eRepublik Economies - Common Misconceptions.
Day 250, 09:37
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Published in United Kingdom 
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by
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by Tim09
Inter-Pol - Edition #1
eRepublik economies - Common misconceptions.
By Ip Lockard
1. More companies means more products on sale.
Wrong.
More companies will generally mean the workforce is spread between them.
In eRepublik, workers get a bonus to productivity based on how many other workers have already worked in that company that day.
This means that, all other things being equal, 1 company with 20 employees will produce LOTS more than 20 companies with 1 employee.
2. More competition means lower prices.
Very Wrong.
Whilst in the short term, competition will lead to prices gradually lowering, this can lead to massive problems further down the line, with this eventually becoming more and more non-sustainable, coupled with the fact that smaller companies produce less. This often leads to once company going bust, and the remaining one is left making a loss and often has to hike up prices to cope. This means in the long term, competition tends to end badly for the consumer.
To start with, point 1 shows that many smaller companies will produce less product than one large company. This means the margins the owner has to sell at to break even are much higher, causing the lowest cost he can sell at to be higher.
Secondly, competition between companies can actively cause inflation, meaning both that prices are higher, and that the money people already have is worth less!
How does this happen? - A walkthrough
Company A has 8 workers. Company B has 5 Workers.
Currently, company A is producing more than company B for the same cost, assuming their wages are equal for each skill level.
Company B's manager sees this and decides he'll be better off with more workers, so he offers company A's workers a Job with a higher wage.
Now Company B has more workers, and Company A has less, but they're now making about the same amount of profit, as although company A's workers are less productive (there are less of them) he is paying them less.
Company A has seen some workers leave, so he decides he wants them back as he sees goods are not being produced as quickly. So he offers them jobs back in his company for a higher wage. The workers come back across.
Both owners discover they need to increase prices to account for the new wages, but it's all fine because the workers are earning more now! (Or is it?)
This continues for a few cycles.
We now have the same workers, in the same companies, earning a lot more money.
The price of goods in that industry quality level are now higher.
People from other sectors/qlevels cannot afford them as much as they where used to, and ask for wages to match the increase.
Now, again we're back where we started, no-one is better off.
In fact, everyone with any savings is actually WORSE off.
Thanks to twat-ers for the following insight:
"Point to note also, this generally doesn't happen in Q1 companies. They
don't tend to compete on wages (at least initially) when they can just
try to jump the gun and hire in all the new citizens. Which leads to
excessive numbers of employees in certain industries (e.g. food and
gifts in the UK as cases in point)."
3. Having a company makes you richer than working for someone else.
Wrong.
Having a company merely gives you a bit more control over your earnings.
The start-up costs in a company in a developed country (Countries in the game now, not ones being added.) are actually a lot higher than you think, both in terms of investment required, but also in time taken to manage the company.
In addition to your automatic 40gold outlay, you'll need to be able to guarantee getting 5+ workers in the first couple of days, and you'll need about 3-4days wages for them upfront in 'Small' industries like Food & Gifts 5-6 days for 'Medium' Industries like Moving and Weapons and anything from 10-30days wages for Housing and Hospitals.
As you can imagine, this all mounts up to quite a start up cost.
After you've made it through the first few sales, and established yourself on the market, you now have the problem of competition.
Of course the objectively best thing to do in this circumstance was not to enter a sector with competition at your Quality level, however, assuming you have done the best thing is to strike up a deal with other company owners in that sector. Agreeing to not undercut prices, and to refrain from poaching employees is beneficial to both of you.
So now you know.
And knowing is half the battle.
Useful link:
[a url=http://wiki.erepublik.com/index.php/Economy]Erepublk Wiki on Economy[/a]
This article was brought to you by Inter-Pol
Written by [a url=http://www.erepublik.com/profile-45161.html]Ip Lockard[/a]
Thanks for reading.
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eRepublik economies - Common misconceptions.
By Ip Lockard
1. More companies means more products on sale.
Wrong.
More companies will generally mean the workforce is spread between them.
In eRepublik, workers get a bonus to productivity based on how many other workers have already worked in that company that day.
This means that, all other things being equal, 1 company with 20 employees will produce LOTS more than 20 companies with 1 employee.
2. More competition means lower prices.
Very Wrong.
Whilst in the short term, competition will lead to prices gradually lowering, this can lead to massive problems further down the line, with this eventually becoming more and more non-sustainable, coupled with the fact that smaller companies produce less. This often leads to once company going bust, and the remaining one is left making a loss and often has to hike up prices to cope. This means in the long term, competition tends to end badly for the consumer.
To start with, point 1 shows that many smaller companies will produce less product than one large company. This means the margins the owner has to sell at to break even are much higher, causing the lowest cost he can sell at to be higher.
Secondly, competition between companies can actively cause inflation, meaning both that prices are higher, and that the money people already have is worth less!
How does this happen? - A walkthrough
Company A has 8 workers. Company B has 5 Workers.
Currently, company A is producing more than company B for the same cost, assuming their wages are equal for each skill level.
Company B's manager sees this and decides he'll be better off with more workers, so he offers company A's workers a Job with a higher wage.
Now Company B has more workers, and Company A has less, but they're now making about the same amount of profit, as although company A's workers are less productive (there are less of them) he is paying them less.
Company A has seen some workers leave, so he decides he wants them back as he sees goods are not being produced as quickly. So he offers them jobs back in his company for a higher wage. The workers come back across.
Both owners discover they need to increase prices to account for the new wages, but it's all fine because the workers are earning more now! (Or is it?)
This continues for a few cycles.
We now have the same workers, in the same companies, earning a lot more money.
The price of goods in that industry quality level are now higher.
People from other sectors/qlevels cannot afford them as much as they where used to, and ask for wages to match the increase.
Now, again we're back where we started, no-one is better off.
In fact, everyone with any savings is actually WORSE off.
Thanks to twat-ers for the following insight:
"Point to note also, this generally doesn't happen in Q1 companies. They
don't tend to compete on wages (at least initially) when they can just
try to jump the gun and hire in all the new citizens. Which leads to
excessive numbers of employees in certain industries (e.g. food and
gifts in the UK as cases in point)."
3. Having a company makes you richer than working for someone else.
Wrong.
Having a company merely gives you a bit more control over your earnings.
The start-up costs in a company in a developed country (Countries in the game now, not ones being added.) are actually a lot higher than you think, both in terms of investment required, but also in time taken to manage the company.
In addition to your automatic 40gold outlay, you'll need to be able to guarantee getting 5+ workers in the first couple of days, and you'll need about 3-4days wages for them upfront in 'Small' industries like Food & Gifts 5-6 days for 'Medium' Industries like Moving and Weapons and anything from 10-30days wages for Housing and Hospitals.
As you can imagine, this all mounts up to quite a start up cost.
After you've made it through the first few sales, and established yourself on the market, you now have the problem of competition.
Of course the objectively best thing to do in this circumstance was not to enter a sector with competition at your Quality level, however, assuming you have done the best thing is to strike up a deal with other company owners in that sector. Agreeing to not undercut prices, and to refrain from poaching employees is beneficial to both of you.
So now you know.
And knowing is half the battle.
Useful link:
[a url=http://wiki.erepublik.com/index.php/Economy]Erepublk Wiki on Economy[/a]
This article was brought to you by Inter-Pol
Written by [a url=http://www.erepublik.com/profile-45161.html]Ip Lockard[/a]
Thanks for reading.
-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= -=-=-=-=-=-=-=-=-=-=-=-
+ Inter-Pol likes +
- [a url=http://multisnake.com/]Multi-Snake[/a]
- [a url=http://www.myerepublik.com/]My Erepublik[/a]
- [a url=http://wiki.erepublik.com/index.php/Main_Page]Erepublik Wiki[/a]
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Comments
fanatstic article, cool to see how the \"circle\" links to real life economics. Voted and suscribed!
Excellent insight into the economies of this game. I hope lots of people read and take note 🙂 well done Interpol 🙂
Voted. I seem to remember writing a lot of stuff like this a few months back... 😉
Awesome. Well written. Gives good insight to future companies.
great article, very informative
Interesting article, a good read.
good article, but don\'t think you can say that \"competition means lower prices\" is not true. This is pretty much one of the founding principles of economics. And the example you give to justify the statement is very specific and not particularly likely. Competition generally only doesn\'t work when a small new company tries to enter a monopolistic or oligopolistic market, dominated by a/few big companies. So applying that to this e-world, it might be applicable in level 4 or 4 quality businesses, but certainly not in 1 or 2. But even so, telling people not to try and enter those markets with higher barriers results in the companies there already being able to abuse their strength = higher prices = bad.
In general Competition = Good.
IRL - Competition leads to lower prices.
On here, prices are short for a period, then higher than they were beforehand.
It\'s already happened in the Gifts and Food industries.
(On a semi-related sidenote - fraud is not good business)
I agree with tjbb that it\'s not proved that less competition leads to lower prices. Of course, if there are too many firms, productivity is low and prices will be high. But if there are too few firms, then there is nothing to stop prices rising. Even worse, wages might try to follow, leading to an inflationary spiral.
A happy mean is best!
In the long run, the only way to ensure that we can benefit both from both economies of scale and lively competition is to ensure that we trade internationally. Free trade is best!!
I agree with tjbb that it\'s not proved that less competition leads to lower prices.
Actually my point here is more that less competition ENABLES lower prices.
The GM\'s are still partly responsible here.