What is an item worth?

[Hwasung]

With the proliferation of posts on these threads complaining about undercutters I started thinking about what exactly the items that we have in the game are worth.

Without an established "worth" it is almost impossible to judge a fair price - so I set about thinking about how to determine this. I came up with three basic criteria that should determine a floor on the price of a commodity. Given that once a player has competition and every good that they make will be the same as any other player's good, the need to treat goods as commodities becomes integral to this idea. A second given is that supply will outstrip demand. Since there is no absolute limit on most materials in the game as more people loot more things, craft more things, and try to sell more things they will eventually outstrip demand.

[Hwasung]

1. Vendor Price

If you can sell an item to a vendor it is automatically worth at least this much. Most items vendor for a ridiculously low price so the floor is set low with this metric.

2. Cost to obtain

With gathered mats this is a cost of repairs to gear. One can argue that one's time should have a cost associated with it but everyone values their time differently. Even mind numbing activities like farming shards only incur a base price of the damage/cost to repair your gear once one is done farming. Any additional cost is just that - something appended onto the price artificially.

3. Cost to list

When using the market board one needs to recoup at least as much as they incur in items 1 and 2. Current MB taxation is listed at 5%.

[Hwasung]

What does this mean?

Those people complaining about rampant undercutting aren't looking at the situation with a critical eye. Some people are more than willing to craft hundreds of ingots to level their professions and only make back what they invested to make the items initially - which can be very little. Others are even willing to pay for the benefit of leveling their craft. All of these factors contribute to lowering prices on the market boards and no "true" or "fair" price aside from that listed under items 1-3.

As long as the price is at or above 1-3 it can continue. Under that mark at it is a limited time reduction in price. Using current market rates for materials to set the cost for number 2 is also unrealistic as it removes from the equation the individual that is willing to farm their own materials and who doesn't value their own time.


All the best,

Hwasung

[IndigoHawk]

Even mind numbing activities like farming shards only incur a base price of the damage/cost to repair your gear once one is done farming.

This is wrong. The time spent farming is an opportunity cost.
If you farm shards to level up mining or because it's fun, then the shards are a waste product. You can sell them for anything.
If you farm shards for profit, then shard price has to be competitive with gil you would make doing something else.

In games like FFXIV, the people who mine for fun or education have a large impact on the ore supply. This turns the MMO economy into a garage sale instead of a self sustaining free market.

If you want a market, take away dungeon loot, quest rewards, and make crafted items only available from crafters. This makes it harder for casual players to attain items (since they have to compete with the hardcore players who have more resources), which is why MMOs have quest rewards instead of self sustaining free markets.

[Zigkid3]

What Indigo said is correct, Time is an opportunity cost in gathering mats.

[Hwasung]

This is wrong. The time spent farming is an opportunity cost. ... If you farm shards for profit, then shard price has to be competitive with gil you would make doing something else.

I won't be so naive as to try to argue that there is not an opportunity cost associated with farming in time. My counter point to you is what is a given unit of time worth in in-game currency? And do you suppose that you can transpose that derived cost onto every other activity in the game?

Others have commented (although they used different terms) that the utility gained from the crafting experience may be payment enough for an act.

All participants are gaining utility from their actions in the marketplace - some through increased gil income, some from experience, and some from storage space woes incurred from over farming.

TL;DR - Time doesn't have a fixed value when translated to in-game currency.

[Whhambulance]

1. Vendor Price

2. Cost to obtain

With gathered mats this is a cost of repairs to gear. One can argue that one's time should have a cost associated with it but everyone values their time differently. Even mind numbing activities like farming shards only incur a base price of the damage/cost to repair your gear once one is done farming. Any additional cost is just that - something appended onto the price artificially.

3. Cost to list

When using the market board one needs to recoup at least as much as they incur in items 1 and 2. Current MB taxation is listed at 5%.

Like to add the most materials up to lv15~ and armor/gear up to lv45~ or something can be bought from vendors thus setting a "price ceiling" to prevent out of control inflation to new leveling players. This works since if the materials between 15-45 inflate at a large amount they can now be sold by leveling players to afford the vendor gear

[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.