Tobold's Blog
Thursday, October 30, 2008
WoW glyphs and market value

My mage in World of Warcraft is still making good money selling glyphs, but only with minor glyphs. That seems strange, because "minor" glyphs have a much smaller effect than "major" glyphs, and should be less valuable, given that the cost to make them is about the same. But the very idea that the value of something is determined by its utility or cost to make it is flawed.

If you observed European stockmarkets this week, you might have heard something very funny happening: The shares of Volkswagen, a German car manufacturer, gained over 300% in value in two days, before falling down again. At one point Volkswagen was the most valuable company in the world, having a market capitalization higher than Exxon Mobile. So what had happened? Before this week there were many speculators betting on Volkswagen shares, like most automobile shares, going down in the future. These bets were made in the form of short selling, a practice in which you sell shares you don't have, either by borrowing them, or by making an empty promise to sell without having anything, the so-called "naked" shorts. But this week Porsche announced that they were in the process of buying Volkswagen shares, and that they were already controlling by various means 75% of the shares. And it was known that another 20% of the shares were held permanently by the state in which the main factories of Volkswagen are in. Thus 95% of the Volkswagen shares were in the hands of people who wouldn't sell them. It quickly became clear to the shortsellers that if noone was selling, then the share value drop they betted on would never happen. So now they needed to "cover their positions", that is buy the shares they didn't have but already sold. And they had to buy them at any price, which drove up the VW shares to so fantastic heights. Apart from a valuable lesson about the dangers of short selling, the story tells us that the market value of the Volkswagen company has absolutely nothing to do with the fundamental value of its factories, or some projected earnings expectations. The price was determined by having a small supply and large demand.

The economy of World of Warcraft is a lot simpler, but the same basic truths apply: The market value of items, in this case glyphs, has nothing to do with any fundamental value of that glyph, and everything to do with supply and demand. Inscription is a new profession, so many people learn it just because it is new. And to skill up, they can only make major glyphs, as those are the recipes learned from the trainers. The minor glyphs are learned by research, one recipe per day. Because people are impatient, want to skill up fast, and have excess money to burn, they buy the ingredients (herbs). Then they produce lots of major glyphs, which floods the market, and drives the prices down. In the end they paid more for the ingredients than they get back for selling the glyphs, accepting that skilling up a profession means losing money. But as nobody makes minor glyphs to skill up, and everyone has only a few minor glyph recipes compared to lots of major glyph recipes, the minor glyphs are relatively rare. And although their effect is often just cosmetic (polymorph penguin for example), some people are still willing to pay for that. So it comes that minor glyphs sell for considerably more than major glyphs. I check the AH every day for all minor glyphs that I can make, and then only produce those where the current market price is over 20 gold, which is my standard sales price. As even with high herb prices I can make that glyph for about 10 gold, I'm making good money. Plus often I don't pay that 10 gold, but gather the herbs myself, so I only incur an opportunity cost.

But I'm fully aware that there is no such thing as a fundamental value of glyphs. The price for major glyphs will rise once there are few new inscriptionists skilling up, because if you are at the skill cap, there is no reason to make a glyph to sell at below cost. The market value of minor glyphs will go down, as every inscriptionist will learn a new recipe every day, and they will become less rare. In the end the prices for the two types of glyphs will be very similar.
It is clear you have a nose for manufacturer and trading Tobold. It is a pity that you got burned so badly in the early days of EVE because it really is a game where you can exploit those instincts to the full. I know life is too short to go back to "old games" but EVE has become a lot more carebear friendly than when you had your bad experience. You can protect your skills with clones and limit your losses somewhat with insurance plus the concord police have become a lot more responsive in the high security zones. Of course the EVE's pve game is still a big yawn but playing the economic game can be fascininating even at a small level and I do believe it is possible to play the game as a low level manufacturer/trader without incurring substantial risks.
Yep, being an Inscriber has been very interesting. For example, I have sold the Glyph of the Penguin (learned it on day 2 so I was one of the few on my server with it at the time) from prices ranging from 400 gold to 8 gold. It's helpful to look and see if fairly common glyphs are sold out. Last night I sold a Hunter's Mark glyph for 50 gold and this morning there are several listed for under 10 gold. It's all about timing.
On Garona things seem to be evening out, with major glyphs starting to creep up in value. Things like the Glyph of Consecrate and Glyph of Icy Veins are both holding at 30g - way above their production cost - and both are major glyphs. I'm leveling the skill later than most, and stretching it out because I don't want to pat ridiculous herb fees.... the upshot is that its been paying off with increased prices on the majors I have to make to skill-up. Of course, the minor glyphs have devalued, with all but a few of the 10 I know going for 10g or less.
I made 6000g being one of the first to reach high levels of Inscription, and already having all the materials needed... since then I was selling sporadically and now I am just doing my daily research, probably going to wait for prices to even out more before I start selling more glyphs in earnest.
I think it's crazy people are willing to pay such high prices for glyphs, major or minor (but especially minor). I think some people have too much gold... If demand was dependent on people like me, glyphs AH price would barely cover the herb costs ;)
Question on this subject - what do you think the long-term value of Inscription will be?

I don't see glyphs holding much value long-term. Mostly, once you've got a couple of glyphs, you'll only change them if a) you change spec, b) you discover a dramatic improvement in strategy you could use, or c) new glyphs come on the market.

Right now, prices are high because people are experimenting and many people aren't glyphed up yet, but I could see the prices dropping to close to zero for most glyphs later on.
The few minor glyphs that are also fairly useful sell extremely well. I recently learned the minor glyph for Druids that removes the reagent requirement for Rebirth. Besides being rare, it's also very useful - so of course it sells really well.

I'm trying to figure out if there's going to be an active market in general for glyphs once it matures a bit. Are players going to be changing their glyphs regularly based on spec and play style (e.g. PVP/PVE) or is it going to be like an enchantment you get on a weapon that you basically don't change unless you get a newer, better one? If players end up swapping out their glyphs regularly then it could end up being a continually lucrative profession rather than just a money sink necessity. I wonder if Blizz will add several more recipes, because that will also increase the utility.

As far as VW - short sellers should try using options to make downward bets instead of stocks. It's a lot more reliable way to take downward bets.
I posted my comment before I saw Nomad's comments and we are basically asking the same question. What is the long-term value of inscription? So spec changing will be commonplace because of the dual spec feature being introduced - but will players change their glyphs as often as their specs? Will raiders change their glyphs before raids and shift to something else for questing or pvp? For my warlock main, there is a pretty significant difference in playstyle between specs and there are definitely glyphs that cater to different specs.

Side note - I was re-reading my original post and realized that I read the symbol for Volkswagen (VW) as Voidwalker. Have I been playing too much Wow or what?
I'm glad you admitted that there's no such thing as fundamental value, because as I was reading, I was preparing to ask you how you defined fundamental value. In my opinion, value is quantity based solely on perception. It could be supply and demand that shapes that perception, as your glyph example demonstrates, or it could be a prediction of future value, as your stock market example demonstrates. Quite right. No such thing as a fundamental value.
There absolutely is such thing as fundamental value but it often gets lost in the short run. In the long run, prices will absolutely move towards their fundamental value otherwise Warren Buffet would never have become who he is nor be able to maintain. Granted, the fundamental value is a moving target and that muddies the picture a bit. Still, these short-term supply/demand aberrations are nothing more than outliers and there will be some measure of reverting to equilibrium (possibly for glyphs as well).
So long as glyphs don't decay, the supply side of the equation will continually drive down the price, potentially to zero, especially if the game's population doesn't grow. Eventually, everyone will have all the glyphs they need, so the market will crater.

It's an interesting case study in economy sinks (the lack of glyph decay) and the insanity of basing an economy on perpetual growth (the only way that a non-decaying commodity can maintain demand).
I made a slightly related post on my blog.
It will certainly be interesting to see where the prices head after Wrath.
Major Glyphs: At this point, all major glyphs are trainer-taught.

Good luck getting a decent price out of those, you'd usually be better off selling the herbs you crunched to make them.

Minor Glyphs: You use a research cooldown to learn these.

You can make a profit until knowledge of these glyphs propogates too far. Eventually someone will ruin the profitability of even the Penguin glyph.

And I can't realistically see myself being willing to pay much for major glyphs, when after some initial footwork on an alt I'll be able to make everything that comes with the profession itself. It is, ironically, even easier than Alchemy to level. Should have it maxed by the time WoTLK comes out and as a byproduct I'll have glyphs for the alts I haven't glyphed out yet.

If something rare was to hit later on, raid drop only or rep recipe, or a research, I could see inscrip being profitable, but as it is now there's no way in hell it'll be profit in the long run, even if you could make level 80 darkmoon cards (if there's even gonna be another set of cards)
The post above strikes one as funny when you've started inscription after wrath coming out. Major glyphs now also come from a research, and the new noble cards of the new darkmoon set sell around 800-1200 gold. (plus a full set at at least 10'000 gold) Seems to me like Inscription is still profitable.
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