Guild Wars 2
Guild Wars 2 is a MMORPG made by Arena Net in 2012, and is - perhaps obviously - the sequel to Guild Wars, another excellent MMORPG.
I've played a lot of MMORPGs, and this is by far the best to date.
That, of course, is not relevant to the discussion at hand. What we need to know about Guild Wars 2 before we continue is how the market works.
I've played a lot of MMORPGs, and this is by far the best to date.
That, of course, is not relevant to the discussion at hand. What we need to know about Guild Wars 2 before we continue is how the market works.
The Market
The Guild Wars 2 market is a market with multiple currencies, a centralized method of transaction, and near-perfect information.We'll cover what this means theory-wise and what sorts of situations it creates, but first we need to talk about what it means.
In GW2, there are two real currencies and a number of important spin-off currencies.
Most obviously, coins are currency. You have copper coins, silver coins, and gold coins, with 100 copper coins being equivalent to a silver coin and 100 silver coins being equivalent to a gold coin. Coins are obtained by buying and selling goods via NPC vendors or other players, gifts from other players, or via drops when slaying monsters.
Second to currency is gems. Gems are bought with real money, and are used to purchase gem-only items. However, one can convert gems to coins and coins to gems, making them both a method to acquire gem-only items and a method of speculating on future gem prices.
More on this later.
The spin-off currencies include karma (non-transferable and used to purchase some goods, crafting items, and crafting recipes from NPC vendors), skill points (non-transferable, usually used to purchase skills, but also used to purchase ingredients for the highest tier of weapons), laurels (non-transferable, used to purchase laurel-only items), and - at least for our purposes - experience (non-transferable, a certain amount of experience will cause you to level up).
Most obviously, coins are currency. You have copper coins, silver coins, and gold coins, with 100 copper coins being equivalent to a silver coin and 100 silver coins being equivalent to a gold coin. Coins are obtained by buying and selling goods via NPC vendors or other players, gifts from other players, or via drops when slaying monsters.
Second to currency is gems. Gems are bought with real money, and are used to purchase gem-only items. However, one can convert gems to coins and coins to gems, making them both a method to acquire gem-only items and a method of speculating on future gem prices.
The spin-off currencies include karma (non-transferable and used to purchase some goods, crafting items, and crafting recipes from NPC vendors), skill points (non-transferable, usually used to purchase skills, but also used to purchase ingredients for the highest tier of weapons), laurels (non-transferable, used to purchase laurel-only items), and - at least for our purposes - experience (non-transferable, a certain amount of experience will cause you to level up).
Transactions
For the purposes of this discussion, we're going to assume that all transactions between players occur over the Trading Post, a method by which one buys and sells goods anonymously by posting prices.There is a 5% non-refundable listing price when posting goods for sale on the Trading Post, and a 10% tax on completed transactions, paid by the selling party.
When searching for something in particular - or selling something - you can choose to either list your own price or to take the best currently listed price. The difference between instant purchase prices and prices when you list your own and wait a short while is often quite high, an anomaly we will get to later.
Goods
There's one final piece to the puzzle that is defining the GW2 market, and that's what you're buying and selling.Everything on the market is either crafted, purchased from an NPC vendor, gathered from resource nodes out in the world, dropped by a slain monster, or given as a reward to completing an event or opening a chest.
Crafted goods are either intermediary goods or finished products. Finished products themselves are either equipment - which can be used and then resold later - or consumables - one-time use items such as food.
Resources gathered from nodes are used as starting points for crafting items only.
All items gathered from other sources can be either of these.
Efficiency
GW2 has a market with nearly perfect information - that is, all information about all things that can be bought and sold is available with a little effort.
It is also fairly easy for anyone to buy and sell any item they have, and getting into and out of crafting items is quite easy (for simple items, at least - some items require a great deal of expertise to craft).
Our question, then, is how efficient the market it. That is, are there a great number of easily available methods to create money by buying and selling things, and how much money can be made via these sorts of transactions?
Using ordinary economic theory, one might at first believe that the market will be highly efficient, especially in respects to coinage. After all, there are a great number of buyers and sellers, everyone can easily obtain nearly all information with a little effort, and transaction costs are fixed, which essentially takes them out of the equation.
So what would you say if it was possible to buy a raw material, refine it into an intermediary good, and consistently sell it back to the market for a profit, even when considering the 15% transaction cost?
Well, I'd hope you would say that doesn't seem like a very efficient market at all. I, on the other hand, would say that the market is very efficient, we simply aren't taking a number of important factors into consideration - experience and time.
Crafting things gives experience. Experience lets you level up, which many people believe is the main measurement of progress in the game. However, you only gain crafting experience from crafting an item up to a certain level of expertise. After that point, you need to craft something more difficult to gain experience.
Crafting also takes time. You don't just instantly craft items, you have to take the time to do so. This includes the time to purchase the necessary items as well as the time to craft them.
It is also fairly easy for anyone to buy and sell any item they have, and getting into and out of crafting items is quite easy (for simple items, at least - some items require a great deal of expertise to craft).
Our question, then, is how efficient the market it. That is, are there a great number of easily available methods to create money by buying and selling things, and how much money can be made via these sorts of transactions?
Using ordinary economic theory, one might at first believe that the market will be highly efficient, especially in respects to coinage. After all, there are a great number of buyers and sellers, everyone can easily obtain nearly all information with a little effort, and transaction costs are fixed, which essentially takes them out of the equation.
So what would you say if it was possible to buy a raw material, refine it into an intermediary good, and consistently sell it back to the market for a profit, even when considering the 15% transaction cost?
Well, I'd hope you would say that doesn't seem like a very efficient market at all. I, on the other hand, would say that the market is very efficient, we simply aren't taking a number of important factors into consideration - experience and time.
Crafting things gives experience. Experience lets you level up, which many people believe is the main measurement of progress in the game. However, you only gain crafting experience from crafting an item up to a certain level of expertise. After that point, you need to craft something more difficult to gain experience.
Crafting also takes time. You don't just instantly craft items, you have to take the time to do so. This includes the time to purchase the necessary items as well as the time to craft them.
This gives us a pair of additional factors we didn't consider before - an extra 'currency' which you can pay money to obtain, and the opportunity cost of time (an opportunity cost that is greatly exacerbated when compared to real life because of the scarcity of time - that is, you don't spend nearly as much time playing GW2 as you spend being alive, so time is more scarce and, hence, more valuable).
We can then construct a fairly easy explanation as to why taking raw materials and turning them into intermediate goods is profitable.
People who are attempting to level as quickly as possible - which is a large portion of the people who are crafting to begin with - want to bypass steps that give them no experience, and are willing to pay a premium to do so. Since turning intermediate goods into finished goods gives experience at higher levels than turning raw materials into intermediate goods, you are actually being paid a premium for the time saved and experience gained by your purchase - or, at least, by some purchasers, which drives the overall price up.
An excellent example of this, for those looking for a concrete example, is buying iron ore and turning it into steel ingots. The process is time-consuming, but you make a small amount each time even with the 15% transaction fee.
Before moving on to the next topic, I will say that the market is highly efficient in other senses. For instance, there are very few cases where one can buy a good and sell it for a profit immediately. Speculation is possible and, in many cases, quite profitable, but arbitrage is not something that exists in GW2.
We can then construct a fairly easy explanation as to why taking raw materials and turning them into intermediate goods is profitable.
People who are attempting to level as quickly as possible - which is a large portion of the people who are crafting to begin with - want to bypass steps that give them no experience, and are willing to pay a premium to do so. Since turning intermediate goods into finished goods gives experience at higher levels than turning raw materials into intermediate goods, you are actually being paid a premium for the time saved and experience gained by your purchase - or, at least, by some purchasers, which drives the overall price up.
An excellent example of this, for those looking for a concrete example, is buying iron ore and turning it into steel ingots. The process is time-consuming, but you make a small amount each time even with the 15% transaction fee.
Before moving on to the next topic, I will say that the market is highly efficient in other senses. For instance, there are very few cases where one can buy a good and sell it for a profit immediately. Speculation is possible and, in many cases, quite profitable, but arbitrage is not something that exists in GW2.
Gems
Gems can be bought with real money and traded either for gold or for special gem-only items. They are also obtainable by purchasing them with gold, and the items purchasable with gems cannot be traded between players.
Gems are not, however, transferable to real money, as this would allow in-game coinage to be traded up to real money and put some very strict legal restrictions on what ArenaNet could do with the game.
Anyways. Our questions here is whether or not it would be possible to determine what the value of in-game coinage is in comparison to real money, and also what this would tell us about how people value time in-game.
Our first major problem here is that there are two reasons to purchase gems, and the two are mutually exclusive - you are grabbing gems either to purchase gem-only items or to turn them into gold. There is also a large and thriving speculation business surrounding gems, but that's more or less irrelevant here.
As a result of the mutually exclusive nature of the intent behind a purchase, it would be incredibly difficult to get any accurate estimation of a useful number from gem transactions alone.
However, if we were to somehow filter out all purchases of gems that were for the purpose of buying gem-only items and look at only those that were made for obtaining in-game currency, we could fairly easily back out numbers as to what a particular player - or average gem-buying player - values in-game currency at in comparison to actual money.
After constructing some idea of how quickly players can obtain gold, you can also determine how much people are willing to pay to acquire the benefits of a certain amount of playing time without putting in the time - although you'd have to discount experience and other benefits, which could potentially prove quite difficult.
Gems are not, however, transferable to real money, as this would allow in-game coinage to be traded up to real money and put some very strict legal restrictions on what ArenaNet could do with the game.
Anyways. Our questions here is whether or not it would be possible to determine what the value of in-game coinage is in comparison to real money, and also what this would tell us about how people value time in-game.
Our first major problem here is that there are two reasons to purchase gems, and the two are mutually exclusive - you are grabbing gems either to purchase gem-only items or to turn them into gold. There is also a large and thriving speculation business surrounding gems, but that's more or less irrelevant here.
As a result of the mutually exclusive nature of the intent behind a purchase, it would be incredibly difficult to get any accurate estimation of a useful number from gem transactions alone.
However, if we were to somehow filter out all purchases of gems that were for the purpose of buying gem-only items and look at only those that were made for obtaining in-game currency, we could fairly easily back out numbers as to what a particular player - or average gem-buying player - values in-game currency at in comparison to actual money.
After constructing some idea of how quickly players can obtain gold, you can also determine how much people are willing to pay to acquire the benefits of a certain amount of playing time without putting in the time - although you'd have to discount experience and other benefits, which could potentially prove quite difficult.
Other Exchange Rates
This leads us to the topic of other exchange rates. One might be interested, for instance, in how much coinage a point of karma is worth, or how much someone would be willing to pay for a certain amount of experience.
For experience, it would be fairly easy to determine how the average player values a certain amount of experience. Such a calculation would be made by determining the premium paid for intermediate goods, averaging it out, and then determining how much someone is actually paying to gain a certain percentage of one levels worth of experience, given that they are always crafting at the point where they gain the most experience.
You would also have to discount premium's in relation to time, something that might be difficult but I believe to be possible.
Karma would be slightly more difficult. You can use karma to directly purchase goods, but none of these are transferable. However, several transferable goods require
For experience, it would be fairly easy to determine how the average player values a certain amount of experience. Such a calculation would be made by determining the premium paid for intermediate goods, averaging it out, and then determining how much someone is actually paying to gain a certain percentage of one levels worth of experience, given that they are always crafting at the point where they gain the most experience.
You would also have to discount premium's in relation to time, something that might be difficult but I believe to be possible.
Karma would be slightly more difficult. You can use karma to directly purchase goods, but none of these are transferable. However, several transferable goods require
Miscellaneous Other Topics
And now we cover some other topics before I stop typing because I'm too tired.
First of all, there's inflation. A constant influx of goods and coinage from slaying monsters, harvesting nodes, and purchasing gems seems like it would cause constant, irreversible inflation.
This, of course, is the reason why the Trading Post has a 15% transaction fee - this number was chosen with the intent of keeping inflation in check, and in fact has little impact on the market itself outside of this essential feature.
(To be fair, it does increase cost of entrance for crafting expensive items, but this is a small price to pay for a currency that doesn't constantly spiral into hyper-inflation.)
The value of some goods comes as a result of the possibility of getting very rare items in them. For instance, Unidentified Dyes go for 13 silver pieces, while the majority of what you actually get out of them sells for less than a single silver piece.
This is a great example of people overpaying in the hopes of getting something unique and rare. Smart people sell all of the Unidentified Dyes they get and, with that money, they can eventually buy the rarer, more expensive dyes with the proceeds if they so desire.
First of all, there's inflation. A constant influx of goods and coinage from slaying monsters, harvesting nodes, and purchasing gems seems like it would cause constant, irreversible inflation.
This, of course, is the reason why the Trading Post has a 15% transaction fee - this number was chosen with the intent of keeping inflation in check, and in fact has little impact on the market itself outside of this essential feature.
(To be fair, it does increase cost of entrance for crafting expensive items, but this is a small price to pay for a currency that doesn't constantly spiral into hyper-inflation.)
The value of some goods comes as a result of the possibility of getting very rare items in them. For instance, Unidentified Dyes go for 13 silver pieces, while the majority of what you actually get out of them sells for less than a single silver piece.
This is a great example of people overpaying in the hopes of getting something unique and rare. Smart people sell all of the Unidentified Dyes they get and, with that money, they can eventually buy the rarer, more expensive dyes with the proceeds if they so desire.
Buying and selling prices on the Trading Post are often very divergent, again even when considering the 15% transaction cost placed on the seller. While some of this can be accounted for by the time necessary to place your own bids and wait for them to be filled, a great deal of it obviously cannot - especially when one considers that the time is often constant over different goods, while the gap between buying and selling prices is not.
And, finally, it is possible to salvage an item for parts used in crafting it. Not all the parts are salvaged, and certain rare parts are salvaged with only a percentage chance. By abusing the fact that the market does not always take salvaging into account when pricing items, it is possible to make a great deal of money by being aware of this fact, as well.
Three excellent examples of irrational behavior, all of which are blown out of proportion by the market in question being several steps removed from both real life and, perhaps more importantly, real money.
Anyways. I'm hoping you all enjoyed this at least a little bit. I'd highly recommend GW2 if any of you are looking to play a MMORPG in the near future. As always, you can follow on the right and all comments are welcome down below.
And no, I don't mean Australia.
Next Topic
My next topic is going to be an in-game look at how one can get into crafting and make money with it - strictly in-game, of course. I will also take a shot at valuing a few of the different currencies in the game in relation to straight coinage, so you can get an idea as to what people are actually paying you for.Anyways. I'm hoping you all enjoyed this at least a little bit. I'd highly recommend GW2 if any of you are looking to play a MMORPG in the near future. As always, you can follow on the right and all comments are welcome down below.
And no, I don't mean Australia.
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