Diablo III mudflation

In case you aren't familiar with the term mudflation, it describes the drop in value of virtual items in a game over time, due to new items dropping every day. In economic speak this corresponds to a deflation, not inflation.

I keep reading blog posts and comments of people who believe that prices for rare drops and legendary items in Diablo III will be very high. I am sure that this could be the case for the very first legendary items that drop. But according to Blizzard, items in Diablo III will *not* become soulbound. That is the rare item you bought from the AH can be used by you, and then resold. Furthermore there is no virtual wear and tear, no item degradation. Thus items in Diablo III will suffer seriously from mudflation, because supply will constantly increase, while demand will stabilize over time. Pro tip: Legendary items on the Diablo III auction house are *not* a good investment opportunity. They will drop in value fast over time.

Of course Blizzard can over time introduce new items into Diablo III, which again *at the time of their release* will be very valuable. But however rare they make the drop, between millions of players there will always be a constant stream of these items coming into the economy, while the number of items leaving the economy (from closed accounts mainly) will be minor. It does not matter that there is maybe some Russian billionaire out there who would be willing to pay thousands of dollars for some legendary item; he'll only buy the first one, and because the number of Russian billionaires playing Diablo III won't increase much over time, prices will drop after the first bunch of crazy rich guys bought the first bunch of freshly dropped legendary items.

Virtual economies are subject to the same laws as real economies.