Capitalism 2 and Capitalism Lab Forum

I believe it's high time for Cap Lab to have a Commodities market. I'm posting this here because if implemented it would affect oil production/price affecting a new transportation industry as well as other products down the supply chain.

Here is my suggestion:

Often the player or the AI begins farming or mining a product that may have limited demand and is only going into production to supply necessary semi products for finished goods. Many users have noted that it takes an extended period of time for sufficient demand to even be established for a mining company to be a profitable business. In the real world commodity contracts are traded on a market that both dictates supply and prices.

So here is what I'm picturing. A new market is created that operates based on the supply and demand to determine a price.

Let's take coal as an example. If I start a coal mine my options are currently to sell to my own factories or to the AI. As I've mentioned before this generally leaves a lot of supply. What im suggesting is that instead you sell your coal to the market. The market will take the demand for the product (which can already be determined from the city overall) and compare this to the supply. Now instead of the local competiton having some imaginary supply there has to be a source. The player, AI and the local competiton will then buy these products on the market at the price the marker determines. So if the market demand is 100 tons of coal and there is only one coal production mine producing 50 tons, then the mine will operate at full capacity and the price will be higher. The reverse would also be true.

Now instead of setting a price at the Mine you would instead set a production rate. So if the price of coal goes down then I would want to lower production in hopes the market would go up.

The price would also be affected by the quality of the product, with a premium being paid. So if the market rate for 1 ton of coal is $1 for the base quality (say 50) and your selling 89 quality coal then you would be paid 1.75 a ton.

Now from the purchasing side, the player/AI would go to this market and say I want to order coal for the next 6 months at this quality (x) and at this price(y) basically creating a contract or you could simply purchase coal from the market at the market rate and at the average quality. Part of the contract option is that producers can create contract options that are displayed in the market place. So if I'm a producer perhaps I offer a contract price of 25 cents a ton as long as you order at least 100 tons over the course of the year. Then have penalties set that if a 100 tons are not ordered there is a fee of $4 a ton. Etc

I think this would create situations where players/AI would want to try to hedge their orders to try to lock in lower prices.

I think this could be used for all the crops and natural resources. The contract option would also enable the player to continue to just supply resources to their own factories.

I'll try to upload some diagrams later to make this make a little more sense.

Hmm, if any futures market is to be implemented, shouldn't we need some sort of derivatives market in order to absorb the risk involved? All in all, commodity futures is just an instrument to smooth price and reduce financial insecurity for producers, and also act as shock absorbers.

IMO, a genuine solution still relies on some form of actual consumption with raw materials and semi-products. (whether they are from AIs/local. Player's own demand is usually not an issue)

counting wrote:Hmm, if any futures market is to be implemented, shouldn't we need some sort of derivatives market in order to absorb the risk involved? All in all, commodity futures is just an instrument to smooth price and reduce financial insecurity for producers, and also act as shock absorbers.

IMO, a genuine solution still relies on some form of actual consumption with raw materials and semi-products. (whether they are from AIs/local. Player's own demand is usually not an issue)

Yes, a derivatives market would be necessary (Hedges & Swaps) and go hand and hand with any futures market.

Such a derivatives market would also be a great addition in terms of setting fixed interest rates for Loans.

The actual consumption of the raw materials would occur because the player/AI would be purchasing from the market. When the player/AI is not procducing any raw materials then the "local" would produce as much raw materials as they need for their products.

So you finished your mechanism design for the financial aspect of the futures market yet that can share with us?

And if I get it right, your plan of commodity market basically provide constant source of raw material / semi products, essentially mixed all input local or otherwise into it from the start, and "local providers" will provide all of them if no AI/players going into production?

counting wrote:So you finished your mechanism design for the financial aspect of the futures market yet that can share with us?

And if I get it right, your plan of commodity market basically provide constant source of raw material / semi products, essentially mixed all input local or otherwise into it from the start, and "local providers" will provide all of them if no AI/players going into production?

It is a work in progress. I'm trying to figure the math behind it and present a system that would actually be functional.


Yes, that is correct. It would provide a constant supply of raw materials that would not be affected by crop seasons, etc. I am however considering that perhaps the only raw materials that should be avaialble on the market should be those sold through the sea port. That would simplify it considerably.

I have not forgotten about this. I keep going back in forth in how I think it would work best. I hope to post something soon to provide a visual.

Arcnor wrote:I have not forgotten about this. I keep going back in forth in how I think it would work best. I hope to post something soon to provide a visual.

We will be looking forward to it

You could reference real futures and derivatives, and trim it down to necessary key mechanisms. Also try reuse what's already there in the game to help demonstrate the concept easier. Try think of how you could already done in current mechanism to get similar result, and find what's lacking.

For example, when I am facing seasonal fluctuated materials, like wool. I would build a dedicated storage warehouse to specifically stock piles of wool, and use it as factory source. And then all I need is to check when and how many of its storage units are empty during the off seasons. If they are close to empty, I'll build more sheep farm.

However the above approach has 3 major draw backs.
1. There is a limited units for warehouses, so number of sources are limited. You might need multiple level of warehouses.
2. You have to manually check and to remember the trend.
3. It doesn't scale well, you always end up needing excessive supply, and they need some setup period.

Hence a first step might be like some sort of automatic notice and extend-size warehouse design, which can track and report the utilization of storage, as well be able to accept more inputs. Then the next step could be adding expected futures price calculation equations to control local supply for default input so it can work from the start. later on. it would function like a mini-market, like many independent futures exchange firms.

I really do like this. +1

Arcnor wrote:It is a work in progress. I'm trying to figure the math behind it and present a system that would actually be functional.

I can help. I am a professional futures and forex trader and was a quant before. I would suggest to build the realism step by step from something raw to something more complicate adding more and more instruments etc.. Many pricers exist online written in any programming languages.

titi82000 wrote:

Arcnor wrote:It is a work in progress. I'm trying to figure the math behind it and present a system that would actually be functional.

I can help. I am a professional futures and forex trader and was a quant before. I would suggest to build the realism step by step from something raw to something more complicate adding more and more instruments etc.. Many pricers exist online written in any programming languages.

Game mechanism is always a simplified version of the real world. So I wonder, in your opinions what are the basic steps/features when dealing real world futures? What are absolutely necessary and can make you recognize it looks like real situations? What kind of scenarios are these activities taking place?