x the current price, but at the same price as one another. In this way, demand is equally split, and each owner of the extractor ends up earning 5x more mesos. In Singapore, such collusion is prohibited in order to protect the interest of the consumers, and any firm caught involved in such acts of collusion will receive harsh penalties from the competition commission of Singapore. Since Maplestory is a completely capitalist, free-market (apart from the 3% tax on trades with more than 100 million) without any rules, you are free to collude all you want, just look at the Cygnus equipment market in late 2012, equipments of the same type were sold at about the same price by the extremely pro players.

The last market structure, which was already explained in chapter 3, is monopoly, which I will not explain too much about. Monopolies are a very unlikely scenario in real life, though still much more possible than perfect competition. An example would be OPEC (go search it up if you are interested), where oligopolies collude together to behave like a monopoly with absolute pricing power.

Various types of market structures exist in Maplestory. As long as you are willing to treat it as more than just a game of numbers (or perhaps cute slimes, snails, and mushrooms), you will be able to find out more about the dynamic economy and market, and how relevant it is to the society we live in. Maplestory is more than just a game, it is a game for you to trade and understand the mechanics of merchanting, it is a platform for an essential life skill.

End of Chapter 9

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