WoW Econ 102 by Sovrun
(Zekta: Yeah, I am still alive, just haven’t much time and topics to post. Thanks Sovrun for these wonderful posts. Until next time o7 Zekta.)
WoW Econ 102: What can Hunters tell us about pricing?
By Sovrun
There comes a time in everyone’s life where they come to realize that what appear to be one thing is actually another. This is what happened to me a while back when examining the WoW economy. You can talk about a number of economic factors that could be involved, but in actuality none of them matter. The WoW Economy isn’t in fact an economy at all.
Whoa, not so far there partner, shouldn’t you qualify your statements a bit before jumping off the deep end. In last post, we talked about markets. Aren’t markets naturally associated with the economies that exchange products for a monetary value from the buyers and sellers? May be we didn’t spend enough time talking about “nuts”.
Well, if we don’t assume the typical, then what do we get. Hmmm, what is it? But of course… WoW is a game. The economy isn’t something that functions like a stock exchange or store. The WoW markets are each a game within the confines of the game world. They put sellers against each other in to be the selected item that gets purchased. In a store or stock exchange there is no order to the items that will be sold. However, within the game, only the lowest priced items that meet the request are purchased. This order changes your approach to pricing and figuring out which segments of the markets to participate in. Get it?
Auction House is a game
Once you accept that the Auction House is a game, you change you mindset. Let’s look into game theory to determine which of our actions will be most beneficial. I would like to examine a classic example of the Hunter’s Dilemma. This is an example where two hunters can independent select from two different meadows to hunt in. The Northern Meadow is filled with larger game, such as, deer and the Southern Meadow is filled with smaller game, such as, rabbits. The dilemma revolves around the choice that each hunter must make. The hunters will get capture either one deer or three rabbit from the respective meadow. However, if they hunt in the same meadow, they go home empty handed.
This example isn’t purely accurate, but explains how your choice of segment affects the price that you can get. The WoW Economy actually has many hunters working in each meadow, but WoW has a lot more game too. The Hunter’s dilemma points us to markets with less competition to achieve the best possible price for our goods. This doesn’t mean that hunting in the Western Meadow will be success simply because no one is hunting there. There might simply be no game or demand for those items. Simply put, find segments with demand, but limited competition. This is also why the profitable AH Gamer will need to have some diversity in production capabilities.
Game Theory
Wait, isn’t game theory used to price items in retail stores? Why aren’t we choosing a pricing example when we are talking about pricing? Well, the answer is easy. If you have a dominant strategy, use it. The a real world game of pricing, you can sell items without being the lowest priced item, but your price sets which portion of the market you will capture as individual choose items based on what is available to select within there given location. Lowering your price may capture an extra percent of market share, but it no likely to have the biggest impact. A good sales person can always point out the differentiators that allow for a high point whether they are actual benefits or perceived benefits. Customers may be willing to go to a competing store a few doors down, but it would be impractical to travel 300 miles/kilometers to save a little money. The time investment makes it not worth the effort. Customers also have some level of brand loyalty that just simply does not exist in the game. However, the Auction House is really big store with various prices for a single item. Therefore, the only item that sells is the lowest meeting the buying criteria. The dominant strategy is to be the lowest priced item on the market when the buyers are looking for the item.
I see… price everything really low and you will get all of the sales. Woot, I am going to be rich!
Not so fast, you need to look at another pricing example from a video I saw at Interop last year, where two completing sock merchants on the streets of London compete for sales. Barney is selling his socks for 40p until the Franklin moves into the area. Then the two go back and forth lowering there price until Franklin realized that Barney is now selling below Franklins wholesale price and buys all of Barney’s sock for 4p a pair. Franklin quickly raises the price to 45p and is happy that his stock of socks can be sold without competition.
Strategy
This is a strategy that I have used a number of times in the glyph market to reset margins. I will cover the glyph market in another segment, but the basic thought is to examine the market while posting. When just a couple of items are on the Auction House near your threshold, it is better to purchase them to reset the price to a higher point than to post at an ever slimming margin. As long as, your reset price is within reason, the market will progress, as it would have at the lower price, but with higher margins.
The basics of pricing in WoW for a given item are simple.
- Undercut by the smallest margin possible (1c). Anything larger just spends up the Sock situation.
- Don’t sell below a threshold unless you are trying to no longer sell that item. This threshold may be based on raw material cost or effort for farming typical or rare materials.
- Look for opportunities to buy all the socks. This will allow you to reset the pricing levels for higher profitability. Be cautious here, you won’t want to end up protecting a price point. If you are purchasing more than three to five items, don’t reset the price.
Until next time….have fun and sell like a crazy hunter, possibly a goblin hunter.
Related Post
(No Ratings Yet)
Loading ...This entry was posted on Wednesday, March 30th, 2011 at 12:20 pmand is filed under . You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.
RSS Feed
March 30th, 2011 at 2:40 pm
There actually is more in play than price alone as you suggest. Ignoring time of day as an external variable that I can assume you’re aware of the other major factor is quantity, and I don’t mean the volume you sell but the items/stack you put up.
Players don’t realize the value in posting things in multiples that people want to use them.
Traders aside, the vast majority of players purchase items not as a commodity but for their own personal use. This means you’re far more likely to sell an item, even at a reasonably higher price, if it is packaged in a more attractive manner to the consumer.
It seems like common sense but I regularly make thousands more per day by refusing to undercut the mass of single stack competitors and instead undercutting the people posting in quantities of 4, 5, 10, etc.
Think about the last time you bought Hypnotic Dust or something of that nature. Bag space and bank space are both commodities that the average player has to wrestle with. To them reselling isn’t really something they think of. Sure they might save the leftover 3 dust in their bank but that has the opportunity cost of 1 bank slot.
Surprisingly, many many wow players still run around with smallish bags and fewer still have gbanks like we traders do. This is something the entrepreneurial trader will likely forget. You are not the norm. What you take for granted and expect everyone else to do is precisely what most of them don’t do.
Ultimately that dynamic is what makes us all profit. Great article but I figured I’d contribute my comments in the hopes that they help someone else.
March 30th, 2011 at 8:07 pm
I agree with Cold, but I think it also matters HOW the (possible) customer is looking at the AH.
That’s something you can only guess, assuming they use the standard UI without any custom addons or settings, but it’s very possible and has happened before that people do not always see what is priced lowest as actually being the cheapest item, because in their AH window there’s just something else listed.
It might also occur that they sort by stack size or something, making Cold’s strategy even more viable as they skip over hundreds of stacks of single items to buy that stack of 10 or something.
March 30th, 2011 at 10:29 pm
When I’m buying something, and I notice somebody has undercut by 1c — I buy his competitor’s item instead of his. (Well, if it’s raw materials, I’ll buy them all.) One copper is a negligible undercut.
Needless to say, when I post items, I don’t do it only 1c under the competition.
March 31st, 2011 at 2:48 am
@Indy:
The logic you’re applying is sound from your perspective but nearly always this will be a losing strategy. Again, you’re thinking as if most of the players think like you. They don’t.
The vast majority have no sense of loyalty towards a particular seller, nor do they feel the frustration of being undercut like you do. You adopt this position because you are frustrated with small undercutters and are falling victim to a buying strategy based on emotion or morals instead of economic sense. A very small percentage of players will join you in this endeavor, mostly your biggest competitors – traders that feel the same way.
If there was nothing punitive about this then it might be okay but there is definitely a reason nearly every major gold blogger has one common bit of advice. Undercut by 1cp and nothing more.
Aside from extreme cases where you’re actively trying to force someone out of a particular market, you are always better served by a 1cp undercut. That undercut can be on the cheapest price or something a little higher if you’re selling a more “usable” stack size like I’ve described above, but it is always the most effective strategy.
Also, before everyone starts undercutting massively and trying to assert they’re doing it for the purpose of forcing someone out of a market you have to think really carefully about this. Botting makes this harder than ever before because it’s very difficult to control an entire market like it used to be. Even if you buy out the AH it only encourages botters to farm more of those mats which are being purchased by middlemen and THEN posted to the AH. If you happen to be online every time the mass farmers sell an item in trade or if you have existing relationships then your mileage may vary but in general unless you really know what you’re doing and can assert your dominance in the market with a willingness to bet the farm on any particular commodity, you’re probably going to come up short from your projections.
For all intensive purposes, you should always, always undercut by 1cp. Anything less is usually a sign of an amateur.
March 31st, 2011 at 2:50 am
^ anything more*
lol
March 31st, 2011 at 7:08 am
Wow! Thanks for all the comments.
@Cold – I agree with your points. Price is not the end at be all to making gold. There are additional factors that allow one to maximize profits. You definitely added to the explanation of the Dominant Strategy of Undercutting by just 1 copper. I have one additional thing to add to everything that I have already written and you added to. Why is it that we undercut at all? The answer is simple. We want to be the highest on the list. Our position on the list of items dictate whether or not you get the sale. For items like glyphs, gems and enchants, this is simply being the lowest price on the Auction House at the moment the buyer is looking for that particular item. This price will vary and fluctuate over time based on a number of factors. However, you simply want to occupy the top spot at the time of the sale. Some items have the added complexity of being sold in volume. Herbs and Ore should be sold in multiples of five if you plan on selling to any of the scribes or jewelcrafters out there due to the need to process the raw materials, not to mention the automated shopping functions of TSM.
@Indy – Thanks for your response. I will admit that my approach is more in line with what I stated. I really don’t pay that much attention to the second lowest price when I am in a buying cycle. An item either meets my buying threshold or not. I don’t have a moralistic approach to the game for the most part. However, I still wouldn’t use the sell single arrow ploy that was somewhat popular in Wrath. I would rather everyone subscribe to the undercut by 1 copper strategy. I am generally upset by those short changing the market by deep undercuts. Of course, I also buy their goods to return the market to the previous set point.
I hope you all are enjoying the posts. I will try to come up with a fairly regular schedule.
Have Fun and Sell Sell Sell…
March 31st, 2011 at 8:04 am
The 1c undercut just rewards the camper with the most time to do cancel and relist cycles. It also nails the price in place, which is probably far lower than it’s capable of selling for.
On markets where sales prices can have little relation to materials costs – glyphs – switching to something like a 10g undercut reverses this. The more often they want want to spend canceling, the faster the price drops towards and below their thresholds. Once there, the campers are faced with either selling below mats cost, or backing off and letting the price rebound.
If I’m faced with competition over a 40g glyphs, it’s not worth my time to deal with a series of 39g99s99c and 39g99s97 auctions every few minutes. The faster I can drive that thing down to a money-losing 20g, the faster the price has a chance to return to my 300g fallbacks. I’ve had far better results after forcing markets to pick one extreme or the other than I do fighting fiercely over items that are stranded at mediocre prices.
March 31st, 2011 at 11:07 am
You’re ignoring the alternative. For markets with heavy competition where the undercut is time based you can simply let your auctions sit there without being the very lowest one. It sounds counter intuitive but it yields better results than what you’ve suggested. I’ve played the AH on multiple servers at a time so I don’t know if your commentary is based on just your server or what but trust me when I say that the best traders out there are emotionless. They aren’t scared off by someone flooring the price of glyphs and it does nothing to the massive supply they have on hand if they’re mass posting on time based schedules.
Perhaps you’re encountering AH bots that aren’t as robust as the decision making a human can offer – there are definitely some crafty new glyph bots that use the remote AH out there. Your strategy might work for them until they get smarter but in general you really have two choices:
1. Floor the market to the point where you will buy your competitors glyphs, cancel yours and repost at your price.
2. Accept the fact that you cannot devote as much time and deposit cash toward maintaining your foothold in the market and just let someone else be a few glyphs ahead of you. The less you motivate them to constantly recheck in short intervals the more you and other glyph vendors will have an opportunity to sell.
If what you say works for you then go for it but I’m inclined to think this is a case of confirmation bias. You think it’s the most profitable strategy therefore you see evidence that supports it. There is a reason virtually every goblin has one universal piece of advice that I’ve already stated – it works.
Against any real trader such an amateur attempt at market control would be laughable. Maybe you’re lucky and you’ve got terrible goblins on your realm but I wouldn’t advise this to anyone if they weren’t aware of points 1 and 2 outlined above.
Quite simply a good trader devoted to repeat posting as you’ve described will either follow you down to the floor until he starts buying your glyphs or continue to undercut you to the point that you give up. He has the advantage since he is willing to devote more resources to the game. Time is money, friend.
April 1st, 2011 at 12:17 am
I’d be far more concerned if I *was* up against an AH bot, as what I’m up dealing with now isn’t putting up much resistance against the crater/rebound cycle, and a few look to be actively going along with it. The last time I played around with 1c undercuts, my sales dropped to 3500g per day instead of the 12-17K I’m used too. (Yes, our streets are paved with gold.)
Our last round of bloodbaths before Glyphmas sorted most our real trader/amateur issues already – the goblins that didn’t drop the profession or transfer off don’t seem to be in a hurry for a rematch. I’m sure at some point one of the young goblins will get too big for his britches and I’ll have to beat him back down again, but until then one goes with what works.