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Sunday, 15 July 2012

Weekend Post – No Concept of the Cost of Storage

for other ideas on the glyph market and other general tips see the free Croda's Inscription Gold Guide

I aim to post every two days one this blog.  However, i find that my weekend posts generally get less attention (i suspect most people read posts during the week and therefore land on my homepage and read the post i did at the weekend at the same time).  Therefore, for the weekend post i plan to post on how the World of Warcraft economy relates to the real world or theoretical concepts for the World of Warcraft economy.  Ironically, it is this subject matter which causes the most email traffic!

In the World of Warcraft there is no cost in tying up your gold in raw materials.  Neither a direct cost nor an opportunity cost (potential profits lost by using the gold elsewhere).

We do not have to rent storage space and gold used to buy raw materials could not otherwise be earning a risk free return elsewhere given there is no concept of the risk free rate in World of Warcraft.  I.e. we do not need to make the choice of buy Herbs or invest the gold in Azeroth Treasuries that make 2% pa and you are guaranteed your gold back.

Other than buying the bank tabs, guild tabs and bags there is no ongoing cost of storage (i.e. rental costs) and the raw materials are not perishable (i.e. our Herbs do not wither and die over time if not used).

The absence of this cost from the market is what, in part, what allows World of Warcraft gold makers to operate strategies that are not so easily adopted in real life.

For example:

A gold maker can attempt to control supply by buying up all raw materials.  As long as they have the gold and storage space then their risk is that they can't make a profit on the raw materials they have controlled.

They benefit by preventing other crafters from competing due to lack of raw materials.

They also benefit by forcing up the price of the raw materials and therefore forcing up the price of the crafted products as other crafters raise prices to restore profit margins.

In the real world such an action would require considerable storage cost and the money tied up could be usefully earning a return elsewhere.

In the game, we all sit with surplus gold hence our inventory is not preventing us making profits elsewhere.  I am not having to make that decision of “invest at no risk for a small return vs invest at some risk for a greater return”.  My choice is “use some surplus funds to make an investment for risk vs leave the remaining surplus funds earning no return for no risk”.  Hence, buying up all the raw materials is a strategy seriously considered.

And the view of Blizzard on such an action?

To me, it is not clear what Blizzard’s view on this is.  I suspect they don’t really care given there is no obvious abuse of the market going on to the detriment of the player base that plays World of Warcraft for the questing / dungeons / raiding.

Furthermore, i can’t readily think of what Blizzard could do that would not have consequences elsewhere.  It is arguable that gold makers do keep the market alive with a consistent stream of raw materials and crafted items – though whether the prices are higher or lower than would otherwise be the case is debatable.

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