Time Is Money: Are materials you farmed free?
by Basil Berntsen 
Mar 15th 2010 at 5:00PM
Opportunity cost
If you farm herbs, you mill them, create inks, and then use those to make armor vellum, those vellums are not free, nor are they the cost of the vendor paper. The farmed materials can be sold a certain amount, and many people neglect to factor this. Farming feels like getting something for free -- after all, you're playing a game, and then when you finish playing, you have goods you didn't have before.Opportunity cost is, simply, what something would have been worth had you done something differently. The opportunity cost of going to law school is not the tuition, but the money you would have made had you not been studying law. Add that to the direct cost (tuition, books, bribes, what have you), and you get the total cost. Compare this to the profits at the end of the run to determine whether it's worth it.
In game, the opportunity cost of using goods you farm (or earn, or get for free), is what you could have sold them for. Of course, if you are processing these farmed goods in some way, you are probably doing it to increase the final amount of money you get. If you still have to farm, this can be a valuable use of your time. If, however, you find yourself having to cut your prices below that the value of the unprocessed goods, you're officially wasting your time. You just took your mats, spent time to turn them into a finished product, and are now selling it for less than you would have gotten by not bothering.
Never tell yourself that you can afford to go below the total cost of your product just because you farmed for the ingredients of whatever you are selling.
Why argue?
I generally don't try very hard to convince people about this. Instead, I'll just buy their underpriced stuff and ask them to go farm more for me. This is probably the most effective way to demonstrate the principle of opportunity cost. They may feel that their cost is, say, half of mine, but when they run out of stock, they realize that their cost is really going to be based on the market value of their farmed goods.
Being an auctioneer is like being able to print money. Or gold, as it were. Wait, that doesn't make sense... you can print on gold, but you can't print gold. That would be closer to transmutation? I can transmute titanium, but that's only worth it if the price of saronite is low enough to justify the time spent making it. I need some sort of analogy here. Whatever, I'll figure it out later. Making gold? Periodically, Time Is Money will give you short tips on how to make money. Filed under: Time Is Money, Economy
Reader Comments (Page 1 of 5)
Alan Falcon Mar 15th 2010 5:03PM
I'm often deeply saddened at how few people understand the concept of opportunity cost.
nelk Mar 15th 2010 5:15PM
Me, too.
But then I think about the opportunity cost of thinking about people not thinking about opportunity costs, and quickly start thinking of something else.
Piisuke Mar 15th 2010 5:51PM
Me too, but then I use that opportunity to buy their cheap mats and craft the items I make for half the effort and still receive a profit.
I can easily spend my time farming for Frost Lotus, but it requires less time and rewards more gold to buy them off the AH and instead craft those dandy flasks. After all, despite the slightly higher droprate, they are still a massive burden to get.
Niiru Mar 15th 2010 6:02PM
One thing this article doesn't take into account is utility [or "happiness"] maximization (as opposed to simple profit maximization). For example, every hour spent farming is an hour you didn't spend doing something you might enjoy more.
For example, although I might make 500g / hour farming and I only make 150 g / hour running heroics, I enjoy running heroics quite a bit more, and as such, running heroics to farm gold may maximize my utility.
ash Mar 15th 2010 8:17PM
I think Niiru is right, there is more to the game than just running an econ simulator or working out every price point on a spreadsheet. I know for me certain things are a trade off depending how tedious I consider them. For me tedium is a bigger drain, and weighs more in my decision making than how much gold I am making per hour. That's why some things I am willing to farm and some things I am willing to pay for, but in the end its what makes me happy that matters most.
Cigan Mar 16th 2010 9:36AM
To Niiru and Ash: The author of this article is specifically talking about pricing farmed items. He doesn't discuss the time farming, or play. He is merely pointing out that if you farmed something there is a price. You should consider that price when you are using your mats, or pricing your mats to sell to someone.
As an example. You want to go quest. You enjoy questing, woo hoo you sick masochist. As you are questing you incidentally farm up a couple stacks of icethorn. Now you're a scribe. We'll say for the sake of argument that icethorn is going for twice what goldclover is going for on the AH. Do you mill your icethorn, or do you post it and buy up all the goldclover? Maybe you really don't enjoy the AH, but if icethorn is selling reliably enough and you won't have to repost then it's a fairly cut and dry decision. You buy out the goldclover and sell the icethorn and mill the goldclover.
Now the actual relationship is much more complex than that, if everyone took this action then herbs of a single tier would quickly equalize in price despite varied utility from alchemy. etc. etc., but the example shows what he is talking about and that it is a separate issue from doing what you enjoy doing in the game. He is talking about realistically evaluating the resources you gather while playing the game you enjoy playing. The issue of "opporunity cost" as it relates to time spent is a much thornier and more complex topic.
The Scarlet Mathematician Mar 16th 2010 1:15PM
Actually, opportunity cost in WoW's economy is complicated, and factors can push the price of commodities lower than you might think, given the time it takes to farm or create them.
Most materials can be slowly gathered at next to no opportunity cost during the normal course of play. Running a dungeon will probably net your one or two stacks of cloth, which are essentially "free." (That is to say, you are sacrificing very little actual time gathering them). The same goes for ore and herbs gathered during normal questing. You won't get them as quickly as dedicated farming, but you will get them at an extremely low opportunity cost, which, in turn, affects how you price them on the AH.
So, before you judge to harshly, remember that World of Warcraft is a game above all else, and this changes the way a lot of these classical economic ideas work.
Kim Mar 15th 2010 5:13PM
Yes! This! I've had a really hard time explaining to people why I never used my Titansteel cooldowns because I could sell the mats for significantly more than the finished bar. (At least on my server.) "Well, just farm the mats, then," was the response. Huh?
The Scarlet Mathematician Mar 16th 2010 1:22PM
If Titansteel was selling for less than the sum of its materials, something is seriously askew with your server's economy.
Stradapult Mar 16th 2010 3:47PM
According to the data on Wowhead there's only a twenty gold difference in the average buyout price of the mats to make Titansteel versus the price of the Titansteel bars themselves. I'm sure there are many servers where the mats are more valuable than the bars, my server included.
Drakmarr628 Mar 15th 2010 5:19PM
Yeah, opportunity cost is a very basic economic concept. But then again, how many kids still in high school (or younger) play this game? How many of them actually understand what economics are?
Adrian Mar 15th 2010 5:27PM
For that matter, how many people who are out of high school actually understand basic economic principles? I'm betting the answer is not very many.
Yoe Mar 15th 2010 5:41PM
How many of them actually care, if they play like me they just want to clear there bags and make a fast few G's then they will undercut everyone regardless. I don't really need gold in this game, as i am mostly a PvPer i rarely repair and most other things i can buy from honor, other than those few enchants each season
Tim Mar 15th 2010 5:57PM
The worst is when people don't understand that price wars are bad for the sellers for "high level" recipes. The easiest to see are the engineering ammo since he price to create to so small, but the recipe is hard ish to get. There are about 4-5 people on my server that sell Iceblade arrows on my server and the price is just lowering and lowering....It sucks. Raiders need these arrows, they buy 5-7 stacks at a time. Huge demand!
Bah, I may just try to control the market for a few days in order to bump up the cost. Or just send a letter saying "hey bro lets be friends! It isn't illegal in WoW to collude prices"
Bronwyn Mar 15th 2010 6:04PM
@tim- in the case of the new arrows I'm actually a fan of the low cost because, frankly, they don't take a lot of mats and you could still make a mint selling them for cheap prices. AND as a hunter I like being able to buy pretty cheap ammo now that I don't have a friendly engineer who makes things if I provide the mats.
Braundo Mar 15th 2010 6:06PM
@Tim:
Your strategy doesn't work because smart traders would rather be the one who's selling 100% of the arrow purchases on their server/faction for 2g per stack than 25% of the arrow purchases for 6g per stack. Collusion simply means that you're dividing up your potential market share because you're too chicken to handle actual competition.
Aedilhild Mar 15th 2010 6:56PM
Without brand equity or varying product quality, premium pricing is impossible for all but a handful of items. And, obviously, competitive pricing challenges vendors who want to make as much profit as possible (who wouldn't, but for reality?) or whose cost structures are sloppy. Nobody's happy when costs that are mostly beyond our control make an item unprofitable, but when that occurs, it's time to find another market.
Netheral Mar 15th 2010 7:13PM
Braundo, you're failing to see the sky high demand for the engineering ammo. Since most ammo sells if it's not above the average market price, selling 100% of your ammo for 6g isn't that far fetched, if only the market stays stable around that price... When the price of the ammo goes down to 2g people don't want to spend more than that, even though if the price would have stayed at 6g they would have spent it without a second thought.
Sure there may be flaws in my argument, but your argument is that bulletproof either...
Heilig Mar 15th 2010 9:03PM
"Without brand equity or varying product quality, premium pricing is impossible for all but a handful of items."
THIS.
THIS THIS THIS THIS THIS.
There is ZERO PURPOSE to undercutting someone by more than a single copper. You are selling the exact same item. Nothing differentiates your product from anyone else's. In the real world, quality differentials can explain dramatically lower prices, but in the WOW economy, undercutting someone by 15% on teh same item is like having two Gap stores across the street from each other, one selling a shirt for $50 and the other selling the exact same brand of shirt for $32.50. It just doesn't make sense. the only distinguishing factor on the auction house is whose name comes first, and that is accomplished with one copper as well as it is with 100 gold. You're only hurting yourself.
MightyBurebista Mar 15th 2010 10:10PM
But, where does "we will not be undersold" enter the game? Theoretical example: three people are selling Grimoire of the Frostbitten Kingdom (whatever). Buyout prices are as follows: 200G, 180G, 175G. Item is considered a niche market, appealing specifically to lv. 79 twinks. However, the prices currently listed are seen as excessive in all three situations, the auctions run out and the sellers lose their deposit, then have to relist the item yet again. Knowing that, I auction my own Grimoire of the Frostbitten Kingdom at 150G for buyout, and it finds a buyer right away due to 150G being the maximum price that potential buyers deem acceptable at that point in time. And then there's the factor of relisting high-level items being a drain on your pocket, do you slash prices to sell the bloody thing faster, or do you stick to your guns and maintain the original price? In any case, potential savings of larger sums of gold will attract people faster, which might not have been guaranteed if I'd have auctioned the item for 174G, 50S, 50C. :/