The Artisan/Bag gold sink fallacy

[smurphys]

Where my "angle" on profit comes into play is when the market is so saturated by common crafting materials that you simply can't sell all of the materials you're capable of farming on a daily basis and craft up the materials that are sitting there collecting dust anyways just to turn them into "some" form of liquid asset, you take a net loss in-game via crafting but it could still mean a bonus in the bank at the end of the month.

The market will not be so saturated that one is unable to sell all of his items. What is likely the case is that you are trying to sell your items above Equilibrium Price. This sounds like a group-imposed Price Floor above equilibrium price. At Equilibrium Price supply equals demand. At any price above Equilibrium Price more items are willing to be sold than purchased. At any point below, more items are willing to be purchased than sold.

There is natural and expected variance in price over time. One moment's supply and demand will be slightly different from another moment's. A specific item may fluctuate in price may fluctuate regularly. An item may have an Equilibrium Price of 98. The item may vary in sales price from 96 to 100 over time. Sellers may become entrenched in the concept of "this item is worth 100 so I am only selling at 100." As this notion becomes more entrenched a "price floor" is created. This price floor above Equilibrium Price causes more items willing and able to be sold than purchased at this amount. These excess items willing to be sold cause this backlog and cause sales to slow down.

Simply, your selling price is too high. Lower your sale price.

[Concupisco Quaestus]

Simply, your selling price is too high. Lower your sale price.

It's not that simple, it's an issue with volume, not with price, there are only so many units that will be bought up on a daily basis for any given item and when dealing with the volume of trades it takes to generate any real income from "farming" you run into a whole other set of problems that are there no matter how low you set your price.

The problem isn't price, anyone can sit there all day re-listing their items for the lowest price on the market, the problem is managing sales volume, selling one or 2 scraps a day isn't going to make you anything so many people will feel the urge to craft as it will probably give them more instant gratification from their materials, in all likelihood people will need to move 100's of stacks a day to see any notable amount of cash from selling common "materials" and that is where we run into trouble, with even the slightest bit of competition that materials market can get out of hand quite easily. When you have multiple people manipulating hundreds of items in such a restricted market the challenge comes in maintaining the necessary sales volume you need to be making money, the price point at which those sales take place becomes almost irrelevant, you just need those sales.

Don't kid yourself, this market WILL be saturated... There's a million people all around the world that are all thinking the exact same things we are, whether they actively participate in the RMAH or not their presence alone guarantees that any item that could be considered "common" will be available in excess.

[smurphys]

Don't kid yourself, this market WILL be saturated... There's a million people all around the world that are all thinking the exact same things we are, whether they actively participate in the RMAH or not their presence alone guarantees that any item that could be considered "common" will be available in excess.

Supply and Demand don't apply because "saturation." Is that what you are saying?

[Azzure]

Supply and demand will most certainly apply to everything on the RMAH and D3 Economy, no matter the level of saturation or any other circumstance.

The thing about Supply and Demand though is that there is no easy visual indicator on exact values of demand and supply - it's based on social perceptions which are not precise at all. So supply and demand is by no means "always accurately measuring prices". In fact, it's somewhat rare that the market value of anything reflects it's "true" value completely accurately.

However S&D will always determine prices because it's real consumption, not a theoretic calculation. It is set by the people, for the people, through their actions of buying and selling. The RMAH is going to have millions of items, which means even when the market value of an item is X, there will be thousands of people who list things at wacky prices.

In a perfect world all items would be valued at V = D / S
Unfortunately we no way of accurately measuring D and S perfectly.

In regards to the discussion about crafting and gold-sinks - Concupisco worded it best when he mentioned the concept of: if there somehow comes a period where there is a positive return on a craftable item, it will be extremely short because the market will regulate them via S & D, if the game mechanics fail to do so themselves. Also, as Grayson mentioned, the price of crafting an item is huge, and if it spawns useless stats it's worth 1x a salvaging mat, vendor pays a tiny amount of gold, both in which equate to 30-100x less than the cost of making it.

There will be a sliding scale of "expected negative return on crafting" and the prices of materials will adjust that rate. Think of it like going to a casino (because crafting IS gambling fundamentally). You will always lose on average, sometimes you will win big in one roll, sometimes you will have a massive losing streak, but in the end you will always lose an average of xx% due to the odds in the game. For crafting, these odds will be set by the cost of materials vs the market value of good items.

It's almost impossible to measure this return % value accurately, but I fully expect it to be double digit losses.

[Concupisco Quaestus]

Supply and Demand don't apply because "saturation." Is that what you are saying?

Not what I'm saying at all, I'm just saying that a market with 10 people selling their wares operates quite a bit differently than a market with 1000 people selling their wares, it's easy to nitpick over things like price when it's just you and one or two other guys selling tomatoes but when its you and 487 other guys selling tomatoes the game changes.

If the "basic" crafting materials are cheap enough people aren't going to mind consuming them when crafting, if they are too valuable people won't craft so it makes sense to have the basic "materials" fairly common, it also follows the same basic pattern we've seen in crafting systems up to now... If the base crafting materials are common enough to be "worthless" enough to justify the crafting system then they will also be available to everyone to some extent or other as the entire game play design revolves around a loot system that provides a never ending stream of these "scraps"... For all we know the "scraps" and common stuff may be so near worthless that putting them through the crafting system becomes the only way to generate any kind of money with them... Who knows, I've seen worse... Either way crafting materials are going to behave more like gold in that everyone is constantly generating it on a daily basis through natural game play without much real effort, which is definitely going to have some kind of effect on the overall demand for materials within the market and crafting system.

[Grayson Carlyle]

I'll see if I can clarify my position and my understanding of crafting.

There are 2 ways to get rares: Crafting and drops. By necessity, most rares will come from drops. Based on materials for crafting, at least 32x more rares will come from drops. If you go for some 6 attribute items (and hell, why wouldn't you?), it'll be 48x. Market value of rares will be determined by the entire supply of rares, so you can't look at crafting values, input and output, in a microcosm.

You can buy all the cheapest rares off the AH to try get a crafted item that's worth more than 48x the cost of the crap you made it from, but in all likelihood, it won't be that good. Most good rares will come from drops. What you get out of crafting is choosing what type of item you make. You can aim for one with high market value or one that will personally benefit you. But either way, there aren't so many different high-end item slots that good drops won't outnumber good crafts by at least 6:1.

Since the supply of rares from drops will greatly outnumber those from crafting, by necessity, the drop supply will dictate the overall supply. Demand will remain constant for quality (to be used) or crappy (to be salvaged) rares regardless. The output value of a crafted item will be determined by the drop market, not by the craft market, which is what everyone has been doing their calculations on. The only catch is that, aside from vendoring crappy rares, there's nothing else to do with them except salvage and craft. Because S/D will be set by drops, not by crafts, the average value of a crafted item will be much less than the cost of making one. But people will do it anyway because they're tempted to have another chance at an awesome rare. This makes crafting inherently more rewarding (the gambling aspect) than simply producing a profitable item.

If you want to make money, you'll sell crafting mats and not craft a single item. Buying the best items will be cheaper than crafting them, because people will use the crafting materials just because they can, and the output will be competing against every other rare item ever found.

If the gambling subset of the population is small enough, then crafting materials will drop so low in value that they will level out to be an equivalent fraction of the average output value, but I highly doubt that will be the case.

Either way, rares will have a stratified price; "sub-par" (items which aren't bad, but are still worth more than the price of salvageable materials, at some X%) to "poor" items will be worth the price of their materials, then there will be an empty gap between that price and the price of a decent rare. That gap will start out small, as people will still have a use for a "mediocre" rare. The longer the game goes on though, the less demand there will be for anything less than "good". Anything less valuable than "good", even if it's just barely less valuable, will instantly drop to salvage fodder. A lot of deposits will be lost trying to sell these items, but they will in turn rise the price of crafting materials slightly, making crafting even more of a gamble, but the salvaging of mediocre items even more of a loss.

The very narrow economy (in terms of variety of commodities and usefulness of goods) means there's just not anything else to do, and it will be a gambler's paradise. A lot of people will lose a lot of money, and happily lose it, to those watching the prices.

[Frostlion]

If the gambling subset of the population is small enough, then crafting materials will drop so low in value that they will level out to be an equivalent fraction of the average output value, but I highly doubt that will be the case.

Ah, now I get it! This seems to be the core of your argument, and it's actually a pretty good one: demand could actually be higher than the value of the items justifies. Because people haven't done the math, don't care too much about money, like to gamble or can't wait for something to show up on the AH.
In other words: the price could stabilize well above what we think would be a fair price.

This might be the case and we won't know until release.

That said, this has not been my experience in other games. In practice, it is almost always possible to make a profit buying materials and selling the results, exactly because crafting is such a gamble in small quantities. Sure, some people like to gamble, but if they are disappointed the first ten times, many of them will leave it at that.
On top of that, many people simply believe crafting to be boring. They'd rather be out playing the game than scouring the AH for items, breaking them down and gambling them into random stuff. (the "Fun" factor smurphys was talking about). The same goes for mediocre crafting results that are worth a fair bit of money but that you can't use yourself. Most people won't bother selling those because it's such a bother, actually decreasing their image of the value they get out of crafting.

But first and foremost: there is a better way to gamble. One that costs no money, in fact, it makes you money by default. One that is more fun and feels more challenging. One that is a lot less reliant on what other people are offering. One that actually has a (tiny) chance of hitting the jackpot and finding something better than you could possibly craft. One that makes your character progression feel meaningful. One that gives you free crafting materials as an added bonus.

And that is playing the game.

My prediction is many more people will be playing the game and having crap to sell, than there will be sitting at their anvil all day, buying up that crap. Especially because if you actually are grossly overpaying for scraps, you'll run out of money pretty soon.

[AngleWyrm]

That said, this has not been my experience in other games. In practice, it is almost always possible to make a profit buying materials and selling the results, exactly because crafting is such a gamble in small quantities.

You're just making that up. In what game do you own a toon that made their fortune crafting?

[Concupisco Quaestus]

Star Wars Galaxies is about the best example I could think of for a "click click profit" type crafting system, granted you still had to know what to do and what items to craft but you could easily take resources worth 1-5 credits per unit and turn them into simple things like armor dye kits and such and sell 100 units worth of cheap resources for 50-100k credits... Crafting made plenty of people "rich" in SWG".

However; with that being said, one could also try and setup a crafting "business" and lose money on every single sale if they didn't run their numbers properly or overpaid for resources so Star Wars Galaxies crafting could easily go both ways... It was about as close to a real world free market economy as I've ever seen in a game, the "trading" side of SWG was so comprehensive and complete that it was an MMOG in its own right.

It's a night and day comparison to the D3 crafting system though as SWG had one of the most robust and comprehensive crafting systems of any game in existence so while it stands as a shining example of a system where crafting can be profitable for the participant the example doesn't have any way to apply itself to the more primitive D3 crafting system... but crafting in Star Wars Galaxies does still stand as testament to what can be done with a crafting system when it is taken a few steps farther.

[Spens]

You're just making that up. In what game do you own a toon that made their fortune crafting?

WoW allowed for quite a bit of money to be made with crafting.