Thursday, August 10, 2000

No Free Lunches

A worm's eye view of trading in GURPS Traveller – by Tim Harford

The Far Trader supplement for GURPS Traveller contains two sets of rules for trade: a quick one for games which are not really about trading, and an involved one for games which are.

But what if you’re a referee who wants to run a trading game without spending too much time on preparation? By thinking about economics in a different way, you can cut out the tedious bits and spend your effort creating interesting games, without losing a sense of a detailed trading economy.

The complex rules in Far Trader take a bird's-eye view of the galactic business environment. But the worm's eye view is also good for your average gamer: it's down, it's dirty, and it's also simple.

No Free Lunches
“People talk about the law of one price, they talk about competition and collusion, they talk about option theory and revenue equivalence and gravity models and capital outflows. But there’s only one piece of interstellar trade theory that you need to know to be a trader: there’s no such thing as a free lunch.”
- Amerada Gupata, Windsor Professor of Economics, University of Glisten

So what is this "no free lunches" principle? It's simple. It says that if you're a trader who knows her stuff, you're in competition with other traders who also know their stuff. They have a ship like yours. They have a crew like yours. They're not fools. Whatever a shipment costs you to fly, it costs them to fly.
How much profit will you make, then? You don't need to look it up on a table. You don't need to create a model of the galactic economy, either. You simply know that you'll probably cover your costs - your own salary, your crew, fuel, permits, mortgage on the ship, insurance. After all, those guys have costs too. But after that, you won't make much. If you were making a big profit, your competitors would undercut you.

Hang on. That's simple enough, but it doesn't sound much like an exciting game.
Fair enough. That's what usually happens. But good games are about what doesn't usually happen. And good trading games are about the times when you might just make a killing - or you might just be wiped out.

That’s what this article is all about.

No Free Lunches in Action
Let’s say we’re in the middle of a trading game, and the characters have bought some cargo - since you ask, it's a consignment of Darrian Ultratruffles.
They've taken it somewhere else to sell. The referee needs only one question to be answered: “Who, if anyone, made a killing out of this?”

The short answer is that usually nobody made a killing.
The merchants on each planet probably didn’t make a killing because of competition and because the traders aren’t idiots. The characters know their business, and there are only so many things that can go wrong on a simple trading mission. As for competition, there are usually other merchants to trade with – if someone’s trying to rip you off by charging too much or offering too little, you can go somewhere else. Similarly, the traders won’t make a killing either. The merchants can always get other traders to carry their wares.
Like the Professor says, there’s no such thing as a free lunch. If you do something someone else can do, you can’t expect to make a pot of money. To make a killing, you need to find something that nobody else can do – or that nobody else is doing at the moment.

Finding the Free Lunch
Dull stuff over. We all know that there are free lunches out there. Where do we find them?

A fair day’s pay for a fair day’s work
Trading is a business like any other, and just because competition prevents you making a fortune, it doesn’t mean you won’t make a living. A run of the mill trading voyage should pay for mortgages and wages for you and your crew – that’s true for your competitors just the same as for you.

Bust a cartel
Big business can make a lot of money running a cartel. If every line on the route has agreed to charge over the odds, then the merchants don’t have much option but to pay up. What happens to the tramps when there’s a cartel on the route?
Cartels aren’t easy to maintain. Of course, they’re illegal in the Imperium (see Far Trader, sidebar p25). That means they can’t be legally enforced and so they can only last if nobody else turns up and undercut the cartel. Historically, the most successful collusion has been illegally enforced – backed by criminal organizations such as the Mafia, who could prevent new competitors turning up to spoil the party. Cartels will probably need have bought out influential figures in the government, one way or another.
Characters are most likely to get involved as cartel-busters. There’s a lot of money to be made undercutting the cartel, getting guaranteed full holds and still making an unusually healthy margin. Just as long as they don’t get in the way of the local corporate goons or the crooked customs officials…
Remember that since smaller ships make less difference to the cartel operation, they’re worth less bother to stop. If the characters can keep a low profile, they may keep out of trouble – for a while.

Play rough
Not many people are willing to trade to Red zones. Or smuggle contraband. Or carry dangerous cargo. Or dodge pirates.
The characters can earn money in two ways by getting involved in this kind of activity. First, they earn danger money to compensate them for the risk. (There has to be extra cash in risking your life, or nobody would get involved.) Second, only a few rugged types are likely to have the stomach and the muscle for trading on the wild side. This means less competition, and the characters might get to charge an extra margin as well as their danger money. Of course, when the competition do turn up, they’re likely to know how to handle themselves.
The referee should remember that the “no free lunches” principle still applies. There are other thugs and criminals around, and if the characters ask for too much money the client can always get someone else.

Make a name for yourself
The universe is a big place, but if you become known – locally at least – as the safest, or the most discrete, or the fastest, or the most courteous, then you get to charge a premium. Of course, that premium depends on your reputation, and your competitors may wish to acquire the reputation for themselves, by fair means or foul.
If the players and the referee are into that kind of thing, trying to maintain a reputation makes for a fantastic game. Anyone who has ever seen Fawlty Towers can appreciate the humor to be found trying to keep up professional appearances in trying circumstances. Come to think of it, you don't need to have seen Fawlty Towers. You just need to have worked in a service industry for a while.
There is more than just humor to be found in a game of reputation. Once you get involved in local business, you get involved in local politics. The world of media, of PR, of spin and counter-spin - that's a world full of gray areas and great games.
Keep in mind that characters can have a bad reputation as well as a good one. If they made a killing on one deal through some sharp negotiation - even if what they did was legal - then people will get to hear. And that's bad for future business.

Ride the boom
The “no free lunches” principle relies on competition reducing freight prices to the point at which trading breaks even. But this process takes time ("in the long run, we're all dead"). Many of the serious fortunes made in the world have been made in a hurry because business conditions changed and a few people reacted more quickly than the competition.
In the simplest case, there is sometimes there’s so much business around that every trader in the area can charge a premium.
Bear in mind a few things, though. First, the boom would have to be for trading services. Traders themselves don’t benefit from a frenzy for Darrian Ultratruffles – the Darrian Ultratruffle manufacturers are the ones making a killing. Traders benefit from a shortage in shipping services, however that shortage came about.
Second, the boom may be short term or long term. If there’s an unforeseen need to ship cargo around, and the people who want it shipped can’t wait – perhaps they have to fulfill a contract, or perhaps the cargo is perishable – then the traders can charge a premium. That could be a short term situation, or there could be a sector-wide shortage of cargo ships for weeks, months or even years. The shortage will persist until new ships hear of the sellers' market and cross the galaxy to fill the void – or until new ships can be manufactured locally.
Third, the characters are just as likely to be caught in a slump, which could again be short or long term. A short term slump might mean some vicious and desperate competition. If it’s a long term local slump, that means that they have to get out of the sector to continue trading – leaving friends, contacts and local knowledge far behind.

Form a partnership
Many of the firms that turn in good profits year after year do so because they're managed to put the right team together in ways that are hard to copy.
There's a lot of rubbish written about teams, but good teams do exist.
Good teams can do things that others can't. And that means profit.
A good team is not just a collection of good people. Good people can earn a fat salary anywhere: the team is greater than the sum of the parts, which means there's a financial reward to sticking together.
This is ideal for a game, of course, but for maximum effect the team need to appreciate that their achievements are based on the way they fit together, rather than their individual talents.
They may appreciate this most when one of the team goes missing and needs to be replaced - so take advantage next time one of your players takes a vacation…

Be First With the News
On a planetary level, news travels fast. Publicly available information is incorporated into stock prices within fifteen seconds (yes, it’s been measured). Last year, as the prospect of war in Serbia loomed large, so did the prospect of post-war reconstruction: stocks in German construction firms rose. It’s callous, but it pays to think ahead.
When big news breaks in the Traveller universe, the headlines ripple outwards very slowly. Any trader who can ride that wave can get the drop on the people with whom he trades.
The characters could always rely on inside knowledge, of course – it’s a way of making a killing in any situation. Until they get caught. And remember, the NPCs can have inside information, too…

Conclusion: The “Critical Event” Approach
Although applied in this case to “Traveller”, the approach here can be used in many other settings. Essentially, the idea is that only what is exceptional is worth spending time on. Whether considering trading, or politics, or even combat - why not establish a way of cutting to the chase?