The RMAH Price Floor: Time to Cash In?

Price floors have a long and complicated history in market economies. Like any market manipulation, they tend to have a host of unintended consequences along with the intended ones. And while the intended consequences tend to get the most attention and examination, the unintended ones often go partially ignored--both because they can be extremely difficult to track down and quantify, and because they can undermine the effect of the intended consequences, much to the dismay of the party responsible for establishing the floor in the first place. Probably the most famous example of a price floor is the one that exists in more than 90% of all labor markets--i.e. the minimum wage. But it's beyond the scope of this blog to try and give a fair examination to that particular floor, so instead I'll focus on the one we're familiar with from D3: the RMAH gold price floor (since we all know you can try to play D3 for money and earn well less than the minimum wage).

Blizzard has moved this floor once since the May 15th release, from 100k/$0.25 to 1m/$0.25. At the time it was attributed to "general improvements" with the AH, citing player feedback:

Blue Post with Floor Raise

That the floor exists at all is maybe somewhat understandable: Blizz doesn't want the AH servers clogged with a heavy load of very small transactions, they want to reduce possible gaming of the RMAH like what happens on the GAH (See Here), and they probably don't mind a little artificial inflation of prices. When the floor is near or below the actual market price of gold, they see the benefit of these things (and probably more) without much downside. The problems rear their ugly heads when the market price starts to drop too far below that floor, which is what has happened (again) over the last few months. But then again, so do the opportunities.

When the market value of gold drops below the price floor, people turn to outside sources (i.e. the black market) for buying gold, or they stop buying altogether. This reduces transaction security for players as well as reducing Blizz's cut of gold sales. Overall, it simply isn't good for the game economy. It also has the interesting effect of inflating the real-money value of items, consequently producing a ripple effect which stalls sales of items along with gold. This is where the opportunity lies. Allow me to explain:

The default exchange rate on the RMAH is currently still 1m/$0.25. The actual exchange rate dictated by a friction-less market is harder to pin down, but it's probably closer to 1m/$0.20, possibly even lower. Let's examine what would happen if the price of gold were to fall to, say, 1m/$0.10, a figure not so outlandish that it can't happen relatively soon. Now, let's step through an interesting process on the RMAH:

• Say you see an item worth 40m listed for its actual market value of $4 on the RMAH, and you decide to buy it.
• Now, you sell that item on the GAH for its gold value, 40m, receiving 34m after the 15% fee.
• You sell that 34m gold on the RMAH, taking another 15% hit but ending up with (34m)*($0.25/1m)*(.85) = $7.22
• Repeat, and profit.

There is obviously and inconsistency here; no market will tolerate this kind of cycle long-term. The buyers and sellers who enabled you to complete this process simply will not continue to buy and sell this way. In short, you cannot create something from nothing--at least not for very long. The effect this has is to drive up prices a little bit on the RMAH until the equilibrium is met and you make less than or equal to your original investment from this cycle. That is not to say that you won't be able to do this, as peoples' valuation of gear and gold can fluctuate wildly, but rather than it cannot take place in a wide-scale and consistent manner.

The effect: your gear is currently overvalued by the RMAH. Since the exchange rate is pinned down in this manner, buyers on the RMAH must, in general, overpay market value for gear. This is one of several things which has really slowed the RMAH, since people know when they're getting a bit of a raw deal. Nonetheless, there are still buyers out there. So, if you can sell you gear for a value on the RMAH equivalent to what you think you could get at the 1m/$0.25 exchange rate, should you? I certainly think so, as long as you can spare the gold for a while. Blizz has attempted to combat the problem of gold inflation by adding more gold sinks and going after gold botters/3rd-party sellers more proactively, but it's not clear that it's going to work. Personally, I think they desperately need to add functionality to the AH that allows you to choose how much gold you want to sell per $0.25, keeping the lower transaction limit but effectively eliminating the price floor. It's not only good for the players, it's good for their balance sheets.

If that does happen, you could see a sudden appreciation of your Blizz Balance in its relative value in gold. So if you've got some spare gold sitting around, it could be a fun investment to try picking up some gear and selling on the RMAH. If it doesn't work out? Well, you can always use it to buy Starcraft: Heart of the Swarm!