Thursday, January 20, 2011

Virtual Demand

I occasionally like to dabble in social engineering via the AH and have seen some measure of (temporary) success by doing so.

It started out with an exploration of how profitable it might be to craft Spidersilk Boots. These are a level 19 blue-quality footwear that are pretty nice for twinking and are otherwise better than a lot of quest rewards up until the Arathi Basin PvP boots you can buy at level 28. Part of the mats to make the boots include Iridescent Pearls. Checking the AH, I notice that there are only two Iridescent Pearls each going for 6g apiece. Two pearls are enough for one pair of boots, but getting a steady supply is really necessary if this Spidersilk Boot thing works out. So I have a decision to make. Do I:

A) Buy the pearls and make 1 set of boots?
B) Buy the pearls and create virtual demand for Iridescent Pearls?

What do I mean by virtual demand? I bought the two pearls and and posted them for 40g apiece.

The majority of players, even those using addons with historical pricing functions like Auctioneer, take cues from the pricing of materials on the AH within reason. There is an unspoken assumption that human beings are rational creatures (many real-world economic models are based on ridiculous assumptions like perfect information and rational consumers), so in seeing two Iridescent Pearls on the AH for 40g the average person would most likely conclude that Iridescent Pearls have enough demand to support that price - the thought someone was just tossing them up there to screw with them probably has never crossed their mind.

Now, remember I said "within reason." Posting a stack of Linen Cloth for 3000g in an effort to make the 50g/stack look reasonable in comparison is called "poisoning" in Auctioneer-speak, and the addon has some tools to combat that. My goal is not to poison Auctioneer's data or even reset the price (it would indeed be counter-productive to do so). My goal is to motivate players to farm more Iridescent Pearls. How do you get people to farm Iridescent Pearls? By convincing them that Iridescent Pearls are selling at 40g apiece. Suddenly, starting a 20-minute pogrom against the Naga and Murlocks in Hilsbrad is more profitable than doing the normal daily quest routine, thus encouraging (more) people to do it.

I have zero expectations that those two Iridescent Pearls will sell. In fact, I hope they won't, because that would mean I would have to find two more before trying out the Spidersilk Boots thing. If they do, well, I made 68g by flipping Iridescent Pearls. It is virtual demand in the sense that I do not believe the market is capable of sustaining 40g Iridescent Pearls, or 35g, 30g, or even 15g pearls. The best case scenario here is for a handful of people to farm the pearls, get into an undercutting war with my 40g pearls, and after several unsuccessful AH cycles at the inflated price, everyone gives up and goes back to the "true" price of 6g. At which point I now snatch them up and continue on my Boot venture.

Virtual demand does not work in mature markets, but that is fine considering mature markets should not be experiencing such item droughts to begin with. The other problem is the passive nature the initial ploy. You are telegraphing real demand to the person(s) who you bought the first two pearls off of, but what are the odds that they will come back and check on the current AH prices? I mean, I would, but normal people probably will not. What you are really banking on is future people unloading a pearl or two on the AH and seeing the "demand," or those people who want to buy pearls but see that they have been "priced out of the market."

If you have less scruples than rubles, you could probably jump-start the engineering by acting flabergasted in Trade Chat: "OMG! Iridescent Pearls for 40g apiece? This economy sux." I consider that more willfully misleading than simply posting the auctions and giving people space to come to the wrong economic conclusions, but hey. Word of caution: don't be dumb and post that Trade message on the same toon you listed the items on.

1 comment:

  1. Love the post, made me think...I am gonna have to go with:

    C.) Hold the pearls for a few days till someone posts again (or a quick farm), then sell the Iridescent Pearls AND the Boots, both "slightly" inflated. Ok, a bit more than slightly...

    If someone is looking for the boots (that you have up already), see they are too high, they then check the mats, and see that the "jacked up" price for your boots you made is in fact going with current AH mats, you win. Either way, the buyer will purchase your mats or your crafted boots.

    Great stuff, keep rolling! Can't wait to read your next one!

    ALTOs Gold"ish" Advice- The Worst WoW Blog Ever!