Anyone interested in studying a course of a video game economy knows that patches have long-term effects that are often difficult to predict. MMORPG economies are complex entities and seemingly slight changes almost always bring about massive impacts. With the drastic influx of legendary items to be introduced in Diablo III's patch 1.0.5 released this October, concerns over inflation and damage to the Gold and Real Money Auction houses have arisen.

Inflation, for those less economically inclined, is what happens when the scarcity or rarity of an item in an economy goes down. Because rarity is a big factor in value, decreased scarcity means decreased value. In almost all cases, the item in question is currency and inflation answers the question "how much buying power does my money have compared to what it used to have?"

Inflation means the money in question is worth less than it used to be just as deflation means the money is worth more. MMORPG economies almost never undergo deflation but almost always have very high inflation.

That the new patch will affect prices is unquestionable. Any increase in an item's availability will decrease that item's scarcity and thereby make that item less valuable. But the patch does not affect the amount of gold in the game, in other words the money supply, and that is very important when inflation is a concern. Most MMORPG inflation occurs because over time, players gather up more and more gold and that makes gold less and less scarce. This patch affects the economy in a much more subtle way.

In the before-patch environment, it was harder to get a hold of legendary items. Because of this, players would settle for items of lesser quality. By doing so, they created a demand for lesser quality items, and more demand means higher prices. With more players able to find or purchase legendary items, demand for lesser items will see a sharp decline and prices will fall. That will actually increase buying power, because with the same amount of gold a buyer can acquire more items, and in a rare twist of fate this will mean deflation of the gold value.

MMORPGs have another difference from real world economies, however. When MMORPG economies mature, players will often disregard gold in favor of rare items as a means of currency exchange. Famously, Stone Rings of Jordan are used as a base currency when inflation drove Diablo II's in-game currency into the ground. By making legendary items less rare, those players who rely on barter or using rare items as currency will see a sharp decline in their buying power. To those players, this will most certainly be a strong inflationary influence.