The Science of the Free Market

starveAs many big-time traders have noticed recently, the price of knives is dropping. One might think that the most valuable skins in the game would hold their value better than anything, but this simply is not the case. Valve has not given us new content lately, and thus the forces of simple supply and demand have been at work.

From the butterfly night to the bayonet slaughter, in the past month the value of knives across the board have dropped $20. Free markets are only seen in stocks and in online economies (the United States operates under a modified free market; think of minimum wage), and as a result the values are based solely on supply and demand.

TF2_GroupThe first game that I loved, the game that set a precedent for online trading, was Team Fortress 2. Team Fortress 2 was the first game where there was a bigger emphasis on trading rather than monetary exchanges, but the principles that were used hold true for CSGO. As some of you may know, the Team Fortress 2 market is now almost irrelevant. I will break this down for you, and parallel it with what just might happen to CSGO if we’re not careful.

The history of TF2 Wealth

hqdefaultBill’s hats and Earbuds: Earbuds were once the gold standard in TF2. Worth around $30 in Paypal at its peak, they were received during a very limited time where people who played on a Mac would receive the item.

These were only paralleled by the Bill’s hat, which was received from pre-ordering a copy of Left 4 Dead, and 2 Bill’s hats were worth a pair of earbuds. These were often used to buy unusual hats, which are the equivalent of a knife, and keys were the same as they are in CSGO.

 

TF2TradingPostThis market was pretty static and revolved around a TF2 Trading Post, similar to CSGO lounge. Between long breaks of content, traders continually lowball each other trying to get the best value possible. In economics terms, there was downward pressure on the market in order to drive the price to a point where consumers felt they were getting a good dealer while sellers were also profiting. But when CSGO and other games became more popular, many big TF2 Traders started selling their items for Paypal, and since they did this relatively around the same time, there was a sharp drop in how much a pair of earbuds was worth. However, keys, because they can be bought from Valve, dropped very little. As a result, unusual hats which were worth $150, or 5 pairs of buds, were suddenly only worth $75 because earbuds were valued at $15 a pair.

How did the TF2 Market respond?

At the time, people thought this was the end of the world. Many believed that the Team Fortress 2 community had finally realized that their items would never be worth anything, and the TF2 economy had come to an end. However, this was not the case; backpack.tf, the most reliable price checker for TF2 items, switched their prices for unusual hats from earbuds to keys. This resulted in a much more stable market, and the minor fluctuation of keys determined (for the most part) the fluctuation in prices. Thus, instead of being worth 5 pairs of buds, an unusual hat was now worth 40 keys. This was good for the Team Fortress 2 market, and has kept it alive since then.

How does this relate to the CSGO Market?

butterflyknifeNow, I tell you this because the CSGO market recently suffered a depression, and many traders were worried about how this would affect prices. It is difficult to predict when to buy and sell skins, but there is one big reason as to why the prices of knives were dropping; keys. On the Community Market, keys were worth only $2.65, a mere 15 cents more than how much they cost from Valve. Thus, for CSGO traders, the prices of knives were the same the past two weeks, yet for Community Market buyers and sellers, the price dropped. For example a vanilla butterfly knife was and still is worth 53 keys, but the price went from $138 to $133 because there was a 10 cent drop in the price of keys.

So if you were worried about the price of your items spiraling down, have no fear. The price of keys fluctuates often, and if you pay attention to how quickly they change you can always be one step ahead of the market. And for those of you who despise using keys for trading, don’t worry about being irrelevant just because you prefer using steam or OP credit. Key traders have been around since before the Community Market, and they will be around forever. However, to make clear cut profit, I prefer using dollar amounts in my buying/selling. That’s all I have for this week, and as always, don’t troll my soloqueue!

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