"Calculating people are contemptible The reason for this is that calculation deals with loss and gain, and the loss and gain mind never stops. Death is considered loss and life is considered gain. Thus, death is something that such a person does not care for, and he is contemptible.
Hello, I'm That Bitter Bastard who managed to piss off the Pirate Queen, Sugar Kyle, in a rather heated discussion over what amounted to quantifying opportunity cost. She has graciously offered me the opportunity to guest post here on her blog.
The main point we disagreed on is that I suggested rolling in transportation costs at Black Frog Freight rates into the price of goods.
Now, to clarify where I'm coming from: I do not run a lowsec store catering to all the needs of the local residents. I have lived in lowsec for most of my eve career on my main, that includes handling my own logistics for ships and fittings.
Opportunity cost is defined as, "the value of the best alternative forgone, in a situation in which a choice needs to be made between several mutually exclusive alternatives given limited resources". It's the basic relationship between scarcity and choice. Opportunity cost is not simply money/isk, but can also be valued as time, effort, stress, invested assets, and risk.
Eve Online is filled with people who do not value their own time, reasoning that the minerals they mine are free, the time they spend hauling is free. This leads to the situation of most T1 ships selling below their mineral build cost (pre-patch building to cut out the anticipated extra mineral addition to BPOs notwithstanding).
There is no singular "right" way to value ones own time and effort, but I am of a strong anti-"Minerals I Mine Are Free"/"My Time Is Free" mindset.
Handling logistics for a small handful (12-15) frigates is mildly tedious work with a blockade runner, slightly less so with a deep space transport. However once the volumes required escalated to multiple destroyers, cruisers and up, the task of logistics rapidly escalated to tedium I was unwilling to endure or even able to fulfill, reduced to flying each ship out manually.
This is where Black Frog Freight (BFF) steps in. For those unfamiliar, BFF provides transport of goods up to 320k m3 to lowsec for a mild fee of 75m for 1b collateral and so on. It became trivial to buy up all the necessary ships and fittings, contract it to BFF, and go have fun.
I'm quoting BFF for the reason that they are the biggest public competition for lowsec logistics. Much like Jita is New Edens price index, BFF sets the "haul lots of stuff to lowsec" effort/assets/risk index.
Given my choices for handling lowsec logistics of:
1). BFF the goods in, thus outsourcing the risk, time and needed assets (Jump Freighter) for the volume at x isk/trip.
2). Do it myself, assuming the risk, time and needed assets (blockade runner or deep space transport).
The x isk/trip is my opportunity cost if I do it myself, essentially I'm paying myself the transportation costs. This is counter intuitive. Not accounting for opportunity cost is to value ones own time, effort and risked assets at zero.
To put it another way, lets say I haul 20 Rifters out to a lowsec system and put then up for sale at 1m each, a mark up of ~0.5m from the nearest trade hub. From that 0.5m per hull is the amount that I'm paying myself for the time, effort and risk I took to get those ships into position. For a FW participant who lives deep in the warzone that might be an acceptable premium compared to his or hers other options.
What might this look like for say, cruisers? Cruisers have a volume of 10k m3 packaged. BFF has transportation volume of 320k m3 for 75m isk. So I'd be able to contract 32 cruisers and have an added cost of ~2.35m per hull if I intended to resell.
Battleships? 50k m3 each works out to be 12.5m per hull.
And so on.
This choice was apparent when I was in Faction Warfare. I could either spend a couple hours hauling my own stuff in or I could run a couple L4 missions and be done in one hour to pay someone else to haul of it in. That is opportunity cost in a "Eve is Real" example.
How does this compare to buying a Jump Freighter for hauling? Assuming the cost of a Jump Freighter is 6.3b (not factoring in the cost of skill books, training time, and jump fuel), the break even point is 84 jumps.
A brief anecdote to all of the above: When I started T2 manufacturing, I had a small POS, 20 manufacturing slots, 30 science slots and a small collection of blueprints. Not much. I converted FW LP into datacores for my own use and hauled most of the rare and expensive materials from Jita to Heimatar (yes, I had my own little bout of "LP I farmed are free" moment).
Eventually I gained another account and a few more manufacturing and science slots and the sheer volume of stuff I needed outgrew my patience for hauling. So I outsourced to Push X and Red Frog Freight who could haul in a great deal more volume and take on the risk inherent in high value transport.
The cost of transportation added in a small amount of overhead that could not be incorporated into sale price.
Now, part of my opportunity cost in manufacturing goods and opposed to inter-regional trade is the goods in Rens tended to have increased margin over Jita prices thus the transportation cost was already covered by selling locally.
How about from the consumers point of view? Some of those choices might be:
1). Does my pirate organization have a logistics wing? If so then it's likely there will be little to no upfront isk cost.
2). Do I or a corpmate have the skills for a hauler of sufficient quantity and either an alt or a corpmate to scout me in? Do I have the time and energy to put into the task?
3). I always have BFF available, to a destination of my choice but I'm at their time table for transport.
4). Is there a lowsec trade hub nearby that offers the goods that I want at an acceptable premium and location?
In all 4 examples there's competition between the various resources available and their scarcity (location, time, effort, cost, assets and risk) that each player ultimately must decide which is more important and pay the opportunity cost for their decision.
My thanks to Sugar Kyle for this opportunity and you, the reader, for your time.