The following is a reproduction, and has been modified for this site. The original article, and many more, can be found at RemptonGames.com

Magic: The Gathering (often simply referred to as Magic) is the oldest and most successful trading card game on the planet, and is one of the most successful tabletop games to ever exist. Magic, which was first released in 1993, has been around for over 25 years and is still going strong. It has millions of players worldwide, and has released tens of thousands of unique cards over the years.

As such a successful and long-running game, Magic clearly has a lot of things figured out. They have discovered how to grow a worldwide community, develop a competitive tournament scene, and continue to keep players hooked for years on end. But have they also discovered the secret to sustaining an economic bubble?

Really? Another economics article?

To find out, I am going to be answering 4 questions in this article. First, what is an economic bubble? Second, why does Magic: The Gathering qualify? Third, how long has the Magic bubble existed? And finally, why has the bubble gone so long without bursting?

The Bubble Matrix

In the most general sense, an economic bubble exists when a particular asset is sold at a value that is significantly higher than its intrinsic value. Much like a soap bubble, the price of the asset keeps inflating larger and larger, filled with nothing but air, and can suddenly “pop” – causing a sharp decline in the price.

Economic bubbles go back to at least the 1630’s, and in that time there have been bubbles for everything from flowers to stuffed animals to virtual currency. However, to help illustrate the concept of a bubble I am going to use a major bubble that occurred quite recently – the 2007 real-estate bubble.

To give a very brief overview, since the 1960’s the average price of a home has increased significantly (far greater than the rate of inflation) from around $27,000 to over $300,000. This increase was fueled by many factors – increased demand due to a rising population, government actions that encouraged home ownership – but a major factor was the increased availability of mortgages and home loans that allowed many Americans to buy houses who would otherwise not be able to afford them.

Psst hey kid…. want a mortgage?

Over time, the increased availability of mortgage loans caused an increased demand for homes, which in turn drove up the prices of homes. As the price of homes drove higher and higher, so did the payments on those loans. Eventually a large enough percentage of the population reached a point where they were unable to pay their loans, the loan was defaulted, and the house was repossessed. This event caused many people to lose their homes, caused banks and investors to lose billions of dollars in real-estate value, and was a major contributing factor to the economic recession.

While most bubbles are not this dramatic, the general pattern remains the same. A particular asset begins to increase in price due to overwhelming demand, an excess of disposable income, or expectations of being able to sell in the future for a profit. This causes the price of the asset to rise to an unsustainable level, and a sudden change in the market can cause the price to drop substantially. Once such a price drop occurs, it can often be difficult for the asset to recover.

Is Magic: The Gathering a Bubble?

You may be wondering what these economic bubbles have to do with Magic: The Gathering. After all, a pack of Magic: The Gathering cards only costs around $4 for 15 cards, and you can get a deck of 60 for $10. This doesn’t seem to be an overly inflated price, so why do I claim that Magic is an economic bubble?

The answer: the secondary market. While you can buy a large number of Magic: The Gathering cards relatively cheaply, it is a unavoidable rule of Trading Card Games that some cards are going to be significantly more valuable than others. When you open a pack you never know which cards you are going to get, so if you want to guarantee that you get a particular card it is often much easier to simply buy it from somebody else who has one instead of opening packs to try to get one yourself.

For all your flying purple hippo needs

It is on this secondary market that the prices of cards can sky-rocket, with some recent cards selling for tens or even hundreds of dollars, and some rare older cards being sold for thousands.

However, simply being expensive does not necessarily mean that something is an economic bubble. Houses, for example, are generally going to be one of the biggest purchases the average person makes in their lifetime, even if the price has not been inflated. The intrinsic value of the home is high, and therefore the price will be high.

This begs the question – what is the intrinsic value of a Magic card? Some might argue that if a particular card sells for hundreds of dollars it is because the card itself is an intrinsically good card, and therefore the price is justified. Put another way, it is worth what people are willing to pay for it. However, this concept is what is known as the market price, not the intrinsic price, and market prices are subject to change. Intrinsic prices, however, are a more fundamental property of an object, and can be much harder to determine.

Take a television, for example. There are numerous television manufacturers, all of which make pretty similar products. While they may differ in areas such as the types of connections that are available, the size of the screen, and the type of screen technology used, if you account for those differences the actual price of the televisions will be pretty similar from brand to brand.

This is because in a competitive market the price of goods tends to approach the intrinsic value of the good. It will not be much higher, because if it is a competitor could come along and sell it for cheaper. It will also not be lower, because if it was the company selling it could lose money.

Magic cards, however, are not a competitive market. If Wizards of the Coast does not want to print more “Wheel of Fortune” cards, another company cannot come in to fill the gap. This creates scarcity – once Wizards of the Coast stops printing a particular card, there is no guarantee that they will ever print more. Since cards will get lost or damaged, the total supply can really only go down over time.

To make matters worse, now we both have to discard our hands

It is because of this scarcity that many of these rare and powerful cards are so expensive – the demand is so much higher than the supply, which causes the price to skyrocket. But scarcity is also not an intrinsic property of an item, and does not factor into its intrinsic value. Suppose a recent set comes out with an extremely powerful Mythic Rare card, and the price drives up to $50 because it is so sought after. There is nothing stopping Wizards of the Coast from putting that card in an easy-to-find starter deck or something, causing the value to come crashing down.

Why hasn’t the bubble burst?

This bubble – selling Magic cards for far more than they are intrinsically worth – has been around for almost as long as the game itself. From the very beginning Magic exploded in popularity, growing far faster than Richard Garfield and Peter Adkison  ever could have imagined. While players at that time were much poorer at evaluating the value of a card than modern players, it wasn’t long before certain cards were seen as far more valuable than others, and were sold and traded accordingly.

If these inflated prices have been around for 25 years, why hasn’t the bubble popped yet? The answer – it has, in a way. Back in 1995 Magic released their annual core set – 4^th Edition – as well as an additional set of reprints, called Chronicles. These two sets contained no new cards – instead, they included only reprints of old cards, some of which were quite valuable.

While this may have seemed like a good idea at first – “everybody wants this card, so we should make it easy to get!” – it ended up having a major impact on the card reselling community. Cards that could previously be sold at a good profit were now worth a lot less because they were much easier to find, and collectors were upset because they spent large amounts of money buying cards that were now much cheaper.

Pictured: The value of your “Palladia-Mors” playset

I believe that this event is what caused Magic to start thinking about how they would handle the issues of the secondary market, and keep it from collapsing in on itself. Their first reaction was quite extreme – they made a policy called “the reserved list” which promised that they would never reprint certain rare cards from early sets.

However, they soon found this policy to be too extreme. While cards that were originally placed on the reserved list are still unable to be reprinted, Wizards no longer places new cards on the list. Instead, they use a more subtle strategy with several pieces to help control the prices of their cards.

Magic is, first and foremost, a game. While Magic does have a lot of appeal to collectors who only appreciate the cards for the artwork, most people are buying the cards to use them. This is one of the major things that separates Magic from something like Baseball cards – Baseball cards only have value as a collectible, while Magic cards have a use as a game piece.

As long as people play the game the cards will have some value, and if players ever stop the value of the cards is likely to plummet. So how does Magic keep players coming back for over 20 years? That, my friends, is a big enough topic to fill a book. However, the extremely short version is that they are always changing, trying new things, and constantly trying to push the boundaries in areas such as game mechanics, artwork, and story. As long as they keep the game feeling fresh and new instead of stale, players will keep playing and the cards will stay valuable.

As noted above, one solution to prevent your cards from losing value is to limit how many are released. If too much of a particular rare and powerful card is released that card will immediately lose much of its value. While Wizards of the Coast has moved away from banning reprints on its cards, it is still careful how and where it reprints its cards to prevent them from losing too much value.

One way of doing this is through their Master’s series of booster packs. These packs are designed to reprint useful cards for older Magic formats, without those cards being legal in the current format, called Standard. Since most players only play Standard, the demand for these older cards is lower, which means that fewer Masters packs are printed than Standard packs. These packs are also generally priced higher than Standard packs, which accounts for the higher value of the cards within.

By releasing these limited run, higher value packs, Wizards of the Coast can make cards available to players without completely ruining their value as a collectors item.

A bubble does not occur simply because the price of a particular asset is higher than it should be – it occurs when that price remains high for a long period of time, and continues to grow over time. One way to combat this is to have a built-in lifecycle for your product. This prevents the inflated price from lasting forever, and allows the value to decrease in a controlled and predictable way.

The way Magic achieves this is through set rotation. In Standard format you cannot use every card that has ever been released – instead, you can only use the most recent 2 years worth of cards. Since most players play Standard, this means that the price of a particular card will drop once that card is more than two years old. However, since this price drop is predictable and only happens to a fraction of the cards at any given time, the overall market remains stable.

Rotating supply every 2 years – good for card games, not good parenting advice

However, even if a particular card is no longer allowed in Standard format, this doesn’t (necessarily) cause the value of the card to go to 0. Even older cards can retain their value due to the existence of multiple formats, each of which have different rules around which cards are allowed.

Standard format, the most common format, only allows the most recent two years of cards. Modern format, on the other hand, allows any cards released since 8^th edition (released in the middle of 2003). Legacy and Vintage are even less restrictive, allowing players to use any card in the entire game (with certain small exceptions).

In addition to these official formats there are other, more casual formats, which also allow different cards to be played. Commander, for example, is a popular multiplayer format, which Pauper is a format that only allows players to use common cards.

The existence of these various formats helps retain the value of cards over time by giving them a use outside of Standard format. It also helps add variety to the types of cards that can be played and designed – some cards that work well in Standard might be useless in Modern, and vice versa. This variety helps keep the game, and the resale market, alive and kicking.

Until Next Time!

That is all I have for this week. If you enjoyed this article, check out the rest of the blog and subscribe on Twitter, Youtube, or here on WordPress so you will always know when I post a new article. If you didn’t, let me know what I can do better in the comments down below. And join me next week, where I look at realism in games!