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Wednesday, December 15, 2010

Opportunity Cost, or, why are you throwing away gold?

At this point in the expansion cycle, it's always interesting to look at the various ways players like to throw away gold.  Here's a good example:  Cloak of Beasts .   On my realm, the cost of the components of this item, if you were to parse them out and sell them, equals about 600 gold.  Yet there are no fewer than 20 Cloak of Beasts sitting on the Auction house for under 150 gold.  It's one of those bizarre moments where you have to look at your chosen profession and say:  is a skill-up really worth 450 gold?  Or should I wait a few weeks, let the market find its way closer to equilibrium, then finish out my profession.  For a few players, it might well be worth that much if there is some other item they are trying to get to in order to recuperate their losses. For most, however, it is just throwing gold away.

The common retort heard over and over again:  But I farmed the components myself, it actually didn't cost me anything!  Anyone who made it through two weeks of Econ 101 can tell you that this individual is making a costly mistake.   If you can go to market and sell those components for 600 gold, it doesn't matter how you got them, you are still throwing away 450 gold if you choose to use the components to make something worth 150 gold instead of selling them for their full potential value.

So, this begs the question, should a savvy reseller be looking to buy out the inventory of Cloak of Beasts on the market?  No, they probably shouldn't, which is one of the big failings of the World of Warcraft economy:  the supply of raw materials is *far* too plentiful and easily obtained which leads to persistent downward pressure on price, especially after the "rush" to complete trade-skill paths has subsided.  The point being, in a few month's time, Cloak of Beasts may actually be worth making to sell for 150 gold because the cost of the raw materials has come down, which should (not coincidentally) coincide with the let-up on the rush to complete professions.   The fact that this item falls on the skill-up path means that a lot of players will continue to make bad economic decisions in making it, which should keep price on it unnaturally low given the abundant supply.

Raw materials are king right now unless you find that one niche market where you can actually take the over-priced raw materials and create something even more profitable.  This is usually the time in an expansion where you can hold a monopoly on a given in-demand item for a while and reap enormous profit.  However, unless you have this goal in mind (to find an in-demand item that can be priced well above its raw material value), it probably isn't wise to try to level a profession right now.  Go farm embersilk cloth or herbs/ores/leathers or any number of other in-demand raw materials and sell them to players who are willing to trade a few levels of their profession for too much gold.

2 comments:

  1. I see what your point, but don't forget that *not* leveling a profession can also be an opportunity cost.

    Especially with the new LFG mechanism that checks gear ilevels before letting you queue for heroics, early crafters of 85 level gear will be able to charge inflated prices. Those items will go down in value as people naturally win or earn gear through PVP, instance-running, etc.

    So some people could be making the calculated decision to lose money now to get their profession to the point where they think they'll recoup it by selling crafted items.

    Opportunity cost is more than just the value of the mats.

    (That said: I'm with you. I'm guessing the inflated prices for crafted items will be short-lived and focusing all my attention on farming while raw mats are still crazy high.)

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  2. To Calbry - I agree, there are definitely good reasons to level up to maximum profession level. If you've spotted an in-demand item that you could monopolize for a few weeks, it's definitely worth it to grind through to it, and it certainly could represent an opportunity cost if you chose not to grind through the individually less profitable skill-ups.

    I'm not sure that a lot of people who rush to do it actually have the good reason in their pocket though.

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