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The Artisan/Bag gold sink fallacy

Discussion in 'Diablo 3 Market & Economy Discussion Forum' started by AngleWyrm, Oct 19, 2011. | Replies: 62 | Views: 4672

  1. AngleWyrm

    AngleWyrm IncGamers Member

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    The Artisan/Bag gold sink fallacy

    Over the first year, Diablo 3 will probably sell about three million copies, with just a trickle after that. So that's the box sales income. But this game has a micro-transaction model built in that will continue to generate revenue for as long as people play the game. So continued popularity is in this case clearly a profitable enterprise.

    So we have a player base measured in millions, who during their initial week of play will buy the Artisan upgrades and bag upgrades. And then they will be done buying upgrades, because they have them all. Then what? They are still generating billions of gold pieces every hour.

    The artisan and bag upgrade processes consume a finite amount of gold from an infinite stream of gold.

    The solution to an infinite outpouring is an infinite sink.
  2. Azzure

    Azzure IncGamers Member

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    Re: The Artisan/Bag gold sink fallacy

    Few things, the game will sell probably closer to 5 million units in the first year.

    Artisans are designed to consume gold and materials indefinitely, they cannot be "completed" by any means. I think you are probably referring to leveling them up to maximum level.
    That's not the primary gold-sink for Artisans. Crafting endless combinations of items is the Gold-sink. Due to the affix system, it is nearly impossible to get the "perfect" item that would cause you to not need to continue using the Artisan for that slot. This is because the chance of getting "perfect stats and stat combinations" is one in billions.

    The only gold-sink we know about that CAN be completed, is the Stash. Artisans offer near-infinite usage.


  3. AngleWyrm

    AngleWyrm IncGamers Member

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    Re: The Artisan/Bag gold sink fallacy

    Your vote "closer to five million in a year" my vote "about three million in a year". Blizzard's business volume just got interesting.

    On the topic of gamble crafting, is the output a net loss? How much material and gold goes into one attempt, and what does the average created item sell for on the auction houses?
    Last edited: Oct 19, 2011
  4. Frostlion

    Frostlion IncGamers Member

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    Re: The Artisan/Bag gold sink fallacy

    An important thing to remember about things possibly selling on the AH is that it is in itself a gold sink. Namely, the transaction fee looks to be 15% on a successful sale, on top of some other nominal fees. Assuming people keep finding upgrades for a long time, an item can easily switch owners ten times, meaning by that time the fees have actually been higher than the value of the item.

    A second thing to remember is that Blizzard doesn't need to keep the economy balanced infinitely, they only need to keep it balanced until the next expansion. At that point, there will be such an influx of new items, content, gold sinks etc. that it's almost an economy reset. Now I don't think buying stash slots will carry us over for the (at least) 2 years until the expansion comes out, but if it takes most people 3 months to get their stash maxed out, that's over 10% of the required time bridged. A non-permanent gold sink is not the only thing required, but it's a good start.
  5. smurphys

    smurphys IncGamers Member

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    Re: The Artisan/Bag gold sink fallacy

    A percentage based GAH fee is all that is required to prevent infinite Gold inflation. There cannot be long term inflation. Gold prices will... eventually... stabilize.
    tl:dr explanation...
    As Gold Auction House prices rise the amount of gold destroyed also rises.
    *********
    Prices rising infinitely would cause GAH fees to rise infinitely.
    Player income (the average gold earned per hour) will stabilize.
    Player income won't allow players to afford an infinite fee.
    At some point GAH fees cannot be afforded by players.
    That point will be created when player income stagnates.
    At that point GAH prices will no longer rise due to inflation.
    *********

    Assuming...
    1) There is a percentage based fee on the Gold Auction House
    2) The Gold Auction House is frequently used by players
    3) At some point the average player income stagnates or falls

    then...
    There cannot be long term inflation. Gold prices will... eventually... stabilize.

    I won't bother explain nor debate assumptions #1 and #2. Simply take those arguendo. The third assumption is simply referring to the point in time where the "average" player income stabilizes. At some point in time a portion of the playerbase will reach level 60, playstyles will no longer vastly increase in productivity, and game changes will not significantly increase gold income. I'm assuming this point will be reached and has been reached. When the game is first released player income will rise as player's characters level rise and their ability to kill stuff and find gold increases.

    At the point in time when income stagnates and the percentage fee Gold Auction House is regularly used... Gold inflation will cease. This ceasing of inflation occurs because the auction house fee cannot rise above a point where players cannot afford.

    Here's a very long-winded example with Economics jargon thrown in:
    Legendary Crafting Materials.
    I assume that buyers will want as many as possible and sellers can only find them so fast. Players want more Legendary Crafting Materials than is possible to exist. Legendary Crafting Materials are "scarce". If we all shared all of our Legendary Crafting Materials we all couldn't get as many as we wanted. I want a billion of them. There aren't that many. That's scarcity.

    The supply of Legendary Crafting Materials is relatively inelastic. Inelastic Supply means that as price increases the amount willing and able to be sold does not increase nor decrease. In Diablo 3 terms "inelastic supply" means that players are only going to find so many junk Legendaries they are willing to turn into scrap and sell. Even if the price of Legendary craftables rises or falls the amount of Legendaries turned into scrap won't change that much (but it likely will change some).

    Let's make up some simple numbers out of thin air to demonstrate the concept . These numbers are in no way intended to be accurate. Demonstration purposes only. Roll with my assumptions. If you need more assumptions add them in yourself.

    100 Players in Diablo 3.
    Average Income 5,000 Gold per hour
    1 Legendary item willing to be scrapped every 10 hours.
    Averager player plays 3 hours per week.

    Week 1:
    100 players * 5,000 gold * 3 hours = 1.5M Gold created per week
    100 players * .1 Legendary * 3 hours = 30 Legendary craftables.

    Some people won't use the Gold Auction House. Some people will use the item themselves. Lots of possibilities. But we'll pretend that...
    10 Legendary craftables are sold on the Gold Auction House in week 1.
    Average Price (totally made up): 10,000 gold.
    at a 15% fee this means that 10 items* 10,000 gold * .15 fee = 15,000 gold destroyed.

    15,000 gold destroyed.
    1,500,000 gold created.

    RAMPANT INFLATION. DOOM OMG LOL BLIZ YOU IDIOTS....

    Some food for thought: Each person only made on average 15,000 Gold in total. A player can only bid what he has. That number isn't very high.

    Week 2:
    Starting World Gold suppy: 1,485,000 (1.5M - 15k)
    +1.5M Gold Found
    +30 Legendary craftables.

    Let's say this week that 15 legendaries hit the market. Ten new ones found this week and 5 carried over from last week.

    Market Price of Legendaries: 20,000. Players made, on average, 30,000 Gold. There's 100 players and 15 legendaries for sale. Some of the rich ones came out and bought.

    So updating the money totals...
    1,485,000 + 1,500,000 = 2,985,000 Gold
    minus 20,000 price * 15 sold * .15 fee = 45,000
    Total Gold = 2,940,000
    ZOMG LOL INFLATION. Smurphy you so stupid. Peoples makin' millions of gold and only thousands getting destroyed.

    Let's fast forward many many weeks of outrageous inflation. Totally made up huge numbers. Cause dude... we got rampant inflation. Money grows on trees baby. We all rich as Santa Clause.

    Total Gold Supply: 152,521,321,519
    Average per player: 152,521,321 -- We're all rich mofos!
    Items sold per week: 20
    Price per item: 13,231,310. Sure, I'll drop 13M yo. I got 152 million. What do I care? I want my legendary craftables.

    Gold created: 1.5M still. Income is stagnant.
    20 sold * 13,231,310 price * .15 fee = 39,693,930
    39 Million Gold destroyed. Sweet baby jeebus. Only 1 and 1/2 million created. Deflation is a *****.

    Infinite inflation cannot occur because, at some point, players income will not keep up with Auction house fees. This point is somewhere above a price of 15,000 and somewhere below a price of 13M in my totally made up scenario.

    The moral of the story is that Gold Prices will stabilize somewhere. Also keep in mind that the more money flowing through the system that faster it is destroyed. You may find an item and sell it for gold. Then, you make take that gold and purchase another item. The person who sold that item will then take the gold and purchase something he wants. The same money may flow through the system very rapidly.

    Gold Inflation won't exist forever with a fee based Gold Auction House. When the "average income" stagnates then Inflation stops.

    Some side comments:
    Individual item prices will rise and fall due to changing supply and demand. Due not mistake and individual items price rising for "Inflation".
    Player income will change based on a ton of factors. These factors will include leveling up, getting gold find items, increased player skill, some awesome build that everyone uses that kills everything, or Blizzard changing the game and simply turning up the gold rate.
    An individuals quest for personal wealth will lead at least some people to use the Gold Auction house. I want Gold. I have junk. Some people will give me Gold for junk. The auction house is where it will occur. As long as SOME people are using the Gold Auction house inflation will not be infinite.
    I am NOT saying that the stabilization point won't be outrageously high. That could be the case. I think it unlikely.
    Simply because there no longer is inflation doesn't mean that the amount of gold in the Diablo 3 eceonomy is not "too high". Who wants to figure out if they bid 2 billion or 2 trillion gold for a potion? If prices stabilize there I would consider that "bad".



  6. Dentata

    Dentata IncGamers Member

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    Re: The Artisan/Bag gold sink fallacy

    If the output is a net loss, people wouldn't do it. But the value of the output is what will help determine the value of gold. A person will decide between buying on AH or crafting based on this and the prices will move because of players' choices. An item's AH price will be influenced by the gold value of the items required to craft it on average.

    This (and lots of economic theory) of course assumes players make rational, informed decisions. This is rarely the case and there is a whole field of econmics/psychology dealing with modifying theories based on the knowledge that most people don't act rationally in markets. A good example of this is that it would make sense to have a few artisan specialists that everyone uses. But nearly everyone is going to level their own artisans, this happens in every game that has crafting.


  7. Marloe

    Marloe IncGamers Member

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    Re: The Artisan/Bag gold sink fallacy

    People leveling their own artisans can be rationally explained - time is a resource, and collaboration carries a risk of loss. If the calculated cost of leveling your artisans on your own translates to less than the time cost involved in muling items over to a partnership artisan over a period plus the perceived risk of loss on whatever you would have to invest in a partnership "owned" artisan; you would rationally make the choice to do it yourself.

    It does seem somewhat likely that at least while gold and market information is scarce that people will specialize. Focusing the investment of materials and resources into one specific artisan and trading the benefits of that focused investment in the marketplace (or even between complementarily invested friends). I'm interested to see if that approach will stay viable as the markets mature or not.
  8. Frostlion

    Frostlion IncGamers Member

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    Re: The Artisan/Bag gold sink fallacy

    Smurphys, thanks for a great analysis and solid examples.

    I think the main risk is in your assumption #2: "The Gold Auction House is frequently used by players". If inflation is rampant for a long period of time, people will stop wanting gold. Why? Because the gold they got this week will only be worth half as much next week. They'd rather have items that keep their value. So you'll see more people starting to trade in different ways, using the RMAH, doing direct trades or using any different kind of value system like in Diablo 2.

    When people talk about infinite inflation, what they're really referring to is inflation that is so large and long lasting that it will destroy the current economic system and have people scrambling for an alternative. After that, prices may stabilize for the people left, but it will be a slow and painful process to get everyone back into the gold system at that point.

    In that sense, the real question is: will prices stabilize before the market breaks down?
  9. Dentata

    Dentata IncGamers Member

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    Re: The Artisan/Bag gold sink fallacy

    I was suggesting that a few folks with artisans could supply the market instead of collaboration. I totally agree with you about just about everything you said. There is room in the market for folks to advertise their services, plus I'd imagine the items that folks will be interested in will be a subset of what the artisans are capable of. They will just continually manufacture items and put them on the AH and it would be cheaper to shop than to level.

    I think that folks will just find it fun to level their artisans and that is a fine reason to do it. I'll probably do that as well but I'll do it knowing that it isn't cost-effective.


  10. Concupisco Quaestus

    Concupisco Quaestus IncGamers Member

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    Re: The Artisan/Bag gold sink fallacy

    I have never seen any "gold sink" system that was done "right" and the only ones I've seen that worked "right" have been the ones with constant tweaking going on... I think something like a gold-sink mechanic needs to be dynamic, you can't go putting in so many gold sinks at the start that nobody can even function but on the other side of that same coin too few at the start and their effect becomes insignificant at later levels... They need a system that scales with not only the player base but with seasonal activity as well, a gold sink that works well for Xmas traffic might totally dry up the market over the summer months.

    In any game I've seen with a well balanced gold system the basic gold sink for crafting and repairs is just the base line, it's like your resting breath, you need your breath to stay healthy but you don't need your lungs to process the same volume of oxygen when you are resting as you do when you are exerting yourself so your "passive" breath is much lighter and not really "good" for anything besides keeping you alive. When you turn up the heat and need more oxygen your lungs start working harder to get oxygen and that same basic principal should be applied to the markets to keep them healthy, you don't need passive gold sinks hemorrhaging gold, you just need them to maintain a steady flow... If a situation should arise where there is a need to "bleed" the market that needs to be handled via more proactive intervention, the passive system is just there for basic life support.
    Last edited: Oct 28, 2011
  11. Azzure

    Azzure IncGamers Member

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    Re: The Artisan/Bag gold sink fallacy

    Crafting is definitely a net loss. It's designed to be. In fact, it is impossible for it to ever be a net gain (in average terms of course). Why? Because if it was a net gain, than the prices on the AH for them would plummet and/or the price of materials for it would skyrocket, hence turn them into a net loss or break even.

    Without writing 3 pages on how this works, basically if the act of buying materials to create an item that instantly makes you a profit (higher than you paid for the materials + gold cost) with one click, then everyone would do it, which would cause the price of materials to go up proportionally to crafted items and therefore would stabilize into a net loss or at best, break-even.

    It is definitely a gold sink, and therefore a net loss. It's not an investment. While you may get lucky and your first roll is an awesome item, over time and over average it's a net loss.
  12. Concupisco Quaestus

    Concupisco Quaestus IncGamers Member

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    Re: The Artisan/Bag gold sink fallacy

    It depends on how you want to run the numbers that determine loss though, for example you could have a market that is so flooded with common items that regardless of your price you just can't sell all the materials you could farm, supply outpacing demand is very common with MMO craftables.

    So let's say you have a market where you have more "loot" than you do customers, you may actually be taking a loss by not crafting as despite your immediate cost you are still getting sales with your crafted up "mats" that you wouldn't be getting otherwise.

    In my own personal experience the "farming" is never the hard part in any market, juggling whatever "Auction House" system is in place to maximize your sales against thousands of other people trying to do the same is far more challenging, as people have already noticed making any "decent" money in RMT requires a large volume of sales and far more than any other challenge the D3 entrepreneur will face getting that volume will be what defines "success".

    The "professional" looter will almost always have a "stock" level that far exceeds market demand for common items, especially when there is no fear of account banishment.

    I'll spare the excessive detail but more often than not my "problem" when dealing virtual goods hasn't been whether I got 1$ for an item or 1.25$, my "problem" has been getting the piles of stuff I have that's "worth" something sold... A condition that most definitely changes how one might want to view something like "loss".

    It's a pretty safe bet to assume that anything with any level of common usage is going to belong to a saturated market, selling those scraps regardless of what "form" you sell them in is going to require some effort and without that effort you will quickly start building up a backlog of inventory which regardless of how much you "think" that inventory is worth means lost revenue.

    A virtual dollar is not a dollar, a virtual dollar is a dollar you still need to make... When it comes to the real money aspect of D3 people are going to need to keep that concept very close to their heart, 8 years down the line when the game has been replaced by something better in the eyes of most of its fans your accounts might still be worth a million dollars on paper but without anyone to sell a million dollars worth of game merchandise to it doesn't much matter what the paper says or how much each individual item sells for on the "market".

    Virtual economies are necrotic, unlike the real world people are going to have to learn to cope with a financial system that is slowly dying for its entire existence, by the time the game is old enough for passive gold sink inadequacies to reveal themselves most of that excess gold will be the byproduct of currency inflation meeting face to face with population decline, something no gold sink can predict or manage.
    Last edited: Oct 20, 2011
  13. smurphys

    smurphys IncGamers Member

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    Re: The Artisan/Bag gold sink fallacy

    As a theoretical concept I agree with you that Supply and Demand should cause crafting materials prices to rise to such a point that crafting them into a resulting item would not create a profit for the crafter. However, a factor you did not consider is Time. The reason there will be a profit (a small one) on some items (not all) in purchasing materials, crafting items, and selling the resulting product for more is because this process can be tedious. Some players would prefer to spend the gold to pay someone else to do that and use that time saved stabbing things and earning more gold.

    Allow me to show an example from City of Heroes. City of Heroes is an MMORPG with a "Gold" auction house with a 10% fee. It's slightly more complicated than that, but that's good enough. In City of Heroes there are Enhancements (Items) that are made via Salvage materials, a recipe, and some gold. Anyone with the required materials, gold, and recipe can craft the item.

    Picture example... explained in text after.
    [​IMG]

    Recipe: 2,000,000
    Components:
    1,500,000
    10,000
    1,000
    1,000

    Crafting cost: 490,400
    Total cost: 4,002,400
    Crafted Item Price: 8 to 10,000,000

    +8,000,000 Sale
    - 800,000 10% Market fee in CoH
    - 4,002,400 Cost
    =3,997,600 Profit

    There are some things that I think could have been done better in the City of Heroes economy. Currently, there isn't any inflation. This is a decent, but not a large, sum of money. The key thing is that most players would rather spend their time blowing stuff up than going through the market interface. That time is what causes crafting for profit to become profitable.

    1) Find the recipe
    2) Bid on the recipe
    3) Actually win the recipe
    4) Find the salvage
    5) Bid on salvage
    6) Actually win the salvage
    7) Open up crafting block
    8) Push button

    Instead...
    1) Find item
    2) Bid large amount
    3) Play game

    Diablo 3 adds more factors to the equation which can cause this to change.
    1) Crafting generates a random item.
    The long term return on crafting items might generate a profit. But that is difficult to calculate.
    2) Real Money auction house creates a larger incentive to be more careful with one's money
    3) Increased player base causes more competition
    4) A larger market fee at 15% than City of Heroes 10%

    Despite these factors, the potential to turn SOME profit from crafting does exist. Yes, supply and demand will cause crafting costs to rise towards resulting items generation. However, they might not rise to the point where all profits are erased



  14. smurphys

    smurphys IncGamers Member

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    Re: The Artisan/Bag gold sink fallacy

    Virtual economies are not necessarily necrotic. Some do succeed. Some have minor flaws that were created in design and can no longer be changed. Currency inflation can be extremely well controlled via...

    1) A percentage based gold auction house fee
    2) proper incentives to utlize the gold market
    3) reasonable levels of maximum income
    4) multiple ways of spending gold that cause flat amounts to be destroyed that are used regularly by players

    These can all be achieved... theoretically... Simply, will the Blizzard developers get them all right? That, literally, may be a million dollar question.



  15. Grayson Carlyle

    Grayson Carlyle IncGamers Member

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    Re: The Artisan/Bag gold sink fallacy

    I think you guys are all talking out of your *** (in reference to Diablo III) because you haven't looked at what the materials and results are. Crafting a single rare item in Diablo III requires destroying several dozen rare items, magic items and common items. The input materials are the output materials, at a far higher rate. Crafting an item is a huge loss on average. But it's a gamble. You're destroying crappy rares in the hopes of getting an incredible one. This wouldn't work in a wider market, but it's incredibly narrow: There is nothing else to craft, and there are no other materials.

    Do a little research before you get into this debate.
  16. smurphys

    smurphys IncGamers Member

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    Re: The Artisan/Bag gold sink fallacy

    In short, we are looking at the Gold Value of items when we say "Net Loss" and NOT referring total number of items.

    When Azzure says "net loss" he is referring solely to a singular person's monetary situation and not the total number of items in the game. In other words, Azzure is stating that "on average, you cannot make money by purchasing crafting materials, crafting an item, and selling the resulting item." He is NOT stating that there are more items after crafting than there are before crafting.

    I countered that due to the value of a player's time it is possible that crafting could generate a profit for some items.



  17. Grayson Carlyle

    Grayson Carlyle IncGamers Member

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    Re: The Artisan/Bag gold sink fallacy

    I was supporting Azzure's position and pointing out that statements like this and your CoH example are ludicrous:

    The material costs of crafting anything in Diablo III will be at least an order of magnitude over the average result. Time will never be a substantial factor in the cost of an item in D3 because of this.

    In a normal MMO economy, this would mean nothing would ever get crafted because you could destroy stuff for enchants or buffs, etc.... Cost of crafting in those economies is carefully balanced by the designers so that all the multiple crafting routes are viable. In Diablo though, there's nothing else to do with the items except destroy them. That's the only reason it will work.



    Last edited: Oct 20, 2011
  18. smurphys

    smurphys IncGamers Member

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    Re: The Artisan/Bag gold sink fallacy

    The market price of crafting materials cannot be an order of magnitude higher than the price of the average crafting result. If crafting materials cost more than the average result then the force of Supply and Demand would cause the price of crafting materials to fall and the price of the average result to rise.

    There are multiple items to be crafted in Diablo 3. For most items in Diablo 3 the crafting materials will be larger than the average crafted item's price. For a few items the crafted item's average price will be greater than the crafted materials price. The pressures of supply and demand push at least one items crafted materials price and average crafted result price to converge. Azzure even states this in his post in his two statements that say "or break-even".

    "with one click, then everyone would do it, which would cause the price of materials to go up proportionally to crafted items and therefore would stabilize into a net loss or at best, break-even."

    My contention with his statement is solely on the first 3 words of the quoted section: "with one click". Crafting will not be one click. In games where the crafting process and the market interface are boring and tedious a profit can be generated for some items.

    Both Azzure and I state that Supply and Demand cause the price of crafted materials and the average crafted result to converge for select items on the market. This convergence is the case because when crafted materials price is higher than the average result then players will simply sell the materials and purchase the item. Selling the materials and purchasing the item causes the materials' price to fall and the item's price to rise. When the materials' price falls and the item's price rises to a point where the item's price is higher than the materials' price the market works in reverse. In this scenario, more items will be sold and more materials would be purchased.

    Applying numbers to this concept:
    We'll pretend this is the only item able to be crafted. I ignore market fees for these examples.
    Sword of Example
    Flat craft cost: 500
    Crafting Materials A,B,C
    In order to craft, one needs 500 gold and materials A, B, C

    Made up market costs:
    Average Sword of Example: 5,000
    A: 100
    B: 1,000
    C: 5,000
    Total crafting costs = 100 + 1,000 + 5,000 + 500 = 6,600

    The market price of materials is greater than the Average crafted item. There is no economic incentive to craft the item. If you had crafting materials A, B, and C it would be wiser to sell the materials and purchase the sword. The market is encouraging NOT crafting Swords. Thus, as players sell materials and purchase Swords the price of Swords rises and the price of materials falls.

    Made up market costs:
    Average Sword of Example: 10,000
    A: 1,000
    B: 1,000
    C: 5,000
    Total crafting costs = 1,000 + 1,000 + 5,000 + 500 = 7,500

    The Average crafted item's price is greater than the crafted materials price. There is economic incentive to craft the item. If you had crafting materials A, B, and C then it would be wise to craft the materials and sell the sword instead of selling the materials. The market is encouraging the selling of Swords. Thus, as players craft materials into Swords and sell Swords the price of Swords will fall and the price of materials will rise.

    Let's complicate it by adding two more craftable items.
    Shield and Helmet. Both also require the crafting materials A, B and C.
    Made up market costs:
    Average Sword of Example: 10,000
    Average Shield: 6,000
    Average Helmet: 15,000
    Flat crafting cost for all 3: 500
    A: 3,000
    B: 4,000
    C: 5,000

    Crafting costs for all items: 12,500

    There is no economic incentive to craft Shields nor Swords. There is economic incentive to craft Helmets. Economic Theory suggests that the price of Helmets will fall as more are made and sold. Economics also suggests that the price of Shields and Swords will rise as fewer are made.

    The sword and shields demand may be so low that no matter how few are made the demand simply does not exist for the price to rise. They might simply "be garbage". Nobody, or very few, want a Dirk with awesome stats. However, all items cannot "be garbage". At least one item must be at the point of convergence of the price of crafting materials and the average crafted item's price. If there wasn't one item at the point of convergence there would be no incentive to craft and it would be wiser to simply sell materials and purchase items OR there would be so much incentive that enough would be made to drive down the price to the point of convergence.

    The concepts that cause deviation to the Supply and Demand model of "the price of materials converging with the average item's price for at least one item" are "Fun" and "Time."

    Time example:
    I'm Farmer McFarmerson. I can make 100,000 gold an hour (1,666 gold per minute) by playing the game and stabbing things. I want a crafted Sword. The materials cost 5,000 total. The Sword costs 7,000. Purchasing the materials from the market and crafting the sword takes two minutes. Purchasing just the sword takes one second.

    Purchasing the sword:
    Cost 7,000 gold + 1 second = 7,027 gold
    Purchasing the materials:
    Cost 5,000 gold + 120 seconds = 8,333 gold.

    The players time is worth more than the money they would save by crafting the item. Thus, a profit might be generated via crafting the item.

    "Fun" is a factor when the numbers look like this...
    Farmer makes: 50,000 gold per hour
    Materials and crafting cost: 5,000
    Sword Cost: 7,000

    Purchasing the sword:
    Cost 7,000 gold + 1 second = 7,013 gold
    Purchasing the materials:
    Cost 5,000 gold + 120 seconds = 6,666 gold.

    In this scenario the player has economic incentive to purchase the item. However, the economic incentive is rather small. The player may simply purchase the item because spending 2 minutes going through the interface is annoying. The point of convergence will be the economic point where the price of materials equals the average crafted result + a "fun factor" that determines how much people value NOT spending the time going through the market and crafting interface.
  19. Concupisco Quaestus

    Concupisco Quaestus IncGamers Member

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    Re: The Artisan/Bag gold sink fallacy

    Ignore this post. :whistling:
    Last edited: Oct 20, 2011
  20. Frostlion

    Frostlion IncGamers Member

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    Re: The Artisan/Bag gold sink fallacy

    Grayson,

    I believe you are using a different definition of 'profit' than most of us are. Specifically, there are basically two things you can do with items you find that you can't use:

    1) sell them
    2) disenchant them

    The first option gives you a value based mainly on the quality of its stats. This could be insanely high, or it could be close to zero, because nobody in the game wants that item.

    The second option gives you a value based mainly on the level and rarity of the item regardless of its stats. As far as we know, the game doesn't care what the item sells for on the AH, it simply gives you materials based on its level and rarity. You can then turn these materials into items with an expected sell value.

    So let's say the expected value of either a dropped or a crafted item is on average 100K and you need 10 dropped items to get the materials to craft one new item.
    Now say you find 5 random items and you check the AH to see their sales values, they are:

    1) 5K
    2) 10K
    3) 50K
    4) 100K
    5) 350K

    For an average of around 100K. Now if you would disenchant all of these, you would run a massive loss. You'd miss out on 515K in sales, to get 50K worth of crafting materials! This seems to be the loss you are referring to.

    In practice though, that's not what will happen. People will decide for each item separately if they want to sell it or disenchant it. In this case, they'll certainly sell items 3, 4 and 5 for 500K, but then they have 2 really crappy items left, that they can break down for 20K worth of crafting materials. Now they've made an expected 520K, instead of 515K.

    So my prediction is: people will use and sell the rare items that are actually valuable. They will break down the items that give valuable crafting materials but that are not worth much other than that because of crappy random stats. This way they will craft a lot slower than someone who breaks down everything, but they'll make a much bigger profit in the long run.

    NOTES AND DISCLAIMERS:
    1) I believe the expected value of top end crafted items will be higher than that of random drops of that level. Not only because Blizzard wants people to craft, but mainly because you can choose which items to craft. Comparing it to D2X, nobody gambled for caps, they gambled for Tiaras, because they knew those had a better chance at great stats. Similarly, people will craft Tiara-type items instead of cap-type items in D3.
    2) I believe the value of crappy items that can be disenchanted for good materials will go up exactly because of that. In my example above, item #1 may sell for 8K instead of 5K. Because of the transaction fees, the required time and risk, it will never actually get up to the full 10K, but it will be close.
    3) All of the above is based on very limited information about end-game crafting. We know very little so far about requirements, stats, gold prices etc. for the best crafted items. Depending on how those turn out, the numbers may be vastly different.

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