Basic Information
Effect based pricing is a phenomenon usually encountered in RPGs (especially cRPGs) whereby the price of an object is directly related to its effectiveness (thus, for example, a weapon that does more damage will be more expensive than one that does less). Prices of equipment may also scale in a linear fashion so that a plus one bonus is half the price of a plus two bonus and a third of the price of a plus three bonus etc.. In many cases, this will be an acceptable model of reality - all other things being equal, it makes sense that a measurably better product will command a higher price - but in real markets, there supply can be at least as important as demand in fixing a price. This can be exacerbated by many game designers piling products from a variety of technology levels and cultures together into the same market.
In the real world, sometimes the better thing is also cheaper - perhaps because of improved manufacturing or the material involved. For example, bronze may outperform iron for making weapons and armour, but is easily matched for metallurgical qualities by decent steel … which is also a lot cheaper in most places because of the scarcity of tin. Conversely, a culture short of iron supplies but with plentiful copper and tin might find that bronze gear is cheaper than either iron or steel. Meanwhile - especially where bullet resistance is involved - munition plate can be far more effective at a much lower price that chainmail, if only due to the amount of skilled labour required to make mail (that and the fact that nothing short of magic will make mail meaningfully bullet resistant)1.
Pros and Cons
Intentionally avoiding effect based pricing when designing a setting (or game system) can help suspension of disbelief, and make the in-game economy feel more realistic. If your campaign style is one where economy and simulation are of high importance, avoiding effect based pricing can help sell the in-character realism of the game world. Including such factors as supply and demand can also create financial opportunities where the PCs can benefit from travel to various marketplaces and cities to sell goods, or otherwise capitalize on emergent details of the scenario or world. If everybody at the table is in to that, it can be a lot of fun — but it might be "too much like work" for some players. As with so much of gaming, you have to know your audience, and tailor the game experience to your players.
On the other hand, the use of effect based pricing can simplify the learning curve of a game. It can also reduce the perils of analysis paralysis, by giving even a new player an easy way to tell the relative power level of two options. It's main benefit will be felt during character creation, the first few sessions of a campaign, or when playing with a group whose familiarity with the game system is of varying levels. Casual players, especially those who are not mathematically inclined, may find it much easier to build and progress a character in systems where the costs and benefits of various equipment (or other character options) are directly linked. Such a system may also help secure game balance and character progression by restricting access to the best equipment until later in the campaign, and making sure that early treasure hauls feel monumental.
However, effect based pricing works best when applied consistently and evenly, which can be tricky to accomplish if the mechanics are complicated or subjective. If most of the items in the game follow a mechanically-derived formula for value, but a handful of items range wildly from the patterns of that formula, the player may be (or feel) misled about those items. It may cause a player to greatly over- or under-value such items. The players who are most excited by the mechanics of a game will likely realize the outlying anomalies of the pricing scheme and benefit from that analysis, whereas players less interested in the math or mechanics may just assume that "more expensive" means "better" even when it doesn't2. While this is just minor problem in and of itself, it can exacerbate other game balance issues and widen the power-level gap between a well-built synergistic (or min-maxed) PC and one that was created with an eye for flavor or story concerns (instead of prioritizing mechanical effectiveness).
People's tastes will vary. Some value ease of play to be more or less important than simulation and realism. Know your group, and choose appropriately.
Sources
Game and Story Use
- Effect based pricing works well for one-shots and short campaigns (where players may not want to invest much effort in mastering the system). It also helps smooth out the issues that can arise when your play group consists of players with different levels of familiarity with the rules system and mechanics of the game. In other words, it's great for Convention games.
- It will also be potentially necessary for highly mechanistic games in which character wealth has been (carefully) factored into (combat) performance - those where "wealth by level" and "level appropriate equipment" are important issues. In these systems, economic realism will tend to take a back seat to mechanical integration into character development.
- Effect based pricing doesn't work as well for games where the PCs are merchants or traveling a lot from port to port, such as (for example) a game in the Firefly 'Verse. Fixed effects-based prices don't make for very interesting economic play, and can make all your cities or markets feel like cut-and-paste jobs rather than unique and detailed locales.
- Even if you allow effect based pricing to apply, make sure that the logic runs the right way - a sword made of gold is liable to cost an absolute fortune, but having it be more effective than one made of steel would be absolutely insane outside some very far fetched fringe cases.
- The in-character belief that "more expensive means better" can be an interesting delusion. Even more so if they assume that more expensive equipment will automatically make them better than the person with cheaper kit but more training.
- There absolutely should be cases where economics and game mechanics coincide: a suit of full plate armour costs an absolute fortune but remains some of the best protection against melee weapons ever made, a set of tools made by a high end brand like SnapOn really are better than supermarket own brand, a Ginsu kitchen knife will out perform the mass produced Chinese set sold by the guy down the market - although in a lot of cases, the user isn't skilled enough to exploit the difference.
- RPGs can also suffer from an unrealistic amount of choice - a realistically priced suit of scale armour might well cost more than another, more effective type of armour, leading the casual player to wonder why this stuff is ever made and why anyone would buy it. The usual answer is that the two don't coexist - scale is a low tech armour, easily driven off the market by better forms, but in its era, it is one of the better types to be had. The comparison might be on a par with having a Ferguson Rifle and an M1 Garand on the same equipment list - adjusted for inflation, the Ferguson may well have a higher unit cost than the Garand, but the Garand will out perform the Ferguson in every field. Why, then would anyone buy the Ferguson? Because the Garand wasn't produced for another century and a half!
- Also, bear prestige, comfort and similar things in mind - whilst people will sacrifice a lot to save their lives, anything too inconvenient, outlandish or otherwise provoking might well lose out, and likewise less effective alternatives might prosper because of good PR…