Tobold's Blog
Friday, June 08, 2007
Auction houses

A reader wrote me to ask whether I had any idea why in World of Warcraft on the auction house a stack of items often sells at a considerable discount versus the price of single items. The short answer is that this is a perfectly normal risk management strategy of the seller in response to the imperfections of the WoW auction system. The long answer is the rest of this post. :)

Putting an item up for auction in World of Warcraft is a risk. The risk is caused by the fee you pay to put the item up, and the 24-hour maximum duration of an auction. If you don't sell your item, you get it back, but you lost the fee. The fee is based on the *vendor* value of the item, not the market value. If somebody buys the item, you get the fee back, but you pay another fee of 5% of the sales price. (15% on the neutral auction houses.)

The reason for the fees and the short duration is an attempt by Blizzard not to overload the database with too many crap auctions. Sales in WoW don't have a "Long Tail", people only put up items that they are reasonably certain that they will sell in 24 hours. And most of the time they put them up at more or less reasonable prices, because the higher price they put, the higher the risk of not selling and losing the fee. Only when the market value is much higher than the vendor value, e.g. with epics, do prices get outrageous sometimes, because the risk of losing 1 gold piece of fees is small compared to the possible gain of 1000 gold when selling the epic, even if it takes more than 24 hours.

The people who are most at risk of losing their fee are the sellers of commodities, ingredients for the various tradeskills like ores or primals. The reason for that is that the WoW auction house is not very well done, it is too transparent. You don't see any price history (unless you use an addon and did run that regularly), but you do see all the items posted, minimum bid and buyout, including who posted them. If you have for example 10 primal mana for sale and put them up individually at the going rate, there is a significant risk that somebody else will try to sell his primal manas 5 minutes later, will see your minimum bid and buyout price, and post his items for 1 gold less. As the buyers will always buy the cheapest item of the same kind, somebody else undercutting your price can really kill you. And the more items you post, the higher the risk. So instead of putting up the items individually at the going rate, you put up the whole stack at a discount. You lose money because you sell cheaper, but that is offset by the reduced risk of not selling the items at all.

The risk of being undercut is particular to the World of Warcraft auction house system. It is a bit annoying. Why should somebody selling his stuff 5 minutes after you have an advantage over you, by being able to see exactly your prices and undercutting them? Other games, for example Final Fantasy XI have better designed auction houses, where the reserve price that the seller put on his items is invisible. The buyer can see a price history of recent sales, and how many items are currently for sale, but he doesn't see the exact buyout price for the items currently for sale. He makes a bid, and if that bid is higher than somebodies price, he gets the item. He can find out the exact minimum by bidding low and slowly increasing his bid, but he can find out that price only by actually buying the item. So if he is a seller himself, he doesn't get that valuable price information from the other sellers. He can undercut the price history, but has no way of knowing whether somebody else put up items for even lower 5 minutes earlier.

Auction houses in general are good for the trade in commodities, for both buyers and sellers, because they are centralized. The limits to auction duration and the fees force people to come to a reasonable agreement on what the value of lets say one stack of iron ore is. Of course that market value can evolve over time, but the auction house prices reflect that. The disadvantage of auction houses as the main channel for player-to-player sales is in the trade of goods that aren't commodities, and sell slower. Depending on the age of your WoW server it is possible that the population of low- or mid-level character is currently very low. Thus the demand for a magic "green" item for those levels might be relatively low. With the market value already not much higher than the vendor value, and the fee to put the item up thus relatively high, many people prefer to just vendor these items and not lose money on the chance that nobody buys them. Thus the market in such items collapses. There is also no market for crafted low- or mid-level items.

Games like Ultima Online or Star Wars Galaxies have player housing which is usable as player run shops. Thus you can put a NPC vendor on your doorstep selling your wares to people passing by. So if you are a crafter, lets say a tailor, you can always keep your vendor stocked with cloth armor for all levels. The cost is usually lower, and you can leave items for longer time. So you can develop a reputation for being the place to go for all cloth armor needs in that area. This is essential for games like Star Wars Galaxies where not all crafted armor is identical, but there are differences in quality based on the quality level of resources used and the skill of the crafter. That creates a whole different quality of player economy, more personal and less anonymous than the auction house. I wouldn't want to miss the auction house for commodities, but whether it is the best channel for all item sales isn't that obvious.
I think part of the problem is that people don't use the WoW auction house for auctions; most commodities get put up and bought using the buyout price.

Why wait a 'Long' time, when you can buy it now and get the skill point/enchant/quest completed right now?
The lack of a market for mid level goods in a mature game was starkly brought home to me in Guild Wars. Because of the low level cap and limited itemisation people will only pay for "perfect items" that have maximum stats. For example a perfect sword with +30HP modifier might sell for 30k gold but the same sword with only +29HP is almost impossible to sell and might fetch 5k at best.
Blues and purples seem to draw the highest prices, irrespective of whether they are any good or not. Fashion over practicality, I guess.

Quite often I will vendor Outlands greens rather than put them on the AH. A vendor might offer me 9 G for an item that is going for 12 G in the AH. Losing 1G 50 deposit makes it too risky.
On the subject of deposits, these are often ridiculous - some herbs require 1 silver, others 50 silver, and it bears no resemblance to the going rate. Why not make the deposit a % of the buyout price? Might stop the people trying to rip off unwary buyers, too. No more putting 10 wool cloth on the AH at 99 Gold.

The Goblin auction houses are a complete failure in WOW. Hardly anyone uses them. Time to link all auction houses together?
Finally, why do people buy stacks rather than individual items? Laziness! I don't want to click on 20 items, I want to click on 1 item, and I want to have 1 letter in my mailbox, not 20!
Interesting post. Another data point to examine is Everquest 2, it also has an auction house, but essentially has the reverse system of WoW. The fee for the item being sold is paid by the buyer, not the seller. With no time limit, the seller is free to put an item up for almost any price, then slowly drop the price as the days pass to get to a sweet spot where it will be purchased.

In addition, sellers have the ability to sell items directly from their homes, these are still listed on the AH, but buyers can go to the sellers home and buy the item without paying the normal broker fee. All in all it creates an interesting dynamic.
I love vlad's idea of the deposit being a % of the buyout price. Would definetly clip the wings off the scammers and may lead to more reasonable prices on other goods as well.

With the current system, even if you were to lose your deposit, and I have many times, generally you can list an item 3-4 times (depending on item value) before you would start to lose money on the item.

But I guess it's just how risky you choose to play it and how much you think you can get for it :)
I never really used the AH on WoW until I wanted 375 jewel crafting. To get get 375 JC, I needed 375 Mining, I'm not rich you know. Selling items on the AH was actually a lot of fun, and I learned a lot from it.

I'm probably hated on my server by most other miners because I undercut everyone, all the time. The reason to me isn't "risk". I don't care all too much about loosing my fee, but rather I'm lazy and like most americans I need to things now, not later. I always post items signifigantly lower then the going price. For example, stacks of adamantite ore are going on my server between 22g-30g "buy it now". I put mine up for 18g bid, 20g "buy it now". I loose two gold but I seem to sell my ore with in minutes. This saves me the time reposting it later, and I get my gold asap. During the JC leveling process I needed gold constantly to continue leveling up.

I really want to know whats up with the guy who puts his ore up for 30g? It was always there, I never saw any bids on it, and there was always cheaper ore on sale so I can't imagine anyone buying his ore. I guess he is hopeing someone will be desprate for ore and buy his.
There are always low traffic times when perhaps the 30g ore is all that's left.

Depending on the age of the server and the experience of the auction poster, it's often possible to piece together stacks from individual lots at less cost than the stack listed at auction. I attribute this to people who come across a chest and find a random copper ore or whatever, and don't do any research before they post it at auction. There are lots of savvy users, true, but not everyone uses Auctioneer.

I'd like to hear your thoughts on the LOTRO auction house. I'm no economist, but it seems like there's a lot more volatility in what people will pay for commodities. Also, my guess is that people are still figuring out what equipment is actually useful to other classes.
The interesting thing about the WoW AH from my experience is it creates a game within the game. Because all the prices are transparent you can "become an expert" in a field or certain items. I've made tons of money by knowing the "general" prices certain goods would go for, then scanning the AH for a few minutes before I start playing my main to see what is out there. I scoop up any really good deals (items that are 3-10 gold under what they would fetch) and then resell them. That wouldn't be possible in some of the other systems you mentioned. Not that that would be a bad thing, just still, its interesting that WoW's AH developed in that way.
It's also more convenient to buy some goods individually or in small stacks. The seller has now way of knowing whether you need 2 more Sunfury Signets or 10 more or 47 more.

So if I needed 8 Large Brilliant Shards for an enchant, and I had the choice of picking up 8 individually for 8 gold each or picking up 20 for 150 gold... I'd still pick up the 8 individual ones. Unless I felt like reselling them individually for some reason.
One reason single items sell better is that many times people only need 1 or a few of the item for quests or tradeskills. A stack would be useless to them and they don't want to hassle with re-auctioning the leftovers.

An overlooked reason for the annoying deposits is that Blizzard doesn't want people using the AH as cheap bank space. If the deposit was too low, people could just put tons and tons of stuff up at high prices to store it.

What I think they should do is simply cap how many auctions you can have at one time but remove the stupid deposit. Then it won't clog their DB or act as free storage and the market will actually exist for low volume items.

Another note on green items: enchanting materials have zero deposit so you should almost always disenchant unsaleable greens and then sell the shards/essences/dust. Hard if you don't have an enchanter character, but one hopes you at least have a friend or guildmate who can do this for you.
As a buyer, I feel like its much easier to figure out whether something is a good deal when its in a stack. Single items are easy to figure out too, but stacks or odd numbers like 3 or 11 I just ignore. I'm too lazy to try to figure out if I am getting ripped off or not. So when I am selling I tend to wait until I have a full stack too. I just believe there will be more action with a full stack. I guess I would behave differently if I can sort items by unit price.
The auction house is awsome, it is exactly what was missing from diablo 2. However there is room for improvement...

The main thing i would change about the auction house jsut some of the basic semantics, stuff like herbs/ores/gathering mats should have a much more informational sheet perhaps even a thumbnail type of layout for buyers to choose best prices. It would give an effect like a marketplace where u can choose the best option simply at a glance.

Probably with the search function too is some items dont fall into an easy category and often arent worth listing because people cant find them... ie quest mats and etc.
I purpose a differnt layout that makes certain types of items able to stay on the market to combat the retarded consumer inflation...
Very commonly needed mats that are a pain to get should have 1 week auctions and standardized prices (very little variance based on how many are actually on stock at AH, if none are in stock the NPC supplies an ammount at a "above average" price)

ANywho.. many ways to improve on the AH and eventually it might change for the better. For now I prefer selling useful stuff in trade channel as I usually spend alot of time in town waitin for BG's anyway, plus im used to it from diablo 2.
I think the action fees for unsold items are too high. They shouldn't be more than the 5% selling fee. As it is, when I put items up for auction I have to use another account to bid on any items that would otherwise not sell so I pay 5% of the minimum bid, rather than the auction fee (which is often 30% or more). I note that WoW doesn't allow you to simply bid with an alt, you need a separate account. Is this a shill bid, no, because I'm only bidding the minimum amount to prevent auction failure.
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