The efficiency of markets is an important concept in investment management, but it is also one that can result in lively debate. It is a layered discussion that spans decades of market theory, but in this context it is employed narrowly to describe the price relationship between two related items on the GTN. An efficient market would not allow anyone to buy an item off the GTN and immediately sell it to an NPC vendor for a higher price, because the player who listed the item for sale behaved irrationally. However, we see that on a daily basis on most servers so I’ve begun looking for other inefficient segments of the GTN to discuss.
The type of efficiency that I’ve been looking for primarily are the relative prices of related items on the GTN. If an item can be directly converted into another via crafting or a vendor, there should be a rational relationship between their GTN prices. For instance, the earlier discussion of Augmentation Kit MK-10 and Augmentation Slot Component MK-10 revealed surprising efficiency in those related items’ prices. Price inefficiencies occur in those materials, but tend to be fleeting and require large stockpiles of both to exploit for profit since the conversion time is significant to craft kits from components. Another important distinction is that while components can be turned into kits, the reverse is not true, which can create pricing issues in the short-term if there is excess kit supply that cannot clear the market through completed sales. An excess of components that drive prices below efficient pricing relative to kits can be resolved by crafters buying components at this relative discount and crafting kits for sale on the GTN, but the reverse cannot occur so under-pricing due to supply gluts in the finished product market are a rational inefficiency and to be expected during short-term time periods.
I’ve been spending an inordinate amount of time decorating my strongholds this week and in the process spent more time looking at the prefab prices on the GTN than I had previously. Theoretically, the pricing of the items you can buy with the Universal Prefab MK-1 item from the widely accessible Universal Prefab Vendor should be even more closely related than the prior example. There is no time required to convert Universal Prefab MK-1 to the 10 items that can be bought with that item:
- Ancient Library Archive
- Barracks Bunk Bed
- Luxurious Rug (Blue)
- Networked Security Monitor
- Planter: Executive’s Shrub
- Sign: Full Gate (Purple)
- Sign: Full Gate (Red)
- Small Cafe Table
- Starship Chair (Tan)
- Voss-Ka High Back Chair
The lack of crafting time required should reduce price inefficiencies, although the issue of one way conversion exists just like the previous instance. However, if anything that should create lower prices in the markets for the end products since a supply excess can build up and the only mechanism for clearing the supply is lower prices to increase demand. The prices of Universal Prefab MK-1 vary a fair amount over time in my limited watching of it, but there is a high likelihood that I’ll be adding it to the upcoming expansion of tracked items in my GTN database now. The price range has typically been 25,000 to 35,000 for the lowest listed units on most servers over the weekend, so I will use 30,000 as the approximate GTN norm for Universal Prefab MK-1 prices until data supersedes that assumption. That means that we would normally expect to see the 10 items listed above priced below that value and rarely above it since any player can buy the input item and obtain the resulting item with no additional cost or effort (visiting a fleet or stronghold vendor is hardly effort), but this is not what appears in reality.
There seems to be a general lack of understanding this relationship by GTN buyers because the lowest listed price for these 10 items ranged from 75,000 to 250,000 for these items over the weekend (mostly checked on Jedi Covenant). As an experiment, I accumulated enough Universal Prefab MK-1 to buy each of the items and list them for sale on the GTN. Some items had no current listings and others had very few, so I mostly listed them at 100,000 for ease, but none have sold as of this morning. One answer for the inefficient pricing could be lack of demand, because a market without buyers is no market at all and offering prices are meaningless data point in that scenario. It seems unlikely given my experience selling decorations though, the demand for these items broadly seems quite strong, so it would be quite odd if no demand exists in these 10 items.
In the meantime, always check the price of the prefab component before buying any decorations that comes through that system. There is a fair chance that you can buy the prefab component much cheaper than the end product you’re seeking at almost every quality level and server based on my anecdotal research this weekend. This is certainly not limited to smart buying though, the takeaway for sellers can be just the opposite. These inefficiencies create opportunities to potentially sell the decorations at large profit margins rather than crafting and selling the prefab itself, just don’t buy too many decorations until you test the waters and find demand for the decorations at profitable price levels for yourself. One final thought for sellers is actually to not sell the Universal Prefab group at all, because the unit prices of the Synthetic and Industrial Prefabs are nearly as high even though it takes one of each to make a Universal Prefab. If you’re trying to make money crafting these prefab items, there appears to be more profit in the first crafted tier rather than combining those into the top tier crafted prefab, there’s no amount of critical crafting possible that would align the values here.
That’s all for the moment, but I wanted to get something poster this weekend. Life has taken a lot of my time away from the blog this past week, but I’ve still collected a lot of data and will hopefully return to daily content in the next week or so. As always, thank you for reading!
– Andrew | SWTOR Economics