Sunday, October 3, 2010
Arbitrage (pronounced arb-eh-tr-ahj, btw) is a term tossed around on gold blogs quite frequently, but I don't think there's a firm grasp of what it means. It's included in some addons as a basic price point comparison, but there are many forms.
In the real world -- and I hope that this blog ultimately touches on economic concepts beyond WoW so I can both educate and learn from other players -- arbitrage is most easy to understand from a market standpoint. If Sam's Club sells boxes of Snickers for $10, and the corner store sells that equivalently for $18, an arbitrage opportunity exists to exploit the difference and sell for $17 a box outside the corner store. You'd pocket $7 per box and likely get your face stomped in pretty quickly. Not a wise choice. Plus, it's probably technically illegal anyhow, and you'd be evading taxes.
The case above is an overly simplistic example of market disparity, but arbitrage also exists on stock markets, foreign exchange markets, and elsewhere. On one hand, stocks can be priced differently from one exchange to another or versus their derivative instruments (i.e., futures). There is also tax or regulatory arbitrage in some cases.
So what does this have to do with WoW, and how have you made it this far without falling asleep? If you've read my previous posts (and nobody has), you should be rewarded with actual advice!!! I believe there are two major forms of arbitrage in WoW, namely conversion and market arbitrage. I don't count laziness arbitrage, i.e. buying pets in Netherstorm and reselling them, although I suppose I should.
1) Conversion arbitrage
Look at your AH. Now look at the price of Borean leather. Now look at the price of Arctic fur.
60 Borean leather = 10 heavy Borean leather = 1 Arctic fur
Such a simple example, but highly illustrative. On my server, at a randomly selected time (well, as of this post), it's not even a particularly opportune moment for purposes of my demonstration and would STILL yield a nice profit. About 14g per stack of Borean leather and 60g for one Arctic fur.
This can be done with almost all ore into bars, provided you have someone who can smelt. Also, always keep an eye out for frozen orbs into eternal fires. If the price of frozen orbs deviates from the price of eternal fires significantly, buy 'em, convert 'em, and repost 'em.
It's an oyster with two tickets to that thing you love.
2) Market arbitrage
Hypothetically this should increase proportionally with any population imbalances between Horde and Alliance for your server. Mine is pretty Alliance-heavy. If you can orchestrate a circumstance where a friend can babysit the neutral AH with you (or if you have a second account), do some scans of your respective Alliance and Horde AHs. Both large ticket and small ticket items should have a disparity. If that disparity exceeds a percentage sufficient enough to make it worth your time, likely 20%+, then try to move items cross-faction. I know many pro auctioneers make a killing at this. Due to various constraints it's something I've dabbled it marginally, but am looking to really take up in the near future.