Tuesday, April 1, 2008

The economics of WOW and further proof of my geekiness

As if it wasn't readily apparent already, I present more evidence of my geekiness. One of my grad degrees is from the University of Chicago, a school that is known for economics. So I thought I'd put some of my economics concentration to good use and see what it can teach us about the WOW economy.

Now here's Econ 101... basic supply and demand. Demand always slopes down while supply always slopes up... now where the two curves meet is the equilibrium price and quantity.

Now here is my philosophy on selling Earthstorm diamonds, a major money maker for me. When there is a great supply of them (supply shifts from red to purple curve), price goes down so I save up all my diamonds for a better day. That better day would be when there is a low or no supply of them (supply shifts from red to pink curve). This means its price goes up and I am happy.

Now here is a theory as to what has been going on since patch 2.4 came out last week. With all these new dailies and the ability to do 25 a day now, I've seen prices for a lot of things on the AH go up. Now why could this be? Well perhaps since people have more money now, demand has increased (demand shifts from blue to green curve). Just having demand shift out means price goes up. But I have also noticed that there is a decrease in the number of sellers. Perhaps because they can make money with the easy dailies, they are not farming stuff to sell? Has supply shifted in (from red to yellow curve)? Basically it seems to me that there is less stuff on the AH and everything is more expensive.

I was mentioning this in the guild the other day seeing if others saw the same thing. I said I wondered if this was because of the patch changes. Our hunter Nio said that and because of rising gas prices. lol. He joked whether the Grand Poobah (whoever he is) needed to institute a price freeze in these difficult times. lol x 2.

Now a couple of months ago on Drenden, we had one player from the top raiding guild on the server try to use the principles of supply and demand to support his guild's raiding. He was buying all of the Primals and top end gems on the AH and relisting them at much higher prices. So he alone was controlling supply. While people bitched and moaned about it, and some said Blizzard should stop him, he was able to do it because demand didn't seem to change. People were buying at his high prices. Now doing something like this takes so much work, because he'd constantly have to buy out whoever listed those items he wanted to monopolize. So yes, he did get terribly rich, but eventually he couldn't keep up with all that work and stopped. Then his guild imploded and I think they all transfered servers.

But me, I am all for a free market. Otherwise I wouldn't have been able to buy the recipe for elixir of major mageblood for 5g the other day. This recipe is actually worth anywhere from 500-100g. This in economics is called information assymetry... basically one side, the buyer or seller has more information than the other. In this case, this seller was the uneducated one, aka the poor unfortunate one who doesn't use auctioneer. Free market enterprise FTW!.

So have you seen something similar on the AH on your server since patch 2.4? Any thoughts? I hope I didn't embarass my school with any econ mistakes...


  1. Oh, good analysis.

    With the new patch, I, too, was expecting to see prices falling. You analysis of why Earthstorm Diamonds (which I also use to great effect for my Epic Flight Form Fund: Miner/Engineer toon doing laps of Zangamarsh and sending stuff to Alchemist for transmutation? Win!) makes great sense and helps explains why prices are going up.

    I have been guilty myself of not making as many as I have been, but I do try and do my Mining Daily/Diamond Farming before anything else, due to gold/time efficiencies.

    Another thing to note: the "green" gems used to create the Earthstorm have all but vanished from my server's AH. All the JC's are blowing through their supply to create "blue" gems. So the cost of making Earthstorm's is going up as well. Like the price of gas.

    Fel Lotus prices eventually fell as expected, but all other prices seem to be rising.

  2. @entilzah... yes I am so so so annoyed by the market for golden draenite, shadow draenite, and deep peridot. I know my guildies wish I would shut up about it. Also have you seen what ancient lichen has been going for?!?! Ridiculous!

    @Nio... you know you love it! Wanted to give you something to contemplate while you're sitting on those rocks in Nagrand...

  3. A couple other factors that may be indirectly influencing the market:

    (1) Primal nether is no longer BOP. Thus many more folks may be crafting epics or at least training up to a level where they can.

    (2) Many more people may be raiding places like Karazhan where it is no longer necessary for all raid members to be attuned. Raiding is expensive.

    But of course all this will change when the workers rise up and seize the means of production! (Not that I won't try to make a few gold off the pattern for the Spellstrike Hood that dropped for Aksana last night. Suzzy was beside herself.)