(She Says) Deflation in Wow

Many bloggers have noticed that deflation is depressing prices in the WoW Economy and they have offered several theories of why it is so.

Tobold thinks that easy access to raid gear means fewer people bother to spend on items to improve their current gear. A low demand theory.

The WOWEconomist theorizes that while the producers of the goods are level 80 and supplying, the consumers (i.e levelling alts) are not in the market for shinies yet. High supply and low demand = lower prices. He expects inflation to kick in Jan09 when people gets into the thick of levelling alts.

The Greedy Goblin believes it has to do with how the rich is swimming in money while the majority of players are poor and are unable to pay for crafted items/ repairs/ consumables.

Indeed, prices of many items on our server has fallen as well. Eternals, ores, cloth and herbs have come down from its prime. While supply has increased, demand has not caught up with the rate of increase. Let’s start by looking at the supply factors.

Firstly, more players are now level 80 and are farming raw materials.

Secondly, players are getting more efficient at farming as they find the best spots to maximize their farming. Wintergrasp for example is packed with ore, herbs and gas clouds. I’ve found much more titanium ore there than I’ve ever seen in Icecrown and Stormpeaks combined. Players can also use their flying mounts to swoop up all the mats. Essentially, this means they get more raw materials per hour of “labor” compared to at the beginning of the expansion.

With lower material costs, profit margin on value-added goods such as BOE gear, flasks and gems should have increased. However, competition is stiff so the fierce undercutting forces prices to fall back and reduces profit margins. Let’s take trollwoven spaulders for example. Last week, material cost used to be 520g and sells for 1200g. Last week’s profit margin = (1200-520)/520 = 131%. This week with lower mat prices, the same item costs 410g and sells for 900g. The profit margin is 120%. As in real life, profit margin will continue to fall as cheap raw materials means professions are cheaper to level (low barrier to entry) and high profit items lure them to enter the market.

On the supply side, BOE gear also have new competiters — Blizzard vendors. In the Burning Crusade expansion, rep vendors did not sell much gear that was worth buying. Even the rare pvp set was added much later in the game. Rep was also very difficult to obtain. In Wotlk, this has changed. Vendors now sell varying levels of gear – rare to epic. And the tabards make it easy for you to reach exalted with the faction of your choice. I’ve personally seen many new players garbed in mainly reputation gear. So that’s money taken out of the system instead of circulating in the economy

On the demand side, I believe players are still buying items. Enchants, gems and leg armor will still sell as prople upgrade their gear. However, WotLK crafted items appear to require less materials compared to TBC. Take the spellthreads for example, Shining spellthread costs 3 Eternium Thread, 2 Crystallized Life and 1 Iceweb Spider Silk. The cost of the vendor item of 3 Eternium spellthread is already 9g(i think?) which is half the cost of the spellthread itself; In comparison, old TBC runic spellthreads were 5 Primal Life and 1 Rune Thread. By reducing the number of mats, demand for raw materials decline even if demand for the end product remains the same.

For BOE gear, it is as WoWEconomist points out, the main consumers of such items, alts, are not there yet. Alts are usually geared up faster in order to close the gap with mains. Getting rep from each faction is a significantly slower process.

The impact of deflation is that things get cheaper and cheaper which increase the value of gold. It also encourages people to save and spend later since they can get more value out of their gold at a later date. Why buy Titansteel bars for 220g now when you can buy it for 180 tomorrow? This may result in a deflationary spiral as players spend less, resulting in furthur decreases in prices. I wonder if real life recessions in many countries have any impact on people’s spending mentality as well. Do they save more in game because they are in conservation mode in real life? Or perhaps lacking the cash to pay for real life excesses, people may be more likely to splurge on some virtual luxuries instead?

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