What is an item worth?

[Zigkid3]

Completely agree.

I was actually going to make a thread similar to this today. It's ridiculous how a lot of people on here complain about being undercut because they don't understand economics.

As you've mentioned, items that can be sold to an npc for X price, has a price floor at the npc price. There's no reason to sell on the market an item for less than what the npc will give you, and if there are any, someone will buy them up and just resell to the npc. For the most part however, the price floor doesn't really do much as it 90% of the items out there the price floor is below equilibrium anyways. The only items that are really effected are the super common and level 1-10 crafting stuff that have hundreds of sellers.

Because the price floor is below equilibrium and thus doesn't have any adverse effects on the price of an item, the price will be determined by supply/demand.

The value of something is determined by how much someone is willing to pay for it and how much others are willing to sell it at.
People will undercut because they are willing to sell it for a cheaper price. People will buy the undercut because it's the cheapest.

I see quite a few threads of people wanting to limit how often you can adjust an item, which is a terrible idea. The more often people are freely allowed to adjust their prices the more stable the market because you'll reach equilibrium faster.

[Wazabi]

The value of something is determined by how much someone is willing to pay for it and how much others are willing to sell it at.

At your expectation, I have to make an appearance here, and since I'm having more free time in the office this week.

To sum up the quote above, I would say the fair price is the price that clears the market at that point of time. The idea of a fair price is a moot point in my opinion as it is always in a constant state of flux. I need 5 fireshard to craft an item for quest turn-in...so even though the "regular" price of fireshard is 35, I will be willing to pay much more for it at this particular point in time. As for seller, I'm willing to sell this at a higher than normal price because I'm not in a hurry to liquidate that item...the reverse would be true if I want it out of my inventory in a hurry.

*snip*

I'm going to address the "selling at a loss" point you made. I make something that cost me 100, I sold the finished goods at 50, so I'm making a loss of 50. That defies logical human behaviour...but yet it happens in MMO. Why? Because I get xp for crafting that item. So...do I really make a loss of 50? Or did I just paid 50 for the crafting xp?

When I level my crafter, that's exactly what I did, crafting new recipies and selling them at a loss. I don't think I'm stupid, but I do see it as paying gils to level my craft faster...so it justifies selling the item at a big discount just so that I can liquidate it quick and get part of my money back.

As you've said, and item is worth what somebody is willing to pay for it, and I'm willing to pay for my crafting xp. So even though a business model of selling something below cost does not makes sense (but it does happen occasionally for the reason stated below), it actually makes sense in MMO because of the xp you gain. Even on items that I speculate in the market...there are times where I sell them at a lower price than when I bought them just to get rid of it (failed speculation). Bad traders hold on to their losses...good trader cuts their losses and move on.

Now, on about your comment on Walmart. What people see is that they put some mom and pop shop out of business. What I'm asking here is just to make a fair assessment. What about the cheaper price that benefits the consumers? Especially the lower income group? By saying that selling something cheap/undercutting is bad, you're essentially stating that finding a way to do something more effectively is bad! Heck, steam engine is bad because of all the manual labor that it replaces! Autocad is bad because it reduces the number of drafters a company needs to hire! Accounting software is bad because it reduces the number of job demand for bookkeeper!

What economic studies is the effective distribution of scarce resource, and thus any way to improve that efficiency is good for the economy as a whole. Yes, those who failed to keep up will suffer, just like the mom and pop shops that Walmart puts out of business...but that's just evolution, and evolution is cruel.

The fate of these small shops are a separate issue to be dealt with...a morality issue. I symphatize those that are left out...but they'll have to make a choice there and then....to improve and adapt, or to go extinct. If you are so "anti-walmart" or "anti-big business", then stop buying from them, and get your groceries from a mom and pop shop...no one is stopping you from doing it. If you can't find any, and if you think there's a demand for more expansive items from small time dealers that runs their business less effectively, then open a shop for that. Again, no one is stopping you from doing it.

Society will do what they can to assist these people...but most choose to go all "crybaby" on these structural changes when they fail to adapt, much like what we see in the MMO communities.

[Kazamoto]

Now, on about your comment on Walmart. What people see is that they put some mom and pop shop out of business. What I'm asking here is just to make a fair assessment. What about the cheaper price that benefits the consumers? Especially the lower income group?

Society will do what they can to assist these people...but most choose to go all "crybaby" on these structural changes when they fail to adapt, much like what we see in the MMO communities.

Those lower prices come at a cost. Those "Mom and Pop" shops generally had better wages than walmart and paid people a living wage. Walmart intentionally does not pay a living wage allowing society to pick up the slack.

Many of those in the lower income group, are there because of Walmart, or are kept there by abysmal wages.

"The study, “Hidden Cost of Wal-Mart Jobs,” found that the average Wal-Mart worker required $730 in taxpayer-funded healthcare and $1,222 in other forms of assistance, such as food stamps and subsidized housing, to get by."

"There is strong evidence, however, Wal-Mart produces no net growth in employment. The jobs created by its stores replace other, often higher-paying, jobs at existing businesses that are forced to downsize or close."

http://www.ilsr.org/new-study-finds-...ost-taxpayers/

So yes, I can buy Pacific Rim for $5 dollars less than any other store, but the true cost to me is likely higher.

Heck, steam engine is bad because of all the manual labor that it replaces! Autocad is bad because it reduces the number of drafters a company needs to hire! Accounting software is bad because it reduces the number of job demand for bookkeeper!

Actually, technological advances like these are a shift in the labor force, not entirely a reduction. Because while you need less manual labor, the demand for mechanics and engineers increases. While you need less drafters you need more programmers and IT staff. Same with the accounting software, it reduces the need for book keepers but increases the demand for IT support staff.

What economic studies is the effective distribution of scarce resource, and thus any way to improve that efficiency is good for the economy as a whole. Yes, those who failed to keep up will suffer, just like the mom and pop shops that Walmart puts out of business...but that's just evolution, and evolution is cruel.

Here is where the parallel exists between walmart and FF14 (I bet a bunch of you were wondering where it was). The resource being abused in both situations is Labor.

Walmart forces its competitors to close their doors as they cannot afford to compete at walmart's price points. In the current FFXIV market, labor has no value.

And I grant you, some, including myself have paid to level a craft, loosing money on exp crafts, but I would never cut my prices to half the current going rate, or a third of the materials cost. If I listed at (going rate)-5% it is possible I could still profit, or at least break even.

An Item should cost: Materials + - 5%
An item is worth: Materials + Labor
An Item will sell for: What the seller is willing to let it go for, and a buyer is willing to spend.

And, since I can constantly adjust my prices, with no penalty, its always a race to the floor.

I'm not particularly anti-walmart, but I still acknowledge the damage they do to the economy. Just as I know my car burns dinosaurs, but I still drive it. It's the hypocriticality of modern life. We do what is bad for us, because it is easier.

I guess that's the problem.

[Conradus]

An Item should cost: Materials + - 5%
An item is worth: Materials + Labor

Wow, what a wonderful fantasy world you live in. No challenge, no brain work, just automatic profit, guaranteed. What you made is actually of no use to anybody? No worries, you still get paid.

An Item should cost: Whatever you can sell it for.
An item is worth: Whatever someone is willing to pay for it.

[Wazabi]

*snip*

Thanks for the article, it was a good read.

<off topic>
I won't debate the validity or take a morality stance on weather it is right or wrong for WalMart (WM)to pay lower wage and benefits to its workers. What I see however, is that there is a demand for low priced goods in the market, and WM found a way todeliver just that. If these workers could get a higher paying jobs by setting up or working in smaller stores, then why are they still working in a lower paying job? If the general public is willing to pay a higher price for their goods by shopping at somewhere else, then WM will be forced to change their corporate strategy. If its hapenning, good. If not, I couldn't really care much either. Someone is benefitting from WM now, and someone else is getting the shorter straw. If someone can show me a conclusive quantitative analysis on the net economic efficiency and deadweight loss, I'm all ears.

To me, it's just the market game, and as a trader/merchant/businessman, I need to determine how much is the market going to pay for a certian service/goods, and try to make that happen. When a new tech displaces a particular group of work force, yes, it encourages growth in another, but for those with the obsolete skill, their quality of life decreases as well...much like the WM case. If WM close shop tommorow due to the issues you've mentioned, I don't have any problem with that as well...just like my opinion towards displaced workers. It's a fact of life, it's survival of the fittest.

<on topic>
The game world is slightly different. To a certain extend, there are labors to exploit, mainly the gatherers...but you don't starve to death if you don't gather/craft. It also doesn't cost you anything but time to gather, which supplies the basic materials. Every item will have a cost...but the worth is debatable because it depends on each person's needs at different point in time...so there will never be a "worth" that everyone will agree about...and hence I think the act of trying to determine the "worth" of an item to be pointless.

Everyone has their own trading strategy...so whatever that works for them. Those that are better at trading will be able to guage the market sentiment, thus more likely to set a price that will clear the market. Couple that with inventory planning, business acumen and enterpreneur spirit, they'll how much to buy, how long to keep an item in their inventory, how much liquidity to maintain, and most importantly, have the balls to execute those trades. Those are the few key attributes of a successful trader/businessman...and a video game economy is far less complex to get these things right.

[Kazamoto]

@Nova, I agree with just about all of this ^ and we have both now said, there will always be buyers willing to pay 0, so to say "An item is worth what somebody is willing to pay for it. No more, no less." is not the whole story.

An Item is worth what someone will pay for it,
Unless
Someone will pay more or less for it,
Unless,
The seller wont agree to the price.

Thanks for the article, it was a good read.

<off topic>
If someone can show me a conclusive quantitative analysis on the net economic efficiency and deadweight loss, I'm all ears.

Try this perhaps: "Walmart wages are so low that many of its workers rely on food stamps and other government aid programs to fulfill their basic needs, a reality that could cost taxpayers as much as $900,000 at just one Walmart Supercenter in Wisconsin"

http://www.huffingtonpost.com/2013/0...n_3365814.html

Walmart has 4,118 stores currently in the US.

[Zigkid3]

Try this perhaps: "Walmart wages are so low that many of its workers rely on food stamps and other government aid programs to fulfill their basic needs, a reality that could cost taxpayers as much as $900,000 at just one Walmart Supercenter in Wisconsin"

http://www.huffingtonpost.com/2013/0...n_3365814.html

Walmart has 4,118 stores currently in the US.

That article solely focuses on a specific segment and does not represent the economy as a whole.

This starts getting into the debate of whether or not minimum wage should be raised.
You're trying to debate about workers wages which is not representative of an economy as a whole. Yes it is part of it, but not all of it.


If the minimum wage is raised, then the costs for a company would increase. If the costs for a company increase, it will either have to find other areas where it could cut costs or increase the price (and produce less). so now the prices have increased on a said product because it costs more to make, handle, deliver, etc... So now lets look at two types of consumers the minimum wage worker and the middle class worker. The minimum wage worker will have increased wages yes, but also an increased price on products either way it made no difference to them all you did was increase the numbers but proportionally its about the same. The middle class worker was already above minimum wage so their salary hasn't changed, but now they experience an increase in product prices, so the middle class worker loses out. Overall this bad.

This is because even though while wage might have increased, their real wage which is the amount of buying power they now have is actually different. So you have to look at Wage/Price (depending on the product(s) you're looking at) to see if the increase of wage was actually beneficial or harmful. to see if it is beneficial or not you will need to compare the increase in wage versus the Price x Marginal Production of labor. if W > PxMPL then it's good, if W < PxMPL then it's bad.
------------------------------------------------------------
Though I don't see your point in trying to bring up Walmart wages when wages don't really have anything to do with a game economy, the closest you could get to arguing that is the time investment that people make to gather/craft, but thats more subjective to each individual rather than a specific wage policy.

[Kazamoto]

---On topic ish---

the closest you could get to arguing that is the time investment that people make to gather/craft, but thats more subjective to each individual rather than a specific wage policy.

That's the exact point I was making earlier. In both FFXIV and Walmart's wage and employment policy, the labor is worthless.

Walmart will always have applicants and they can afford to replace any worker at any time.


---off topic---

If the minimum wage is raised, then the costs for a company would increase. If the costs for a company increase, it will either have to find other areas where it could cut costs or increase the price (and produce less).

This makes the assumption that the company is attempting to make revenue or profits a constant value. Every company is always trying to increase profits, so they already try to cut costs and increase market share. To suggest that a company would look at its ledger and say "yup, these profits are good, lets stop here" is silly. And with the two biggest, or at least most frequently complained about companies, McDonalds and Walmart, both could increase their employee wages and still have very healthy profits. There is no incentive for these companies not to do this, unless there is some outside force or requirement that they pay a living wage to their employees, they have no reason to, and would not.

So now lets look at two types of consumers the minimum wage worker and the middle class worker. The minimum wage worker will have increased wages yes, but also an increased price on products either way it made no difference to them all you did was increase the numbers but proportionally its about the same. The middle class worker was already above minimum wage so their salary hasn't changed, but now they experience an increase in product prices, so the middle class worker loses out. Overall this bad.

The Middle class worker already feels the increased prices through tax burden.
The low wage worker, in addition to surviving on government benefits is likely tax exempt, especially if they have children. The middle class worker is forced to pay higher taxes to cover the entitlement programs that keep the lower class workers alive.
(I'm going to skip going into upper class tax burdens because that is a whole different ball of wax)

This is because even though while wage might have increased, their real wage which is the amount of buying power they now have is actually different

This direct relationship is really only true if the only place they can buy from is Walmart (which granted, could be the case). When workers have more to spend, it increases demand for goods, and luxury purchases become a possibility. As is often said, a rising tide lifts all ships.

The only time an economic policy is truly bad, is when it stops or slows the circular flow of money. People who have limited means always have things they need or want to buy. A slight jab at wealthy people, they don't generally keep the money moving. They still need housing, and transportation. But if a person have 10x the average wage, do they consume 10x the goods? Do they buy or rent 10 houses? Do they buy 10 cars, eat out 10 times as often, buy 10 times as much clothing?
This is all possible, but what happens when that ratio hits the average hits 380 times their average employee's pay? Do they buy 380 times more goods, and produce 380 times more demand?

A strong economy requires people to be spending money, and a people need to have money to spend.

[Wazabi]

=off topic=

Try this perhaps: "Walmart wages are so low...

1. Why do they still want to work at walmart? Can't they find a better job? Or is there a low demand for their skill level? Where were they working previously?
2. Imagie you work for a company that tells you your annual bonus and pay increase has been donated to starving children in Africa.

There are many more arguments that I can make. Ultimately, it dwells down to this: If you are a low skilled worker, would you rather be unemployed or employed with however little wage you get? If there is a demand your your skill set, you will get a better wage. If you demonstrate that you can do more, you will get a better wage.

I deal with similar blue coller wage problem in my work...the pay is never enough...in the end...if you're still only capable of doing what you could do 5 years ago, then I'm paying you the same wage, adjusting for inflation.

I agree that low wage is a problem...and that needs to be addressed through other means than simply saying ban wal-mart. It's a naive and uneducated solution to a more complex problem.

Similarly as how Zigkid puts it, economic efficiency looks at a much broader picture and it involves some complex mathematical calculations fitting to be a PhD thesis. And in the case of a price level increase, wage level usually lag behind especially for unskilled labor. This price level increase hurts and perpetuates the poverty that they are in...and it is usually the unskilled labor that are in poverty.

=In-topic=

Value is subjective and trades are made on perceived value

You might also add that the value of a certain item has a concave utility curve: If you have none, you'll be willing to pay more for the first one...when you have a lot, you'll be willing to pay less for that.