Tobold's Blog
Friday, April 03, 2009
 
WoWenomics on Deflation

To my delight there are now more and more blogs treating the economics of virtual worlds, especially of World of Warcraft. Many of them currently have posts up on what to invest in before patch 3.1, assuming that some trade goods will go up in price. Well, I'm still sitting on two stacks of Dream Shards I've been told would go up in price in patch 3.0.8., and never did. Up to now patches at best stopped deflation for a while. So I was asking the guys from WoWenomics, who have a financial background, on their take on deflation.

They think that it is a typical example of mudflation, which is an inflation in the number of items, leading to a deflation of item prices. Added to that is an effect that everything was overpriced when the expansion came out, and prices are falling to a more reasonable level. And Blizzard created more money sinks like mammoths for 20k or motorcycles for 15k material cost.

My own theory is still that at least one element of WoW deflation is that people simply stop grinding for money when they have enough, something that isn't often observed in the real world. But then, in the real world there isn't really a limit to how much money you can spend. In WoW there is.
Comments:
I LOVE making money in WoW. Unfortunately, I love raids and instancing more. I make decent money in my limited time doing it, but if I focused on it like Gevlon, I would be rich indeed.

Most people are just looking to make enought to pay for their raiding bills.
 
I've found that these WOW economics blogs (and there are many) are excellent at making predictions about which goods will go up for each patch and down based on real world economic principles, but are terrible at making _correct_ predictions.

Someone needs to forget everything they know about real world macro/micro economics, sit down with a big time series dataset of WOW auction house data, and figure out the economics of the WOW world. Current work is sophisticated, thoughtful, and wrong.
 
"I've found that these WOW economics blogs (and there are many) are excellent at making predictions about which goods will go up for each patch and down based on real world economic principles, but are terrible at making _correct_ predictions."

That is because they are often the same people who just vaporized Billions at the stock exchanges. A shimpanse, throwing Darts at a table with certain predictions of how the markets will evolve, will have the same success rate as the "experts". Assuming one could predict market behavior is like assuming that the future will be exactly like the past, and that's inherently wrong anyway.
 
My own theory is still that at least one element of WoW deflation is that people simply stop grinding for money when they have enough, something that isn't often observed in the real world. But then, in the real world there isn't really a limit to how much money you can spend. In WoW there is.

Actually many people stop to train for a better job when they are satisfied with their current one. They only educate themselves enough to keep the job.

Then, in the real world there is a similar limit to how much money you can spend. Especially during the time that you have available. Rich people are rich, because they do NOT spend all their money, but keep the money invested in property, gold or government papers. The amount of money you can consume per day in the real world is actually quite low (compared to the income of the rich ..). You can, of course, buy a lot of stuff you will never need. Like 10 cars, or 5 houses, a few extra wives ...
This, however, is not consuming, but collecting useless stuff - something you can do in WoW as well. Collect ie. 1000 of all resources (some people I know did this to be 'sure' they never run out of shards etc ..)
 
The limit for real-life spending is much higher than the limit in WoW. In real life, my income is in the top 10% of U.S. households. But the average cost of a house in my area is 10x my annual income after taxes. Maybe if WoW implemented player housing as a money sink... :)

I also quit making WoW money after I hit my gold cap goal. But making money in WoW is not like the randomness of the stock market. Because the government can't make decrees like: "In a few weeks, we will patch everyone's house to give them a second garage space." Since the PTR gives you visibility into the future, you can make good predictions. Here are mine:

3.1: the mass of bored 80's will descend into Ulduar and upgrade all of their gear. Then they will want the best enchants and gems. Stockpile Abyss Crystals and Scarlet Rubies. Many players will pick up a second spec. Learn and stockpile the best glyphs for all classes/specs, as those will skyrocket in price too.

4.0: the mass of bored 80's will descend into the new area (Maelstrom, Emerald Dream, whatever) and race to hit server firsts in crafting. The price of new ores/herbs/leathers will be sky-high for the first few days, so level your gatherer toon first. Also, if there is a quest that requires a crafted item (e.g. Overcharged Capacitor), AH prices on that item will be at least 3x mats.
 
Economics in an MMO is a misnomer, and trying to relate how the economy in an MMO mimics real life is laughable at best. I dont need to pay electric bills, insurance, buy groceries, make house payments...or even *gasp*..-work- in an MMO to advance my character or raid. I need just enough gold to make sure I can repair my gear and buy some consumables if needed...that's it. This is a game we're talking about here, and if I decide to get me one of the 16-20K mounts, I'll make a goal and work at reaching it...like I'm currently doing with my mechano-hog.

In an anonymous AH setting such as WoW, the effects of pricing have more to do with what people are willing to pay for an item rather than any sense of a supply and demand concept. People like Gevlon have just figured out how to work this scenario to their benefit. What works on one server will not work on another, because they'll be a dozen or more Gevlons all trying to do the same thing...control the prices on items. What's funny to watch is when two players go after the same set of items, such as enchanting items, and program their auction mods to buy at a certain price, and resell at a higher price...then comes in the 3rd player who farms his ass off and undercuts everyone by 5% with a near endless supply of mats from his guild, who is helping him.

Just the other day I was buying titansteel bars off the AH for my mechano-hog and I received a whisper from what appeared to be a chinese farmer, who asked me if I would like to buy "X" numbers of bars for half of what they were going for on the AH...I about crapped my pants, but I said yes. I bought everything he had and put all but the 12 bars I needed for my hog back on the AH for the same price I paid for the first batch I bought. Would I make a transaction like that in real life, where someone whispered me with a great deal on something if I bought right now? Most definately not...as the chances of it winding me up in jail are almost certain. But I dont have to worry about those kinds of real life consequences in WoW. I can price fix, borrow from peter to pay paul, and a host of other things that I would never do in real life. Why? Because it's just a GAME.
 
Supply and demand is a weird thing in the game.

Generally I'm going to go with deflation is caused by goal fulfillment.

Take blacksmithing stuff from BC. At first the blue tank gear was very very expensive; the number of tanks needing blue gear>amount of high level blacksmiths leveling up.

Stage 2: Blue gear floods the market, they sell for much less than their mats because the mass of blacksmiths are leveling and need to dump the gear.

Stage 3: Nobody is making the gear except on request.

Real economic principles don't apply for many reasons, not the least cause nobody has to eat, nothing ever breaks and you can't buy anything used.
 
In an anonymous AH setting such as WoW, the effects of pricing have more to do with what people are willing to pay for an item rather than any sense of a supply and demand concept.

As imperfect as WoW is at simulating a real economy it shares the same basic principles. To the sentence above:
People who try to figure out what other people are willing to pay for an item and people who try to figure out how to get an item for the lowest price is exactly the mechanism of supply and demand.
 
People who try to figure out what other people are willing to pay for an item and people who try to figure out how to get an item for the lowest price is exactly the mechanism of supply and demand.

And that's the flawed premise that everyone operates on who thinks that the supply and demand concept holds true in an MMO like WoW. Players dont -have- to pay for anything in WoW outside of the blizzard implemented money sinks. With the introduction of the Deathknight, players can level any profession/gathering skill rather quickly and bypass the AH/economy altogether. It comes down to a matter of convenience versus time that drives what a player will pay for an item, not supply or demand.
 
It comes down to a matter of convenience versus time that drives what a player will pay for an item, not supply or demand.

.. You are correct, but there is no contradiction to supply and demand. If you have to go to the airport I can use public transport or a taxi. I do not have to call a taxi, but out of convenience I do so.
You very rarely have to do something in RL. Most often you trade money for convenience or more free time. I could actually even walk to the airport if I am broke. I trade for money for time and convenience. There is a demand for taxis because people don't like to walk or use public transport and this demand meets a supply, people who are willing and able to offer taxi services. This way a price is created.
 
Chris, I really don't think you understand what "supply and demand" means.

It doesn't matter whether the demand is due to people "having to pay for anything" or simply wanting to for convenience.

It doesn't matter whether genuine scarcity exists or whether an unlimited amount of an item could be farmed and sold if enough people cared to.

It is STILL supply and demand. The supply may not be limited and the demand generated by the same forces as in the real world, but it is still supply and demand, and it still sets the prices.
 
Your right on the money Tobold. People only work to get enough gold to buy what they need and then stop until they need more. This is why the most profitable areas for people actually trying to make money are in consumables, enchanting materials and jewelcrafting. People will always need those things and so you see less deflation. I think in the early days of Wrath you saw a lot of INFLATION because people didn't have things. Now that this has passed, I am seeing a lot more stability in the price of items (at least the ones I mentioned above).
 
My dream shards are selling at about 5 gold more than what I bought them for tobold. I'm sure you'll have better luck after this patch.
 
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