Poor market design causing high prices in Diablo III auction house?

Michael Giberson 

I don’t play Diablo III, but I do follow price gouging discussions online, which led me to this post on the Diablo III discussion forum: “Auction House and Price Gouging.”

The initial complaint comes from a player trying to equip a new character through purchases in the Auction House, an in-game player-to-player trading mechanism, and finding prices were much higher than just a few weeks earlier.

WTF is going on? When I first got this game (release), I thought (despite all the issues) that the Auction House was a wonderful implementation …

I was able to gear up my Monk even at lower levels for fairly cheap. You have to remember that it was my first character and gold was scarce/difficult to come by, but still.. items in the AH were affordable. This includes +dex rares, IAS blues, +vit rares, etc.

3 weeks later and I finally roll another toon, only to find out that low level items (even in the 5-10 lvl range) are BEYOND inflated. I couldn’t even find blue +movement speed boots for my new DH without dropping 3-5k gold…

It seems like people price their gear (even low level gear) depending on what other people price their gear, so it almost feels like the sense of community (it’s difficult to explain, but I felt it in the beginning) has been replaced by $$$ signs, lol.

Price gouging leading to a loss of the sense of community? Sounds like someone has been reading his Michael Sandel.

Diablo III auction house screen shot from MMO News

A few economic explanations are offered in the replies, ranging from the basic microeconomics (“supply and demand”) to intermediate macroeconomics level (gold farmers are bringing too much money into the game, causing inflation).

The advanced economics explanations focuses on market design choices made by the game designers. Each player can only offer up to ten items at a time, and once offered the item cannot be replaced by another offer for 36 hours.

When the game was first released, many players were low level, no one had a lot of gold, and low-powered items were placed into the market as characters advanced and obtained better quality items. As characters became even more advanced, continuing to accumulate a mix of low-, medium-, and high-quality items, the 10-item limit becomes binding.

Now, to sell a low-quality item of the sort a beginning character could use, the player has to forego the opportunity to sell medium- or high-quality items at higher prices.

The opportunity cost of selling low-level items has risen, and the price follows.

NOTE: Diablo III will soon feature a real money Auction House.

NEWER, RELATED: Game-industry market design job openings for economists.

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3 thoughts on “Poor market design causing high prices in Diablo III auction house?

  1. A fix to this game’s Gold A.H. and RMAH could be accomplished by increasing the return on items sold to merchants. This would pull many items off the auction houses and keep many new ones from entering. I’ll acknowledge that it will increase the Gold supply, but it will inflate prices in the Gold AH creating a loop that will balance out. This does not put players at a disadvantage as both the Gold currency and the items increase together. Where my idea goes bad is if we continue to tie both Auction Houses together. They are tied by the fact that gold can traded directly for real currency. I think my idea of keeping the two auction houses separate (yet maintain that the same items can be sold in either at the players discretion) by not allowing the trading of in game and real currency the Gold AH can be protected.

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