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The Broken Economics of Diablo 3′s Auction House

2012-05-18 by . 19 comments

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One of the most heavily discussed features of Blizzard’s eagerly awaited Diablo 3 was its introduction of an auction house to facilitate trading between characters.  The random nature of Diablo’s item generation system quite often left players with an item that would be useful to someone else, but not to them directly.  The auction house promised to replace the confusion and inefficiency of players trying to arrange direct player to player trades through chat channels dominated by ads and spam.

Much of the focus of pre-release discussion regarding the auction house was the “Real Money Auction House”.  This version of the auction house allowed players to spend a few dollars (or whatever their local currency might be) to purchase items that could then be transferred to their character in-game.  Players discussed at length their plans to make a living selling items to those who were less fortunate (or less skilled). Controversy swirled around players concerned that Blizzard was only worried about cashing in on their cut from real money sales, or that the game would be trivialized by people buying their way into the ranks of the elite.

In these early days after the game’s release though, it isn’t the currency auction house that is stirring up trouble.  Blizzard hasn’t even enabled it yet.  Instead, it is its cousin, the auction house based on in-game currency, which is making waves in the Diablo economy.  In the frenzy of play since the game’s release, the auction house has quickly turned into a massive clearance sale, threatening to trivialize the game by making powerful items of all sorts available at almost no cost to players.

 

What 300 gold will buy you these days

 

Excessive Supply

Like a real-world market, prices on the Diablo auction house are driven by supply and demand.  But the virtual nature of the game’s “production” mechanisms have reduced or eliminated most of the controls that exist on supply in the real world.  Players generate new items constantly during play, and a few hours of play time may generate several “rare” items that may generate enough demand to sell on the auction house.  Selling these items to computer controlled vendors yields very little reward, thus encouraging players to try their hand at selling to other players. There is no cost to sell an item in the auction house besides the 15% cut that is taken from successful auctions, so there is really no reason not to attempt to auction items, and in just a few days there are now millions of items covering the entire spectrum of power ranges.

Adding to the over-abundant supply is the fact that items can be used and then sold again after only a minimal repair fee. This allows a player to spend 1,000 gold pieces to purchase a powerful new sword and use it to quickly increase the power of their character. Then once they have gained enough power to use something even stronger, they can place the sword back up for auction, receive 1,000 gold from the next player that needs to use it, and thus recover nearly their entire cost.

Limited Demand

With all those great items sitting around on the auction house, you might expect that players would be clamoring to buy.  Determining the level of demand isn’t nearly as easy as assessing supply, since there are not publicly available records of auctions to analyze.  But the rush to the bottom of prices suggests that demand is lagging far behind, and there are some good reasons why that might be the case.

First, the auction house is new to the Diablo series.  The auction house is also not accessible from in-game (like its counterpart in Blizzard’s World of Warcraft), but is instead accessed from a menu somewhat hidden on the character selection screen.  New and even veteran players might not think to go looking for items that are available while they are playing.

Second, to prevent players from becoming too powerful just by spending money, all powerful items have a minimum level at which they can be used.  In the early game, where characters are rapidly growing in strength, this means that the most powerful item that can be used by a character at one time will become underpowered after just a few hours of playing.  Many players thus see buying items at the auction house as a waste of money.

Third, players often focus on the “auction” concept, and think that in order to get an item, they will have to place a bid and then wait several days to receive the item (by which time they will almost certainly have outgrown its power level).  If players are not familiar with the instant purchase “buyout” option (similar to what exists on EBay), they may dismiss the auction house as too slow to help them when it really matters: now!

Finally, Blizzard has built several “gold sinks” into the game, designed to combat inflation by regularly removing money from the economy.  The most popular of these right now involves upgrading “artisans”, a merchant that can create new items for you if provided with supplies and a crafting fee.  Since these upgrades are sequential and required for the merchant to create powerful items, players see this as a better long-term investment than buying a single item at the auction house, and so that is where they are focusing their hard-earned money.

High Efficiency

It could be argued that similar conditions existed in Diablo 2′s barter based economy without causing any serious impact. The key difference in Diablo 3 is efficiency.  Rather than wading through hundreds of chat messages hoping to encounter someone selling an item you want, the auction house allows you to sort and filter items quite effectively.  A few button clicks will give you specific types of items, with the specific attributes that are most important to your character, and at just the right power level for them to use.  You can then sort by price to immediately find the cheapest buyout, and a few more clicks has the item into the hands of your character and ready to use.

This market efficiency forces sellers to compete heavily, and so each item posted generally tried to undercut the one before it.  Just a few days of this has already pushed profit margins compared to selling to in-game merchants to exceedingly low levels.

As an example, a level 20 character thinks that he hasn’t found a good shield for a while, and decides to see what is available at the auction house.  Sorting for rare items at his level and that give bonuses to his most important attribute yields a page of 20 auctions.  Any one of these items would’ve represented a find that would be cause for celebration in game, a gift from the gods of randomly generated treasure.  But here they all sell for 1,000 gold or less, an amount that represents about 10 minutes of monster killing “work” (and that’s before considering the resale value).

Clearance: All yellow-tagged items 90% off!

So What’s the Problem?

So is the auction house destroying the game?  Certainly not.  It’s still wonderfully polished, cleverly designed, and incredibly fun.  But at its heart, Diablo is a game about collecting items.  In its current state, the auction house has significantly reduced the excitement that normally results from seeing an item appear that might be just what your character needs.  Even if it does manage to be more powerful than your current clearance sale purchase, you know that in another day and a few more levels, the auction house will once again provide you with something even better, at very little cost but also with far less satisfaction.

Do I think this will last?  Probably not.  Blizzard put a lot of thought into this system, and it is unlikely that they misjudged it to a great degree.  This is probably just the growing pains of a new economy.  If I can pull myself away from playing the game long enough to write a second part to this article, I will explore the potential future of the auction house, and how things will change as the game matures and players move beyond the initial rapid power gain into the much slower grind to the top.  In the mean time, take advantage of the bargain basement prices while you can!

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19 Comments

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  • Beofett says:

    My experience has generally been that prices for many items I see (particularly high DPS weapons) are outrageously inflated.

    Shields in general are probably one of the least desirable item types out there, so I would expect prices to be generally low (although 300gp is stupidly cheap, particularly since it vendors for almost that). Classes that can’t dual wield (wizards, witch doctors) are more likely to use the class-specific off-hands than shields if they are an option. Blocking is nice, but I vastly prefer the +damage a mojo gives.

    More desirable items are more typically priced in the thousands at that level, and by the time you’re looking at level 30 items, if the stats are good you should expect prices in the tens of thousands.

    I put up a very nice level 30 hand crossbow (70 +dps with nice additional stats) last night, and it sold for 20,000gp within 3 minutes of going up. In retrospect, 20k was almost criminally low for a weapon like that.

    In short, decent items will go for very cheap, but really good items, the ones that make a player of a specific class drool, will fetch prices much more reflective of hours of playtime at that level.

    • bwarner says:

      Thanks for the input! Shields were just an example, but I’ve had this experience with all types of armor, and even weapons to some extent. You’re right that I’m not going for the absolute best available, but things that are just a bit below that. Of course, if you’re ahead of the general population in terms of level, you might be ahead of the massive supply surge, which would certainly inflate prices. My guess is that the supply will slowly move up into those levels, driving prices down for a bit, before finally becoming focused mostly on high-level items.

  • Sterno says:

    I didn’t start looking until yesterday, but when I’m looking for gear for my level 34 Barbarian, the prices are all outrageously inflated. It seems like it’s the low-level gear, which will be quickly replaced and is frankly completely unnecessary, which is selling for peanuts.

    One problem I’m seeing is that some prices have really low starting bids but high buyouts. Given the frenzy of play right now, you might bid on something today, play all day long, and then win the item tomorrow. Except you’ve just played enough over that 24 hour auction to have earned 10 levels, and you no longer even want the gear that you bid on.

    Many people are still at fairly low levels, and given that they’ll likely out-level whatever they buy in a few hours anyway, it’s no surprise that prices for such items are so low. Not to mention many are busy spending all their gold on training their crafters, leaving little leftover for big spending on the AH. And while theoretically they can resell these low-level items, I just don’t see the market for them growing significantly.

    One final thing that can potentially cause lower demand isthat you have to exit the game to access the auction house. There have been many times I considered looking at the AH to see if I could pick up a cheap gear upgrade or something, but decided against it when realizing I’d have to leave the game and lose my map progress. A minor thing, but when combined with the above, was enough to make me not bother. The only thing I found worthwhile to buy so far was some high-level damage gems as soon as I found some socketed swords early in act 2. The DPS boost I got from doing that was insane.

    • bwarner says:

      Its true that there are a lot of high buyout auctions. I say ignore them using the max buyout field on the search. In my experience, that has still left enough items for me to find a good instant deal. But I’m only level 25, maybe it will change as I continue to level up.

      When assessing prices, keep in mind the resale value. Even if you think that you’d have to cut the price in half to be confident someone else would buy it, that still means the effective cost to you is 42% lower than what you pay initially.

  • wackamo says:

    The mechanics of the auction house needs rework. Searching for gear and sorting them is a pain. There has to be a better way.

    • lolwut says:

      You’re kidding right? You CAN filter down to a single equipment type and then being able to filter by preferred stats ontop fo that is beyond wonderful.

      This whole article is on the verge of laughable. The example is an terrible shield’s stats that noone looking for a shield would even want. Ontop of that it’s such a low level item that it’s replaced in 2 hours and frankly not worth even selling on the AH. I mean seriously, Did you expect to break the bank buying that or to make a fortune selling it? It’s a piece of £^&%. If you look at the auction house for anything that is actually useful you’ll soon realise that everything is currently overpriced by people who are playing the market and buying out anything cheap ot resell if it’s stats are favourable. As a demon hunter i want anything with high Dex and Vit. Take a look at gear with over 50 of each. Just look.

      When i was leveling and saving most of my money i could barely afford a single upgrade from the auction house because of how high the pricing was compared to how much i’ve actually gained while playing.

    • Axie says:

      +1 to what lolwut said.

  • Beofett says:

    I absolutely agree. There are a lot of things missing from the interface (for example, I couldn’t figure out how to browse what blacksmithing plans were available; all I could do was search by individual plans).

    I can only hope they put together the bare-bones interface in the interest of getting it released on time, with plans to add more functionality.

  • LessPopMoreFizz says:

    I think you’re kind of missing the point here. The items you’re looking at are, in WoW terms, the random enchant leveling greens and blues of this game. In other words, if the D3 economy shakes out anything like WoW’s, these items will eventually settle down to a price somewhere similar to the price of the crafting mats that can be generated for them, or vendor price – whichever is higher – well itemized pieces will command a slight premium and sell to savvy levelers, and the rest of the market is eventually going to be given over to arbitrage.

    The real market to watch is going to be in legendary and set items, as well as max level rares. That’s where the action is going to move over the next few weeks, and it’s where the real economy will start to take shape. I wouldn’t sweat the race to the bottom on low and mid level rates right now. The economy is shaking itself out, and people are experimenting – arbitrage values haven’t established themselves yet, and there’s a shortage of currency in the marketplace (as well as a shortage of high end items to drain it out of the marketplace). While the resale factor has interesting implications, it’s too early to tell how big of an impact that will really have on pricing.

  • smilingassassin says:

    Most of the stuff on the AH is Normal difficulty garbage. Why would you want stuff obtained in the easiest level of the game to sell for anything anyway? If you are currently playing on Hell or Inferno there is hardly anything on the AH at all and prices are astronomical.

  • Casey says:

    I find until you reach about lvl 50 you can get some killer gear through the AH by setting your max buyout to about 10k… I often sell things i bought on the AH for the same price after i’ve used and upgraded to new gear. After lvl 50 you better be prepared for Hell/Inferno and $100,000 items!

  • Allan says:

    Most of this is good, but supply is limited by the fact that there are only 10 items that each account can place on the AH at a time. But even if this limits supply, it encourages players to price their items even lower to guarantee that someone will buy it out soon so it doesn’t take up a precious slot. Items must be listed for 2 days, so if you price 10 things too high, then you lose the ability to sell any more items until they go off the market.

  • Kettlebelly says:

    You have got the target right, but you missed the overall issue.

  • bob says:

    The ah is rediculous. There are items for 15 million on there. Granted thats not alot since I can farm act 1 inferno and make 250k in an hour but still.

  • peacedog says:

    Wonderfully polished? You need to be able to filter on more than 3 enchants and min buyout but mysteriously can’t. DPS sorting is somewhat broken. It would be nice to be able to do multi-column sorts. I would call it an incomplete implementation and leave it at that.

    Anecdotally – except that this should apply roughly to everyone in North America since it;s a region-wide auction house – I had no problem gearing my character all the way into Inferno. I made a few mistakes a long the way – you should rarely play more than 10k for a weapon and I once paid 90k (I should have ignored all stats save DPS). That may be different for non-sorceresses, granted. At a 10k buyout you can’t get ideal gear for every slot but you can keep increasing your DPS and survivability. I was able to snag a few cheap upgrades in Inferno to bump my DPS from 11k or so to just under 17k.

  • Arindel says:

    I’d say the author needs to take a look now. Basically all the items have gone the other way and prices have been driven way up. I’d say the gold farmers are probably cause for a good percetage of this as it makes thier lives easier and there’s no penalty (other than the 10 items on sale at a time limit) for not making a sale.

    either way you need millions of in game gold to help with Inferno, but you need to make it through inferno to get the millions of gold. Though probably making it through hell mode and then gearing for gold drop would produce droipped gold, but nothing compares decent items

  • BunjiquoBianco says:

    I think the biggest broken economic is the slice Blizzard are taking on the real money auction house (RMAH). My currency is GBP and Blizzard will take £1 for every transaction through the RMAH. The enormous oversight here is that a vast portion of players aren’t going to spend £40, £50 and I’ve even seen £200 lists for items. I am one of those players. I love the game, yes, but no way am I serious enough to spend this kind of money on a single item. In my opinion it’s insane! What they have completely missed is the casual purchaser. I’d probably pay <£1 every now and again for an OK item to boost me a little bit – I don’t need perfection in my items. But, the £1 fee removes all possibility to list at sub £1 prices and therefore both Blizzard and I miss out.

    I also think legendary item prices are stupidly high given that most of them are pretty paltry. I sold mine for ~10k a piece buyout. What else are they going to do? Take up inventroy space… That’s what.

  • ÖrkkiPiru says:

    The original topic covered perhaps the very beginning of AH at low level point of view.

    Today 17.8.2012 the situation is totally different. There are gazillion level 60 guys and honestly the only items that really matter in the end are the high level items. However, not just any high level items but those that have top 1% stats. The gap in prices between ok and very good item is growing everyday and the top item prices are measured in TENS OF MILLIONS OF gold, while the mid level items you can buy with few thousands of golds.

    The gold is rapidly losing it’s purchase power because gold is everywhere but good items are not.

    I predict that in the (near) future AH loses it’s meaning as you cannot buy any improvements with gold (or the prices are beyond anything one can get via normal gameplay).

    We then go to the same trading, item to item, as was in Diablo II — currency could be fiery brimstone etc (a bit like Stone of Jordan was in Diablo II)

    Only by having commonly wanted crafting materials in piles or owning some really good items one can protect oneself from the inflation of gold prices of items. Whilst, at the same time, the OK items will be very cheap to buy, so basically getting a drop IN GAME that matters is a very seldom occurance indeed. Perhaps one in 100 items is worth anything else but the vendor value and every 10000 item is something you could actually use. If I get one item in 5 runs worht even putting for sale in AH, I can consider myself being lucky.

    I personally do not use one single item I have found myself. All items I have now are worth (nowadays) tens of millions of gold pieces and I seldom have more than 10 million gold on my account, so basically It’s impossible to find impovements through AH and even more impossible to find improvement by finding an item. Only way probably would be by item swapping. I could give my amulet in exhange of another kickass amulet with properties more suited to me. Or if I get kickass drop that is not good for me, trade it directly to some other item. AH fee of 15% at prices around 100mil are bloody ripoff. Also if I convert 100 million to RMAH prices it’s 250€, a price I would never ever ever pay for anything for Diablo III

    Another issue is bying gold from RMAH… that is no longer (if it ever was) smart idea… for 20€ you get 8 mil gold but with 8 mil gold you get just crap if you are even a bit advanced in the game after reaching level 60.

  • John says:

    Try to find some good cheap weapons, preferably weapons under 5000 gold which you will use for acts 3 and 4 normal mode and nightmare mode act 1.

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