Tobold's Blog
Saturday, May 09, 2015
 
Blizzard is pumping gold into the economy

Real markets move in unpredictable ways. The advice to buy low and sell high is a joke, because you don't actually know whether the price is going to be up or down tomorrow. The WoW token market is not a real market however. As you can see on WoWToken.info, the price goes up and down in a very predictable sinus curve. By observing the rate of change you can even predict future prices. So unless you are completely oblivious, you are going to buy low or sell high. There is absolutely no reason to sell when prices are low, or buy when prices are high, as you just need to wait some hours for the next peak or valley.

The market also uses an algorithm that guarantees the token seller the amount of gold the token was worth when he decided to sell it, while the token buyer only pays the price at the moment when he decides to buy. That leads to a curious market anomaly: The token seller is selling when prices are high, but there are no buyers at that moment. The buyers strike when prices are low, buying up whatever the sellers put on the market during the previous peak. And Blizzard is making up for the difference. With every WoW token sold, Blizzard is pumping thousands of gold into the economy, because of their price guarantee to the seller. The buyer is always paying less gold than the seller receives, because everybody knows whether the current price is high or low, and acts accordingly.

I don't think this is working a planned by Blizzard.

Comments:
Can you explain why the WoW Token is following this predictable pattern? The GW2 Gem exchange does nothing of the kind (it seems to rise inexorably with constant small fluctuations mostly inspired by what's new in the Gem Store
) http://www.gw2spidy.com/gem
while the EVE Plex price seems to stay comparatively flat.
http://www.eve-markets.net/detail?typeid=29668#history

Is this player behavior or is there some underlying control mechanic being implemented by Blizzard? If it's player behavior, what's making it so consistent?
 
[i] I don't think this is working a planned by Blizzard.[/i]

Well, I think it is going exactly as planned by Blizzard. My guess is they want players to buy their own token.

The price curve is way too steady to be really demand correlated. There has to be a stabelizing element including upper and lower limit. Also I believe the turning point to have a maximum time limit before it goes up or down again.

It's been now a full month for NA region, the 10 token limit begins to be reset for the people who hit it. Let's see if there is any change in curce behavior over the next week.


 
I probably should mention the reasons why the price curve looks rigged to me:

1) demand for gametime is limited to 1 per month/account while demand for gold is potentially unlimited. The curve does not reflect that in any way so far but as said it's been only one ebservable month for NA

2) financial player behavior in WoW follows a weekly pattern as anyone knows who works the auction house to even a limited but long term amount of time. The curve does not reflect different behaviour on weekends.
 
Can you explain why the WoW Token is following this predictable pattern?

As far as I understand it, there is an algorithm programmed which

A) takes into account supply and demand

but

B) is indirect, and doesn't allow for quick changes.

Basically the price started somewhere, and the algorithm makes the price go up when there are more buyers than sellers, and makes it go down when there are more sellers than buyers. There is absolutely no manual intervention, but the algorithm is limited in speed: Prices can't change more than X percent up or down in an hour.

Because of this built in brake, a whole bunch of people can sell their token when the price is high without causing an *immediate* drop. But they do cause the algorithm to go on a downward trajectory over the next hours. At some point the price becomes too low for more sellers to be interested, but the first buyers begin to pop up. Due to there still being more unsold tokens than buyers, the price keeps dropping, but slower and slower, until equilibrium is reached and all the tokens are bought up. At that point the algorithm increases prices again, at a fixed rate, until sellers become interested again.

In a way it is a pork cycle on steroids.
 
Are prices actually only being adjusted once every 12 hours? Or is it that wowtoken.info is only sampling every 12 hours?
 
As far as I know prices are adjusted every 15 minutes. The smoothness is real, not an artifact of WoWToken. And if you look closer, the time between peaks isn't 12 or 24 hours.
 
Why should Blizzard care if you get +5000G "out of nothing"... You just spend $20 to pay the subscription of another player... which is a higer price anyway.
 
Hmmm. In "real" markets the price reflects all the information available (including expectation of future movements) so the only reason to buy and sell in the same market is if you have information nobody else does which lets you bet against the market with confidence. In the real world, that tends to be labelled as "insider trading" and disapproved of by the authorities. "Buy low and sell high" applies to arbitrage - moving things between markets. You can buy apples cheap in Orchardtown and sell them for a high price in Bakeryville, for example. Time arbitrage (buy at harvest, sell in winter when people are hungry) gets factored in by an efficient market.
However, what we have here isn't an efficient market, it's an algorithm doing a half-assed job of being an efficient market. That sine curve effect looks like players are in fact doing exactly what you describe and the algorithm is compensating too late, and then having to swing the other way. Yet another case of Free Markets 1, Central Planning 0.
 
Token price varies by 12% - Blizzard get an extra 33% anytime anyone pays for a subscription by buying a token. I think you underestimate their business acumen.
 
The sine curve is called 'hunting' and is a standard artefact of simple control systems. If you set your heating so that the fuel input is proportional to the difference between the current house temperature and the desired temperature you set on your thermostat, you'll get exactly the same behaviour in your house temperature curve. Of course it can be mitigated with more sophisticated control systems, but these bring their own artefacts.

It seems neither Blizzard nor its customers are particularly interested in taking action to mitigate it, and I'm not entirely sure why they should. Maybe if enough people buy and sell according to the pattern it will reduce, change, or become more chaotic.
 
@bryksom

I think I can vaguely explain why this happens. This is obviously an oversimplification, but more or less what I think is effecting the market.

Basically, one side of the market is more elastic than the other, meaning more effected by the change in price. I don't know which one it is, but as you will see that doesn't really matter. For simplicity sake, I will pretend that Token buyers will change in demand while Token sellers will not change at all (in reality, both are changing, just one less than the other).

Let's say the price starts at 25k gold. Sellers add 10 tokens up for sale, but that price is high so only 7 buyers decide to buy right now, leaving 3 extra going unsold.

The next hour, the price drops to 24k, as there are more Tokens up for sale than buyers. Sellers add another 10 Tokens, PLUS the 3 remaining from the last hour, so now there are a total of 13 Tokens up for sale. Buyers are a little more interested, but still only buy 8 Tokens. Even though you had the same number of sellers and more buyers, there are now 5 extra Tokens.

This goes on. Keep in mind, my numbers are just made up.

Price goes down to 23k. 10 more sellers, now 9 buyers. 6 extra Tokens.

Price goes down to 22k. 10 more sellers, now 10 buyers. Still 6 extra Tokens.

Price goes down to 21k. 10 more sellers, now 11 buyers. Still 5 extra Tokens.

As you can see, even though demand from buyers is actually higher than sellers, the price is still being driven down. This will continue until there are no more extra Tokens, but by that time the price will be very low, and you have lots of buyers. The same process begins again, now in the other direction.

The result is the predictable price curve you see.
 
I'm not convinced there's even a 1-1 relationship between token purchases for $ and listings of tokens on the AH. For all we know, Blizzard is injecting extra tokens into the AH, or making some of the token purchases disappear (so they are pure gold-for-$ exchanges.)
 
I don't think Blizz cares.

Nobody really gets hurt by adding cash, since a lot of prices are set, and the rest rising tide floats all boats.
 
That is what I have determined as well, and have 3 posts up on the subject.

There is no question that they are currently injecting gold into the economy at the rate of 5K to 6K gold per RMT token bought. (In the US region.)

EVERYONE that i have talked to that either bought or had interest in buying either token type saw that it fluctuated wildly, and in a predictable pattern. They were ready to buy on the extreme that helped them.

They could fix this, but I don't think they will be able to say "No" to the revenue.
 
I'd even go so far as to say they may have seen this coming.

The Garrison seems to be let a player self contain and just do pretty much everything he/she really needs in house. The non-trivial income from garrison tasks might be offset from the inflation due to the Wow Token.
 
A string of numbers said:
"The non-trivial income..."

I assume you mean the gold sink aspect of a leveling garrison? Because adding an income to an income doesn't offset any inflation, only adds to it.

The inflation of the RMT token sales can only really be offset by a gold sink, like Game Time token sales. And that system is clearly broken in an inflation causing way.
 
So they may as well have just let people buy gold from blizzard, because that's exactly what is happening?

Or was the idea to get in psuedo free players AND sell gold? In that case they suceeded.
 
It is disappointing to see such a simple control. While not exactly like this, it looks very roughly as though price increases/decreases dependent on the time-to-sell, which is good as an emergency control but not as an ongoing system.

I would expect to see the price oscillate at the start because there was very little data but we have been at this for a couple of weeks now. I hoped that the maximum and minimum would be starting to converge as historical data gets considered and not just the currently listed tokens.
 
Dodoblo:

The highs and lows can't converge because there are ostensibly two completely separate tokens here. The one you buy for real money have to return enough gold to be attractive, and the one you buy with gold to get game time has to be cheap enough to be attractive. It's two separate markets.

This is why they are artificially creating this wave pattern, to create 2 price points. This is why the oscillation has increased at each stage of refinement in the algorithm. The velocity at which the wave swings has nothing to do with supply and demand, it's a preset rate of change.
 
@Smokeman
The highs and lows should converge. There will be value of gold at which some people will buy for $20 and [b]others[/b] will trade for one month's game time. It is my contention there is no convergence in the buy/sell prices is because of the stupid algorithm combined with human behaviour. It is known that the variation is relatively stable and that re-enforces buying/selling activity to focus at their respective inflection points.

If the algorithm was adjusted to move more slowly or dampening extremes there would be less human re-enforcement in the system and the prices could converge. We won't see that though because Blizzard want to see tokens selling in under 12 hours.
 
Dobaldo:

No. The tokens are different things. If the price of the two is pinned and stable, then they will be at different points in law of supply and the law of demand, the result would be few sales of either.

Let me construct a real world example. Cans of beans and cans of chicken. If left to their own merits, cans of beans would be worth one dollar, and cans of chicken would be worth three dollars. But if you force to prices to converge by pinning them together at say, two dollars and set a constraint that you can only sell as many cans of chicken as you sell cans of beans, you will have people screaming for cheap cans of chicken but there will be few available because few people want to overpay for the cans of beans.

So if you want to emulate Blizzard, you set up a wildly fluctuating rube goldberg system that sells the chicken at three dollars on the high, and the beans at one dollar at the low. You are basically subsidizing the difference.

Yes, you CAN have a stable price, but the volume will be very low as you get only the people willing to pay a lot for beans throttling the people that want a deal on chicken.
 
@Smokeman
Thank you for agreeing with me that there can be a stable price where two different products can converge.
That Blizzard have a cyclical algorithm, artificially driving up demand via supplementing the gold supply is the cause for my disappointment. Other games manage to find equivalencies between in-game currency and play-time/real-world currency. The optimist in me says that Blizzard are being cautious when it comes to switching their algorithm from launch mode to ongoing mode. The pessimist in me things that Blizzard are doing it to increase token sales.

As an aside, your example has a fallacy because you have fixed both volume and price. With WoWtokens the volume of the token is fixed but the gold price is not. A corrected analogy have a unit chicken being bought and sold for a floating number of beans. It is not true to say that the market will be unable to find an equivalence between chickens and beans since we have been doing it since the barter system was invented.
 
Will there be overall inflation or will the extra gold be chiefly consumed by token market?
 
dobablo,

We're basically on the same page here.

Blizzard's problem is they need to sell enough RMT tokens to crush the illicit gold sellers, but they're unwilling to sell as many Game Time tokens at the price they would need to sell for to do that.

The problem I see is a stable price plus a linked quantity equals not enough sales to destroy illicit gold sellers. unpinning the price frees the volume, but sells more Game Time tokens than RMT tokens, which is the right thing to do, but reduces Blizzard's revenue.
 
Is no one here considering the effect of the "gold farmer" in all of this? Seeing as the Chinese pay way less than NA players for playtime, it stands to reason that they are using the token to hold the token economy hostage in terms of gold supply. Think about this for a second: One account can have 50 characters across many servers, and if the gold farmers are doing their homework, which I think they are, then by carefully placing characters on linked servers, a metric crap-ton of gold can be injected into the token economy each and every day. Hell, just with the treasure hunter ability I am making close to 5k gold a day just with garrison missions, selling mats on the AH and vendoring. I've seen reports of players making 10K or more.

Multiply this across 50 characters, along with the 24-hour sweatshop tactics of the gold farmer shops, and we're talking(conservative estimate here) between 200k-400k of gold being generated each and every day...on one account! The 3rd party RMT Gold market is thriving. Not just a week ago I could buy 130K Gold for $53 on my server, and at ~22k gold for a token, I could have 5 months of playtime for way less than a $15 monthly sub would cost...with gold left over.

I just checked, and one could currently buy 250K Gold on my server for $96. Do the math.

Blizzard have created a royal clusterf**k with the token. They want people to pay $20 for something that just cannot compete with the 3rd party RMT market. All Blizzard's algorithm is doing is cushioning the effect the 3rd party gold supply is having on the token market in an effort to generate more token sales.


Disclaimer: I am not condoning the use of 3rd party, RMT generated Gold..just throwing this out there for consideration.
 
Seeing as the Chinese pay way less than NA players for playtime, it stands to reason that they are using the token to hold the token economy hostage in terms of gold supply.

You can't transfer gold from a Chinese server to an US server. The only way to farm gold and sell it to an US player is to make an account on a US player, for which you'll pay the same amount of money than a US player (unless you use a stolen credit card).
 
I should have explained that statement better. With upwards of 50 characters generating gold on an account 24/7, they are generating plenty of gold, they then buy tokens at the lower limit to keep the account alive, which nets them a much lower cost per account than players who pay a sub. With the token, Blizzard has created a virtual nirvana for gold farming operations because now the gold farming accounts don't have to pay much, if anything, in terms of actual money.
 
Chris says:
'I should have explained that statement better."

Oh! Yeah, that makes sense. And since you can have 50 garrisons all banging cooldowns, you can make a lot of gold in an 8 or 10 hour shift.
 
There is a lot of time sunk into an account with 50 garrisons, especially one you intend to risk as a source for 3rd party gold.

In other news, it looks as though the EU and US token prices started stabliasing just as the final words to Tobold's original post were being typed!
The China and EU have gone from 3% per hour swings and a 25% price variance between inflection points to 1% per hour and 2% price variance while the US has lost the sinusoidal movement entirely. I am a happy bunny now.
 
dobablo:

Holy crap! Look at that! The ramifications of this are important.

Note that the algorithm change was on all three markets at once... no way that's a coincidence.

As to the 50 garrisons on one account... yeah, that would be nuts. But when it's your job you can group with other people for whom it's also their job and use the tools available like "recruit a friend" and BOA leveling gear to level like a boss.

Have you tried leveling lately? I popped in with my level 63 Warlock and did a few instances. Easy as pie and pure leveling. It was nuts.
 
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