What the harvest can teach us

The great glyph harvest totaled 80K for me. However in the last days I've been selling around material costs, so I'm merely getting back invested gold. If I'd knew how the harvest will be on my server, I wouldn't stockpile more than I could sell on Wednesday and Thursday. But I did not know, right? Other scribes are banging their head to the wall that the glyph prices are still 30+ and they ran out of stocks. How could we know?

We couldn't! I'd like to talk about over-time-arbitrage. Some call it investment, but every kind of business activities need investment, so that name is false. But before that, let me talk about all the other moneymaking activities. Luckily, each and every one of them is present in WoW:

• Unskilled labor: you change your time into items that you sell on the market. Farming herbs or ores for example. It usually doesn't need conscious investment, I mean that you have everything it needs simply by living (like farming in Sholazar needs a lvl 77+ but you get one by normal play, you don't have to go out of your way to get one). After a little practice you can see how many items you can get in an hour. Multiply it by market price and you get G/hour. The market price is obvious as you do sell immediately. Other players entering your market will increase the supply and therefore pushing down the prices. This effect is visible and you can quit when profit is too low, losing nothing.
  
• Skilled labor: you invest into getting some skill, like leveling a tradeskill and getting recipes. You buy materials for market price and sell the crafted item instantly. Both prices are exact as trades are realized at these prices. Competitors who buy materials higher or sell products lower change the market prices, limiting your profit chances. If the profit is too low, you can quit anytime. You only lose the already sunk cost of learning the skill, but actually you did not lost it completely as it enables you to re-enter easier than a new player would enter.
  
• Spatial arbitrage: you invest into buying items here and sell it there. Transporting between the alliance and the horde, or remote vendor and AH are obvious examples. The more people transport, the profit expectations will lower, however you can always clear your stockpile at least for purchase cost (if you sell for vendor price, no one will undercut you, or if he does you can buy him out and slowly but surely sell).

What is common in each of them is that the profit expectation is clear and known to all players. The first to quit will be the one who expected the highest profit. Then the one with the second highest expectation will drop out, and it goes on until the supply provided by the remaining players reaches the demand and the profit stops to decrease. Since profit expectations depend on your performance costs (labor costs, labor efficiency), we can say for sure that the more productive will win over the less productive. Also, the end-user is immediately present as the buyer. The decreasing prices made by competition serves him, and since most people buy stuff, we can say that "competition serves the mankind".

Arbitrage-over-time means you buy items now and sell it later. While competitors obviously decrease your profit, you don't see them in the investment phase and you cannot segment your investment phase. I mean if your plan is to transport recipes from a distant vendor to the AH, you can see all your competitors selling in the AH. If you are unsure about the profitability, you can buy just a few items and restock when these are sold, minimizing the risk of having your wealth in slowly selling stockpiles. On the other hand if you are buying herbs now, to sell them after a patch, you can't see how much your competitors stockpiled. You can't stock just a little and get more when you sold these as it would need time travel. You also cannot "just quit" as all your investments are sunk costs. You can't time-travel back to sell them for the value you got them. You must clear them for current market price. So:

• You don't see your competitors until it's too late to do anything
• They can't see you either so even if you are stronger, you can't expect them to get out of your way
  
• You can't compare productivity, so even the most ineffective will believe he is competitive until it's too late to back off
• And above all: overstocking can mean that items were produced without any end-user need, they go wasted (negative sum business).

So we can come to the conclusion: "arbitrage-over-time is bad". However it still exists and very profitable. Why? Because there are enough morons and slackers to suck up the losses, so this negative-sum action is still large positive for the businessmen. In my example: lot of herbs were turned into inks, rising the flask costs before the patch. Every flask user payed the price for our stockpiling. Now the inks will be turned into very cheap glyphs that bored players will use to complete their glyph set even for glyphs they will never use. The world would be better off if the flasks were cheaper. However I came out positive as the M&S paid 30-50G for a glyph in the first days, filling my coffers, so I'm motivated to do it again, to harm the world again even when I know I'm doing something bad. The morons simply put too much money to the table to make me leave it for ethical reasons.

I hope you realized by now that I'm talking about Lehman papers more than about WoW glyphs.


Note: non-M&S people know what they want, so they can make informed choices where an investor cannot as he can't see into their heads. A player could buy all the glyphs he needed before the patch. The whole system is based on the fact that I know better what the M&S will do than the M&S themselves.