Thursday, March 27, 2008

How to roll a Merchant in Warcraft

An article titled, “What Can Virtual-World Economists Tell Us about Real-World Economies?” can be found over at Scientific American that interviews an economist employed by Eve Online to monitor the player created economy in the game. The fact that they employ a real economist for this purpose is interesting in and of itself, but I mostly want to remark on the article because of something I read that fit very closely with something I wanted to write about. To quote the article:

Just as in real-world markets, in-game prices are sensitive to the law of supply and demand. Prior to Guðmundsson's arrival, a new asteroid belt was seeded with an abnormally high level of the usually rare mineral zydrine. Prices dropped for six months until the ore sold for half its normal cost. The developers then updated the game so that less zydrine could be refined from other compounds. In the meantime, players began to stockpile the mineral until the price leveled out, which Guðmundsson points to as proof of a working economy.

The striking part of that blurb to me is “players began to stockpile the mineral until the price leveled out”. Why is this relevant? Well, recent changes in patch 2.4 significantly altered the economies of several profession reagents. In particular, Primal Nethers are no longer soulbound and Void Crystals can be split into two Large Prismatic Shards.

I watch the markets on about 10 or 12 different craft items fairly closely. These are my “stock in trade” and what I harvest and sell for profit on the Auction House. A month or so ago when I heard about the patch changes, I also started monitoring Void Crystals in anticipation of a price increase. A month earlier, the price on Voids ran about 20g per crystal on average on my server. Anything that went for 18g or less, I bought. As the patch grew closer (particularly within the last week) the price of Voids rose to about 25g on average – I continued to buy anything on the market for 20g per Void. Prior to the patch, a Primal Nether went for 100-200g depending on the item you were crafting.

Needless to say, I was very interested in what would happen to the prices of these items when I logged in after the patch. As predicted, the Voids were already listed at 10g above the price the previous night and the lowest priced Voids on the Auction House were running 35g. Since then, they have dropped to an average of about 28-30g per crystal and the Large Shards are holding their price at around 25g. This makes sense because the recipe to break the Shard requires an enchanter to be Honored with the Shattered Sun Offensive. Enchanters that get it the earliest will make the largest profit until most enchanters have the pattern and prices begin to equalize.

Primal Nethers, on the other hand, were selling at a dismal 30-35g and there were A LOT of them listed on the Auction House. My immediate reaction to the Primal Nethers was shock. I expected a discount, but I wasn’t expecting a 65% discount. Then it occurred to me – these were new items to the market and many people (including non-crafters) had been stockpiling in anticipation of the 2.4 patch. The net result is that the market simply flooded with Nethers that had previously just been taking up bank space. And so my second reaction was – BUY BUY BUY and I grabbed up 10 at the 30-33g price. My speculation here is that once the initial flood is off the market, the price will rise on Nethers. Also consider that the new patterns introduced with the patch will take up to 4 Primal Nethers, rather than just one which was typical in the older patterns.

To further support the idea of rising prices, consider this – How many more dailys got introduced with Patch 2.4? Oh, and what’s the limit on the dailys now? Hmm. And how do you think all the gold from those quests will impact the economy? *raises hand* That’s right. Inflation. With no new “gold sink” mechanic introduced in 2.4, the net effect of all that quest gold is going to be inflationary and average prices are going to go up accordingly.

The other topic worth covering here briefly is how I make money on the Auction House. The premise here is actually very simple. Watch the prices on just a handful of items. I stick to those I farm since I am selling those anyway. The trick is to learn the “market” for the item and to pick an item that is traded in frequently.

A “high volume” item is really key here because it needs to be something that is bought frequently. Trading in items that only sell a handful every week is not profitable and you risk being undercut. Enchanting mats are a good example of a high value, high volume items. If the volume is significant enough, you don’t risk not being able to sell your product.

You make the MOST money when someone decides to flood the market. Why? Because you buy up almost everything below your SELL price and relist at the SELL price. Effectively, you are acting to CORRECT the market back to normal levels. Your stockpile will eventually dwindle back down as people buy the items. This means that you must have a decent pool of money to start and a willingness to stock items that are bargains. If you don’t have a lot of money to start, then choose something cheap that sells often. Even a level 40 toon can become a Wool or Silk cloth tycoon.

Again, it is imperative that you choose a high volume item and you know the “going rate” for it in order to minimize your risk of selling off the extra stock. If you don’t have the resources (gold) to correct the market, then wait it out and let the market correct itself. Most importantly, you must have faith that if you bought the item at a low price – worst case scenario says that you could sell it again for that low price.

Interestingly, if you find that you have a considerable stockpile and prices are low, then one strategy is to flood the market yourself. Most people just want to sell what they have and make an instant profit at it, so they sell at or around the lowest listed price on the Auction House hoping it will sell quickly. Your goal is not to be the very lowest price or to sell many at this price, but to force your competitors to drive down the current market price. I’ve actually continually kept this tactic up until I drove the price down to near vendor levels. Once it is at a really low price, buy up everything on the market and cancel your own auctions. Then relist a moderate amount at or slightly below the normal market price. Yes, your stockpile just grew even bigger, but the price of the average item in your inventory was lowered significantly. This is risky, so I would caution you to make sure that the market is otherwise stable and nothing abnormal (like a patch with new content) has recently happened.

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