Weekend Post - Inflation in World of Warcraft

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!

Inflation is a measure of the price rise of a basket of goods.  For our purposes in World of Warcraft inflation is the price rise of new raw materials and old raw materials which leads to a price rise in crafted items, and the higher costs of NPC items, repairs etc . . . . essentially to us it is the rise in cost of living in the World of Warcraft.  And typically inflation hits with new content where new raw materials and NPC items are more expensive than in the last content.

For normal players this is compensated by higher gold drops from mobs, bosses and quest awards which leads to more money being in the economy.  In many ways, Blizzard are reacting to their own created inflation by paying the player base higher gold wages – which is how the inflation mechanism can work in the real world.  Higher costs of living see workers demand higher wages to compensate.

Where it affects all players, but particularly those with large gold balances, is that these gold balances are able to buy less of the new raw materials and new NPC items than they could have bought the equivalent under the old content.  In other words, the buying power of our gold falls as we move into the new content.  Things are just more expensive but our gold level is the same as it was the night before the new content.

For example, I sit there with 1.5m gold.  What you don’t see is the raw materials and crafted goods in my inventory as well.

Hence, i don’t need to spend any of that 1.5m to enhance my gold making process – it is in effect dead gold.  It is this 1.5m gold that is hurt by inflation.

My raw materials and crafted items though will go up in value and so are in part inflation protected.

Compare to someone with say 10,000 gold and the rest in raw materials and crafted items – they are less hurt but nonetheless that 10,000 gold still loses some purchasing power in the move from old to the new content.  Their raw materials and crafted items, which will form a larger part of their wealth, will rise in value as the new content comes in.

The question therefore is how to protect that 1.5m gold from inflation.

In the real world that surplus gold could be invested to generate a return – the higher the target return then the higher the risk required to achieve it.  That is not an option in World of Warcraft.

Therefore the route many take is to buy raw material items and NPC items that they believe will rise in value in the new content and then sell those items once the new content arrives.  The “profit” made is in fact merely inflation profits and they are merely holding their own with the inflation – but at least they have inflation protected their gold.  Not a bad idea – as long as you select the items to buy that will go up in value.

Personally, i increase my raw materials to meet the increased demand for glyphs but otherwise i just take it on the chin and live with it.  The additional amount of gold i need to spend on the new raw materials will be compensated by the higher prices of the new crafted items.

Weekend Post: A new glyphmas – perhaps not?

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


The launch of Mists of Pandaria will give us Scribes a nice boost to income – but perhaps not the boost that we say back with Cataclysm.

In October 2010, upon release of the pre-Catacylsm patch and then again on release of Cataclysm Scribes everywhere made so much gold.

There is much talk of a new “glyphmas” upon the patch and release of MoP.

It is worth looking at what caused the “glyphmas” of 2010 and hence allowing us to compare to today.  I suspect we will see that there are few, if any, similarities.

When Patch 4.0.1 arrived in mid October 2010 glyphs went from an average 15 gold on my server to over 150 gold and held at over 100 gold for a year.  In my mind, there were five main reasons for this:


1. Announcement of the change of glyphs in the summer of 2010 led to a reduction of Scribes participating in the market: over the summer Blizzard announced that the glyph system was to be changed. At that time, glyphs were destroyed when they were swapped out – hence characters had to buy a new glyph every time they swapped one out. When the change was announced to the current system many forecast the death of glyphs. Hence, there were very few new competitors and existing competitors started to leave the market. The view was that glyph prices would collapse. Hence, when the patch arrived the number of scribes was low and indeed the scribes left had reduced their stock of glyphs.

That will not be the case this time – the number of Scribes participating in the market has, if anything, increased.



2. Demand went through the roof and the supply was not there: When the new glyph system arrived characters went to the AH to buy up a complete set of glyphs on the first day. What glyphs were on the AH ran out very quickly. Indeed, i could not post quick enough and hence the selling prices rose rapidly.

We are likely to see an increase in demand from returning players + pandas + Monks.  However, existing characters will only have a demand for new glyphs.  So a slight similarity here.



3. Players returned to the game: on Patch 4.0.1 and generally though the Cataclysm launches old players returned and so added to the demand for the glyphs. Indeed, there were various surges of demand as new patches came and old players came back into the game.

This will be the case this time too.



4. Inks from 1 to 3 per glyph in October 2010: the cost of crafting tripled but more importantly the demand for herbs rose firstly due to the tripling of materials required per glyph and secondly due to the strong rise in demand. Hence, herbs started to run low and their prices rose forcing the prices of glyphs higher still.

This will not be the case this time – the number of inks required to craft a glyph remains at 3.  Herbs may run low initially though.



5. Warden in summer of 2010: in the summer of 2010 Blizzard launched a program to catch and ban bots. It was very successful and overnight many bots left the game. However, their herbs remained on the AH and in their guild banks (i assume the AH posters were on different accounts to the bots though i guess Blizzard can now detect that?). Hence, whilst the bots were gone, the herbs were still hitting the AH at very cheap prices. The timing of those cheap herbs running out varied by server. On my server, it happened just at the time of Patch 4.0.1. Hence, the ongoing availability of herbs went through the floor which was a third factor pushing up the price of herbs and restricting supply to scribes trying to meet demand. Indeed, for myself, i was often in danger of being unable to meet demand on several occasions due to lack of herbs to mill.

On my server at least, there are no bots and hence there will not be an effect  from them disappearing this time.



In summary – demand will rise driven by returning players / pandas / monks but at a lower rate than was the case at Cataclysm.  There will be the usual effect on supply as the herb farmers start to farm the Mists of Pandaria herbs – but that will soon stabilise.

Week End Post - No concept of banking system

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.  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 concept of a Banking System that is similar to the real world (no bad thing i hear some say!).  I.e. there no institution out there that allows savers to earn a rate of interest on their savings and for borrowers to borrow money from at a cost of an interest rate.

We all have surplus gold sitting in our banks earning no return.

In the real world surplus cash can be invested in US Government Treasuries and earn an annual return of 1.4% at almost negligible risk (i know, that may not be the case forever!).

This return of 1.4% can therefore be assumed to be the return one makes with no risk.  Hence, any projects one would want to invest in need to earn a return more than this 1.4% to compensate for the risk taken.

In the World of Warcraft that is not the case.  There are no Azeroth Treasuries etc.  There is therefore no risk free rate of return.

Therefore, surplus gold just sits in bank accounts earning no return.

Furthermore . . . . there is no one on trade chat asking for an interest bearing loan.  There is no one on trade chat asking to invest in their venture for a promised return.  Indeed, there is no system to facilitate such a mechanism of investing.

Hence there is no need for an institution to be set up to allow those with surplus gold to lend to those who need the gold to invest in projects thereby giving a return to the investors.  Hence, no need for a bank.

In turn, this leads to no concept of a bond market or equity market.
. . . . . and hence why our surplus gold earns no return.

Probably a good thing - but boy would that be fun to the very very small proportion of the player base that plays the auction house and enjoys the WoW economy.

Though, with a bit of thought it could be extended to allow guilds to become richer.

Looking forward to inter server lending rate!

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.

Real Life Value of in game Gold

for other ideas on the glyph market please follow the link to the free Croda's Inscription Gold Guide

We now have a method to track this – via the “Guardian cub”

For 10 euros (or £8) any player can buy the Guardian Cub and then sell them to other players via the Auction House.

On my server there are about 2 to 3 on the Auction House at any one time and they are currently going for 4000 gold and move between 4000 gold and 5000 gold.  Hence, on my server each euro is worth 400 to 500 gold.

Within the EU, they typically sell for about 12000 on the Alliance side indicating that each euro is worth 1200 gold.

Those that buy the pet for euros to post on the Auction House are legitimately buying gold with the risk that the amount of gold is uncertain when the 10 euros are paid.

I don’t participate in this market but i do keep an eye on this price.  For me, it indicates the general health of the server and therefore the economy.

Guardian Cubs used to sell at 6500 gold and now have slipped back to 4000 to 5000gold.  Given the volumes on sale it is unlikely that natural demand is satisfied.  It is more likely that the server is merely becoming less active over time relative to other EU servers.

There is not much i can do about that unless i am offered a free transfer (with all my gold – and that is key) to another server – in which case i would need to do some fast and indepth research into the Inscription market on that server.

 

The real life monetary value of in game gold

for other ideas on the glyph market please follow the link to the free Croda's Inscription Gold Guide

We now have a method to track this – via the “Guardian cub”

For 10 euros (or £8) any player can buy the Guardian Cub and then sell them to other players via the Auction House.

On my server there are about 2 to 3 on the Auction House at any one time and they are currently going for 4000 gold and move between 4000 gold and 5000 gold.  Hence, on my server each euro is worth 400 to 500 gold.

Within the EU, they typically sell for about 12000 on the Alliance side indicating that each euro is worth 1200 gold.

Those that buy the pet for euros to post on the Auction House are legitimately buying gold with the risk that the amount of gold is uncertain when the 10 euros are paid.

I don’t participate in this market but i do keep an eye on this price.  For me, it indicates the general health of the server and therefore the economy.

Guardian Cubs used to sell at 6500 gold and now have slipped back to 4000 to 5000gold.  Given the volumes on sale it is unlikely that natural demand is satisfied.  It is more likely that the server is merely becoming less active over time relative to other EU servers.

There is not much i can do about that unless i am offered a free transfer (with all my gold – and that is key) to another server – in which case i would need to do some fast and indepth research into the Inscription market on that server.

Will we be the first to spot a server in worrying decline?

. . . . And this is also a test to see if my iPad can post to the blog (having trouble recently). My backup profession is enchanting - it has many similarities to inscription though has many more input raw materials. My other professions are tailoring, alchemy and jewelcrafting - though still doing the dailies for all the jewelcrafting. And of course herbalism. More recently I am starting to notice raw materials for enchanting being less readily available on the auction house - now perhaps because a new patch is coming or some other reason. But part of me suspects the population on my server is falling such that the odder types of raw materials are just not being found and put on the auction house anymore. Indeed, I would venture to suggest that the initial signs of a server that has a worrying decline in population would first be noticed by the auction house operators such as ourselves rather than by the general playing population. In my mind I am brewing some ideas on how to measure the trend in raw material availability - so watch this space.


for this and other ideas on the glyph market please follow the link to the free Croda's Inscription Gold Guide

Why there is no Banking System in World of Warcraft

By Banking System – i mean an institution that takes deposits from savers and lends to borrowers.  The savers get a deposit interest rate and the borrowers pay a (higher) loan interest rate.

Occasionally interrupting my posts on making gold will come observations on the World of Warcraft economy.  These posts will have no gold making value, just observations from myself.

The economy of World of Warcraft that players can make serious gold from is almost entirely based on production of items, the farming of raw materials or the trading of items on the Auction House.  Hence, compared to the real world, the Industrial and Mining sectors are alive and kicking in World of Warcraft, with a dose of Auction House trading.

Services (repairs, transport etc) are supplied by vendors.  Sure, players can charge for portals and dungeon runs, but those are relatively rare.  Healing is done for free by healers and Blizzard provide the Law & Order, and keep the lights on.  Thus Health Care, Pharmaceuticals, Technology, Utilities, Retail and Financials etc don’t exist in this economy.

(Gold from mob drops and dailies etc is a gold earning venture but perhaps not a serious gold earner for this example.)

The gold required to set up production is the spend in levelling the profession (a similar concept to building a factory) and then add the spend in buying the initial raw materials to set up the first production run.  The next set of raw materials is purchased from the proceeds of selling the first production batch.  And the profits from selling production batches eventually repays the gold spent in levelling.  Likewise, the gold required to start trading on the Auction House is the initial spend to acquire underpriced items to repost them.

Furthermore, the constraint on players making gold is normally time, not their own lack of resources.  Whilst the process of levelling a profession requires gold, at some stage it also requires time in the form of dailies or cooldowns.  And the process of maintaining production requires gold but that is entirely financed from the returns made from selling your last batch of production.

Hence, the demand for gold to put into projects that generate a return is very low.  Of course, someone may want to borrow a few thousand gold to level a crafting profession, but that is very rare.  And plenty of people may want to borrow gold to buy their prized mount, but no-one will lend that gold given the low probability of seeing any of it back let alone making any sort of a return on the loan.

Indeed, i greatly suspect there is a surplus of gold that sits in banks doing nothing.  Not often, in a healthy economy, that the supply of money exceeds the demand for money.

Therefore there is no requirement for a Banking system in World of Warcraft – i.e. there is no need to invent an institution to bring together the suppliers of excess gold looking to make a return with those demanding loans to invest in projects.

To take this one step further, to invest in a project to generate a return it is always useful to have an idea of what return can be generated without taking any risk.  I.e. the Risk Free rate of Return.  In the real world US investors buying Treasuries, or UK investors buying Government Gilts, or German Investors buying Bunds would know what their risk free return is.  This risk free rate of return can then be used as a benchmark to determine the rate acceptable to receive in more risky projects.

With the exception of the old Obsidian Shuffle there is no project out there that can generate a consistent risk free return that i am aware of.  Can anyone else think of a process that generates a consistent return (i.e. sells an item for a profit to a vendor)?

If there is, then that would be where surplus gold could go to generate a return.


for this and other ideas on the glyph market please follow the link to the free Croda's Inscription Gold Guide