Arbitrage and equilibrium in the Team Fortress 2 economy (2012)

ARBITRAGE AND EQUILIBRIUM IN THE TEAM FORTRESS 2 ECONOMY Arbitrage is the holy grail of every trader. The dream of buying low and selling high (for this is what arbitrage is all about) is the driver of all commerce but also its own worst enemy: for as everyone is trying to pursue it, the potential for arbitrage disappears. And when it does disappear totally, we have equilibrium (the holy grail of the economists). One of the problems of living in the analogue world is that these concepts (e.g. arbitrage and equilibrium) are extremely hard to pin down. No one has enough information on how actual prices diverge from their ‘equilibrium’ level so as to be able to measure, or to visualise, the potential for arbitrage. All we can do is guess what it might be. Not so in our digital economies. The following diagram, for instance, captures the room for arbitrage (what we call an Index of Arbitrage Potential for Steam trades of Team Fortress 2 items) as it arose during the period 13th November ... Read full article.