Arbitrage in WoW

As you can see, I enjoy thinking about WoW gold making in terms of real world business, and as a consequence, I enjoy reading many of the well know “wonky”, “mathy” WoW gold blogs.  It’s a little intimidating to dip my toe into that arena — not only are some out there quite opinionated, they also back that up with a great deal more knowledge than I possess.  But in any case, here I go…

Technically, but in simple terms, “arbitrage” is activity that poses no risk but provides some reward.  As with many things, it doesn’t work 100% that way in actual practice.  When real business people talk about arbitrage, they usually mean taking advantage of the difference in price between two market places.  If the price for good X in market A is higher than the price for good X in market B by enough to cover any transaction costs and taxes, you can buy in B and sell in A for a “sure” profit.

Remember the Seinfeld episode “The Bottle Deposit” where Kramer and Newman are trying to figure out if they can make money transporting bottles to another state to claim a higher deposit?  That is arbitrage.  If the profit covers their costs it’s a pretty sure thing.  Of course on Seinfeld, hilarity ensues when they spot Jerry’s stolen car and end up dumping all the bottles to chase after the thief.  There was a risk after all, it was just pretty hard to anticipate.

In WoW there is only one true, pure arbitrage opportunity that I can think of, and that is buying items on the auction house that are listed below the vendor sell price.  Because vendor sell prices basically never change, and vendors will always buy unlimited quantities from you, there is no risk.  There aren’t even any fees I can think of.  The only thing that keeps people from making a ton of money this way is that very few sellers list below the vendor price for the obvious reason — it only happens when someone makes a mistake.  It does happen, just not frequently enough to make a lot of money.  (Please comment below if you can think of another example in WoW.)

Just like in the real world of arbitrage, in WoW we usually face the risk of the market price changing between when we buy and when we try to sell.  And worse in WoW than in most real arbitrage situations, we lack good sell price and volume data.  While we know the average posting prices and number of posts for auctioned items, we don’t have actual sales prices or sales volumes (except for our own sales).  So if you see that the auction house lowest price for Whiptail is 2g and someone in trade sells you 200 stacks for 1.5g per, you are taking a risk if you hope to be able to sell them for 2g, it’s not a sure thing.  And every time you post them and they don’t sell, you incur a fee.

Still, people do look for and find arbitrage in WoW.  They fall into these categories that I can think of:

  1. Vendoring — as described above.
  2. Faction — if there is a sufficient price difference between horde and alliance to cover all the costs, you can use the neutral AH to move items from one side to the other.
  3. Server — best I can tell this is only practical if you are planning a server transfer anyway.  You have to spend real money and plan carefully around the limits of what you can take to another server.  The Undermine Journal is useful here if you really want to go for it.
  4. Currency — some vendors sell items in exchange for other items.  For example in Dalaran, Braeg Stoutbeard will sell you one Arctic Fur for 10 Heavy Borean Leather.  In practicality this works like the vendor prices do — the prices of the two items on the auction house tend to stay in line to the exchange rate set by the vendor.

Disenchanting and prospecting (ie “the obsidium shuffle“) are probably thought of as arbitrage by some people, but in reality they are manufacturing processes, at least that is how I think of them.  As the time and skill requirements a transaction requires increases, so do costs and risks.  Same goes for farming herbs, ore, fish, archeology items, or item drops from mobs.  “Time is money friend!”  Stockpiling is not arbitrage, it’s more like hedging, no matter how positive you are that the price is going higher.

What features might be added that would make the data we have in WoW more like what we know in real markets?  How exactly do you move items between factions?  Can you hedge in WoW?  Those are topics for future posts.  In the meantime your comments are appreciated below.

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