Wednesday, 19 September 2012

GW2 economy. Working as intended

I recently learnt that here in Ireland, 90% of chicken is imported. I knew we had a lot of imported chicken, for instance in imported finished goods such as pizzas, pies, soup, and so on. But 90%? The main costs in producing and selling chicken are 1. the cost of feed and 2. the cost of transport. Labour costs are minimal. So how could it be profitable to raise chickens elsewhere and then pay the extra transport cost to bring them to Ireland?

Talking about it in the canteen where I work, I learned why. The imported chicken is mainly the breast of the chicken. This is the part of the chicken most eaten here: fillets  for frying, or pre-cooked and sliced or crumbled, to be used cold in sandwiches or salads. Breast is best here in Ireland. All the same, we don't eat a lot of chicken.

In Thailand, chicken is big business. Thai people eat a lot of chicken of course, but Thailand exports chicken on a massive scale. Breast meat? Not top on the list of Thai favourites. Wings, legs, back are preferred. Same for a lot of Thailand's Asian customers.And they eat a lot of chicken. The brown meat for preference. White meat not so much. So that means there's a lot of chicken breast produced in Thailand that nobody wants. What can their producers do with it? Feed it to the cats, they think. No wait! Those folk in Ireland like breast, sell it to them. Any money we get from them is pure profit, because we were going to dump it, anyway.

So while it costs the Thai chicken producer the same as the Irish chicken producer to raise a chicken, the Thai producers already made their profit on the wings and legs and so on, and the breast is just waste, like the carcass. The cost of producing the chicken has already been accounted for in the price of the brown meat.

So Thai producers can sell breast meat in Ireland cheaply, because they don't need to include the cost of rearing the chicken in the cost of producing the breast. For them, that cost was distributed over the wings and legs. The Irish producer, though, is producing breast for Irish consumption, and must account for feed in the cost of producing breast. So Thai producers can afford the greater transport costs of getting the breast meat to Ireland.

Something similar happens in WoW, when milling herbs. You buy herbs in order to mill them into a certain pigment that is used for creating glyphs. Occasionally, another pigment is also produced as a by-product. This other pigment is essentially waste. Sure it can be used to produce inks used in off-hand items, but by and large, you factor the price of the herbs into the cost of the glyphs, not the cost of the off-hand items. If you sell any of these it's pure profit.

What's this got to do with GW2?

A lot of bloggers are concerned that the auction house in Guild Wars is flooded with items at such a low cost that they can't make a profit on them. There are thousands of crafters selling items at vendor price +1c. Less than the cost of production. Ravious thinks that "Players are already rewarded for gathering and crafting so throwing the [finished product]  away at a loss does not feel like one." This is the "I farmed it for free" argument. Ravious says that it doesn't seem like a loss to those sellers because the raw ingredients didn't cost any money to produce (never mind that they could be sold for more than the finished article). Azuriel worries that with such an oversupply of crafted goods on the market, "the entire concept of character progression breaks down".

I think both these bloggers have got the wrong end of the stick. The reason that there's an oversupply of trash finished goods on the market selling at below the cost of production is this: they are simply the leftover worthless waste product. The producers of these goods already got the profit they wanted, or they would never have produced them, in the first place. They got their profit, and then dumped the waste on the auction house. What was their profit? +1 crafting skillup. These goods were never made for sale, they were made to get the skillup. Anything else is pure win. If they had to throw those goods away, they still wouldn't care, because they already got what they wanted.

Did you ever look at the cost of spellthreads in Azeroth? Enchanted Spellthread is at an all time low right now, but it never was very high. It sells on average at around 10-20g, while its raw ingredients cost around 60g. Why does anyone make it? You already know the answer: for the skillups. It's on the levelling path for all prospective tailors. But even though this, and 90% of other tailoring patterns are worthless for generating gold, tailors can still make money. The not-so-secret secret to success is to research your markets. If you see that the market is saturated with below-cost enchanted spellthread, don't make more of it! Find something else that does make money. And that requires patient research. Finding the current market equilibrium price of items takes time, and you need to do that for a bunch of raw materials and a bunch of finished products in the hope of finding one that is profitable. It won't be one you'd expect; it won't be obvious. If it were, everyone would be doing it.When you do find it, tell no-one!

Okay, I'll tell you one, if you promise to tell nobody else. Sapphire Spellthread. You see? You'd never have guessed, there is apparently no logic in it. An item with weaker stats than Enchanted Spellthread, yet sells for ~200g (for a production cost of ~120g). This is why market research is so important. I've started doing mine in GW2, and so should you. You have to find something that most others won't. You will do this because you will spend the time on research while most others won't. You will abstain from wasting your time whining that the economy is broken, while most others won't.

By the way, I've addressed Azuriel's point, but only obliquely, so let me address it plainly. The oversupply of trash crafted goods will shrink when people can make no more skillup profit on them. Most of that trash will end up being vendored. As in all crafting, 90% of the recipes will never make you a monetary profit. Meantime, as is the case with every new MMO, and will soon be the case in Azeroth, spend the early days making a killing on raw ingredients at the expense of crafters, and don't bother crafting yourself until the ingredients drop in price.


  1. Thai chicken is a good analogy, but it works both ways.

    Shipping the chicken breasts is profitable to Thailand because the costs of raising the chickens are lower; costs are lower because Thailand pays its workers less. Claiming that labor costs for farm work is negligible is simply silly - a farmer suffers the same (ironic!) "farmed it for free" opportunity cost with his/her profession as anyone else. An Irish chicken farmer would not consent to work for pennies an hour, and thus the Irish are unable to compete with the Thai even with the added shipping costs. The average monthly wage in Ireland is $2997 compared to Thailand's $489, by the way.

    So while your analogy works insofar as people crafting for XP consider vendor+1c better than nothing (e.g. they were willing to throw money in a hole for XP, so anything higher than zero is bonus), the Thai also represent global competition willing to work for much less than the Irish. As long as there is ONE guy out there willing to work for 1c profit per cycle, that "market" will be gone for all intents and purposes.

    Besides, none of this addresses the general irrelevance of crafted gear to begin with. Given the huge volume of gear drops that results from individual loot + waves of Event mobs + people willing to get 90%+1c of vendor value simply to get stuff out of their bags, there is no particular reason to buy the crafted equivalents. Why buy the level 35 crafted sword when the level 34 or level 36 sword drop are (still) selling for vendor+1c?

    And even then, it is not as though you can even twink your characters very far because you are leveled down! It makes less and less sense the deeper you go.

  2. "none of this addresses the general irrelevance of crafted gear to begin with"

    This is key. If ArenaNet don't make crafting worthwhile, no amount of messing with the auction house will fix things. But I'm not sure they haven't, yet. Clearly most of the gear one can make is worthless, as you point out, and is vendor fodder. The only reason it doesn't get vendored immediately is the ease with which it can be put on the auction house.

    However, just as in WoW, where 90% of all crafted items are also vendor fodder, there are some hidden gems among our recipes. We just have to find them.