World of Warcraft’s New Auction House
Nov 13th, 2007 by tyson
What does the new auction house mean to the economy in World of Warcraft? Released in the 2.3 patch, the auction house has received a number of improvements which allow for easier searching, different durations (12, 24, 48), smaller deposits due to this, and many more specific categories. Herbs, metals & stone, pets, holiday items, and even junk have their own category.
So what’s it all mean? There will now be more use of the auction house. The categories are going to be fuller (though there’s still a limit based on server population) and because they’re going to be fuller and items easier to find, prices will be more competitive. Your 22 pound catfish essentially now has its own category and is not buried in the miscellaneous black hole.
So prices are going to get a little lower. How much? For items that already had their own categories before, such as armor, weapons, etc., don’t expect much change. Expect an influx of items into those categories that are not yet full, because there will be a market there. Prices will initially be high for “new” usually hard to find or obscure items but as they increase in commonness, prices will level. So what’s going to get lower? Those items that were usually typed in to find because they were needed, especially those for professions. These include: metals & stones, enchanting mats, herbs, cloth, and other profession-based items. The harder it was to find the item pre-2.3 (less of them available in the first place) the bigger change in lower prices you should see. Cloth, for example, was pretty common to begin with and there weren’t many varieties of them, so the AH had lots usually of each type. The items should get lower due to increased visibility, but not too much.
My prediction is that professions are overall going to get cheaper because of this, and therefore more wares on the auction house, which won’t really mean more profit for professions since that will drive prices lower. Nevertheless it should be easier for you to become skilled at your profession.
I think it’s unclear how increased visibility will affect AH prices. From classical economics we understand that price and quantity result from the intersection of supply and demand. It’s not clear to me how different categorization will change the structure of information such that prices will consistently move in one direction. I think prices will become “better,” since search (transaction) costs are decreased. In other words, since it becomes easier for supply and demand to find each other, you’ll presumably get more trades and the market price will more accurately reflect all available information. So, I see the variation in price possibly decreasing. (Which may mean less profit for those trading on the AH since we make money due to those variations.) But as for the median price decreasing? It could be the case, that once people can actually find what they are looking for, the price increases since supply is ultimately determined by drop rate (which hasn’t changed) but demand has effectively increased.
Also, Auctioneer, like the internet, is the great information leveler. The people making the market “efficient” are most likely using Auctioneer (or something like it) and Auctioneer doesn’t really care how things are categorized in the AH. It just runs through the data and compares historical and current prices. So, changing the categorization of items doesn’t really change the information set that (professional) market participants are using to set prices.
I’m not sure if the cost to level a profession will decrease. For the cost to decrease, you’d need either quantity supplied to increase or quantity demanded to decrease. Will people farm more herbs or disenchant more items because these materials now have their own category? I don’t think that the new categories are going to offer the gatherer any more information than they already have. If I’m a level 300 miner, I generally already know what I can mine and how much I can sell it for. Maybe the new listing will cause the percentage mix of professions to change, but I doubt it. If, for example, because of the new categorization, people see that they can “make more” selling ore than selling herbs and more players subsequently decide to become miners, that might increase supply of one profession’s crafting materials. For demand to decrease, I think you would have to see the flip side of this: people choosing not to be say, tailors, because they can’t get “enough” for their crafted items. But, again, that’s not new information: on all the servers I’ve played on the general rule is that materials cost more than the crafted item can be sold for. (As an aside, in my experience, the only professions that actually make money are (dis)enchanting and prospecting. Some might argue bags are profitable, but not that I can see. Others might say that you can get your mats for “free” by farming, but they forget the opportunity cost of selling the mats by individually. If someone knows differently, I’m eager to find out.)
When leveling a profession, I generally know what I’m looking for and simply search on that term. So, I don’t see demand increasing for those items either, unless the number of players seeking those items is somehow changed.
I think it will be easier to find those items you didn’t know you wanted, like food. I bought some “under priced” fish (is cheap fish ever a good thing to buy? Eww!) several weeks ago and had a terrible time trying to resell it. The same people were listing the same fish over and over and over. Under the previous information regime, people trying to level their cooking skill might know what they’re looking for, but those just wanting food, don’t know what to search for (unless they make a study and go to http://www.thottbot.com to figure it out). Maybe now, people will know they want my fish. They simply click on the category, and voila, “Look at all this stuff I can buy!” Maybe now, other people will know they can quickly and profitably sell the fish. So demand increases, supply increases, and prices stay the same, but higher quantities are traded. Which is fine by me: I’ll vacuum up nickels, as long as there are a lot of them.
So, for those items that you didn’t know you wanted and didn’t know you could sell, I can see some price changes. But again, the overall direction is unclear. I can see new markets being created. I’m all for more efficiently getting at what you want: A well organized grocery store is SO much better to shop in than one that has a big random pile of stuff. (If there were two auction houses, I could see the better organized one getting all of the traffic.) And for that reason, I applaud the new change.
Thanks for the comment. I agree that the new change is for the better. I know that changing the durations is also going to affect the bottom line as well, especially with competitive items, but perhaps not drastically.
As for leveling a profession, it is not for the individual that I think the categories are going to help find what they’re looking for, it’s the gathering professions mainly that now have a nice and tidy spot for their wares. If I’m an herbalist and I know my wares will be able to be sought after easier because they’re in one neat category, I will put more things up, and herb more. This will increase the frequency of the herbs on the ah, and thus drive down prices. I’m not doing it for the herbalists who’re looking for a single item for one recipe. But most herbalists, akin to the broken LFG dialogue, are interested in many different herbs for various recipes, especially while leveling, and this is where the frequency increase might be.
I was at the GDC a couple years ago and participated in an MMO economy round table. I remember that many classic economic principles have to be modified to some extent, but not being an economist, do not remember exactly which or how. The guy who worked on the WoW economy was there and gave several examples, as did someone from Second Life.
As a caveat, I must admit, I don’t really believe in classic economic principles anyway. After spending so much time studying them, students generally fall into one of two camps: devotees or skeptics. Alas, I’m a skeptic. Nevertheless, it has proven to be a useful, if somewhat blunt, tool. I’m curious if the MMO economy round table produced any documents? Any chance they published something somewhere?
But back to the discussion at hand. I still disagree that prices of materials will fall. (Please keep in mind that this analysis is more art than science.) My main argument is that reshuffling how items are listed doesn’t present any new information to market participants. Before the patch suppliers can call up a list of all the herbs they could gather and sell, and thus, on average, know what they can sell their wares for. Users of herbs (hehe… I just said users of herbs) are going to need a specific herb for a specific purpose, i.e. an alchemy recipe, and the easiest way to get those specific herb was to type it in and get a list of just that herb. If consumers/suppliers hadn’t been able to do a query prior to the patch, then the new categorization would offer new information (or more precisely lower search costs), because in this scenario, participants would have had to sift through hundreds of auctions to find what they were looking for. However, that was never the case.
It’s possible they have something published, but no handouts were given. I can say that they did indeed use classic principles, but just modified them to fit the mmo economy. Money sinks, gold farmers, endless currency all play a big role.
Doing some followup with my prediction on herbs, I have seen more herbs at the auction house of late. Terocone for example, used to be about 30-40g+ per stack, and now I’m seeing it slightly less, at 20-25 recently. Could be a fluke, but time will tell. And I see more of the rarer herbs. My point is that I think herbalists are putting more up because they themselves can search the auction house better, not the alchemist who knows one or two they want and can type them in. As a 375 alchemist, I now enjoy doing an “all” search on the herb category. I can pick out what I need from “produce” section with big sale signs rather than tucked away as it was. Herbalists can see competition and a new market, easier to get a good scope of rather than hidden, and it’s making that market more popular. At least that’s my take so far.
I see what you mean, and maybe my assumptions about herb sellers was incorrect. As you plausibly describe it, an herb gatherer can now quickly scan the auction and see what is or is not for sale… maybe getting ideas for herbs to gather and thus increasing supply. My assumption was that they already knew what they could gather and the prices such herbs would sell for. I wonder what wow.allakhazam.com shows?
Making it easier to see an item will increase it’s sales even if the item is not
being featured at a lower retail price. RL stores do it everyday and the principle applies in an mmo as well. Increase sales will of course eventually translate into increase supply. etc etc
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I think the key assumption is “making it easier to see.” Although there is some anecdotal evidence to the contrary, I’m not convinced that the new display offers the market any new information since the AH was able to be searched prior to the change. In other words, it’s just as easy to see now as it was before: it’s just information displayed differently, not new information (although it could be the case that displaying the information differently creates new information, I don’t think that’s the case here).