Understanding The Concept Of Value

If I were to ask you, “How much is a Bold Inferno Ruby worth?” what would you reply?  I bet that of all my commenters you will find a gold spread of 80-130g.  But it’s not the actual number that I am interested in.  In fact, I am interested in the fact that you responded in currency.

This, of course, is the most logical response.  Currency, as I stated in my last Gold Cap post, is a way of universalizing your trading power.  Someone who has 100G has more trading power than someone who has 75g.  They can acquire more goods, and goods of higher value, then refine/remake/etc.. them, and sell them back.  It doesn’t matter what those goods, or services, are – those goods and services can only amount to no more than 100g. But do those goods and services really have a value of 100g?  And why does this really matter?

The answer is, value and currency are inexorably linked because of the nature of modern economy (and even more pronounced in WoW, with only one currency), but they are completely different, and have an effect on how you buy and sell.

Let’s take a step back for a second.  What is “value”?  Simply stated, value is how much something is “worth.”  That is  a tricky word, “worth.”  Worth is, in almost all circumstances, directly translated into currency.  But even currencies have different values.  I know that if I go to Sweeden, I have to change my USD over to the Sweedish Krona.  As of the time of writing, there are approximately 6.33 Kroner (I think that is the proper plural to Krona – correct me if I am wrong!) to 1 USD.  Each currency has its own conversion rate, which is derived from “buying power” – how much can one of my units of currency buy, as opposed to another currency.  A very good demonstration of this is the Big Mac Index.  The BMI (HA, couldn’t help but make that reference!) is an informal, but still very informational publication.  It compares how much of each currency around the globe is required to purchase a Big Mac, and thus, it can track all sorts of economic indices, including inflation, and value.

Alright, so I have driven the concept of value home – Value is what something is “worth.”  How does that affect you in-game?

Let’s do a thought experiment.  I am currently making Darkmoon cards though my shammy’s inscription, so I can sell for insane profits.  Let’s say I spend a grand total of 1000g to make a Hurricane Deck (HA, Funny!).  Without any research, any trade chat, any AH inspection, how do I value the deck?  At face value, saying that I made no duplicates, had no additional expenses, my cost would be (time cost + gold cost).  In short, T+G. To keep this thought experiment simple, let’s negate T.  If we include the time factor, we get into all sorts of sticky concepts like opportunity cost, that I don’t want to muck around in just yet.

So, my value is G+1g – because I want to make a profit, right?

So I turn on trade chat for the first time, and advertise “WTS Darkmoon Card:  Hurricane, 1001g, PST.”    I immediately get 300 whispers.

In this thought experiment, I have undervalued my product.  On the AH, even after a strong bout of undercutting, the deck is valued around 14000g.  It is a really decent trinket, and worth much more than 1001g.

Let’s say I have a guildie who is a herbalist.  Instead of selling it, I offer to trade herbs for the card, rather than selling it.  He passes me 6 stacks of Whiptail.  Is this a good trade?

Well, let me do a bit of research.  I check the AH.  Whiptail has recently skyrocketed, so that 6 stacks of it is worth 1500 g.  A bigger profit than I was asking for.  But it leaves me in a sticky situation.  I cannot use those herbs to make another darkmoon deck.  There are not enough, and it does not account for the Volatiles needed to produce them.  Is this a good trade?  Yes, because I can sell the herbs off, and bide my time to produce another deck.

Let’s take another though experiment.  I am a JC.  I need ore.  On my fictional server, ore is volatile.  The amount, and cost of the ore, can vary wildly even in a single hour.

Let’s say that there is a new batch of ore posted.  It is only ten stacks.  The price is on the lower side, 50g, and I have 300 stacks in my bank, as well as at least 4 stacks of each type of gem, waiting to be cut.  Do I buy it?  Some would, I wouldn’t.  The value of the ore is not enough to justify the capital loss of 500g when I have so many gems already in my bank.

Let’s change the scenario – There is only 5 stacks of ore on the AH, and there has been a general ore shortage for several weeks.  The ore is 90G a stack.  But, I don’t have any ore in my bank, I sold all but a very small handful of gems, and I need to do the JC daily.  There are no gems for the JC daily on the AH because of the massive ore shortage, so I can’t buy the gems directly.  Do I buy the ore?  The answer, almost assuredly, is yes.  The JC daily is too valuable to pass up, and the ore is sparse to begin with. The value of the ore is much greater in this situation than it is any other situation.

Let’s take this value concept and translate it into the glyph business.  Glyphs are relatively cheap to produce – The mats cost for most glyphs on my server are about 12g.  Most glyphs are posted at 40-60g, and the crafters make money hand over fist.  IF they sell the glyph.  There is intense competition in this market (this is actually why I left the glyph making business), housing no less than at least 15-20 heavy competitors.

But recently, there has been a “waller.”  If you are not familiar with the term of glyph walling, a glyph wall is someone who posts a TON of glyphs at a REALLY low price – usually just enough to barely squeak out a profit – in this case the waller has been posting the glyphs they have been getting at around 12.7g.  It is difficult for anyone to post under his price because they will, unless they farm herbs for hours themselves, not make a profit.  Why does this person post things that are so much more valuable than what he gets?

Because the value of “walling” is that it forces competition out of the market.  He is slowly making people leave the glyph market, and he is making a profit while he does it.  Eventually, when a lot of people have left, he can raise the price on glyphs almost unhindered, to make a more reasonable profit.

So, the next time you are venturing into new territory, the next time you look at how much ore costs, the next time you want to understand why a person is selling something so cheaply – remember how value effects your decision.

Next time we will expand on value, and how value translates to time.

One Response to “Understanding The Concept Of Value”
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  1. […] Light’s Fury points out the concept of understanding value when dealing with the AH. […]

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