The Auction House Explained

  • #1
    The recent flood of information we had has left many of you shocked. Skill points removed, traits reworked, new pvp mechanics, banners, shared stashes etc. etc. But many of you are probably most interested, or hesitant, regarding the DiabloWiki.com - auction house auction house (abbreviated AH) system that will allow players to trade their items in exchange for real money.

    Actually, I'll go out on a limb here and say that many of you are really pissed at Blizzard right now. But before you condemnd Blizzard of sacrilege, we should take a closer look at what this system will really mean for the players.

    The Basics First
    Buying
    Selling
    Example
    You can use the cash AH without spending a dime
    It doesn't matter which AH you end up using anyway
    Added bonus: It eliminates third-party selling
    I don't want this crap in Diablo
    Potential Hazards
    Farmers
    Hacking
    Conclusion

    The Basics First
    Blizzard has revealed that there will be two auction houses available to players through the Battle.net interface: one which uses in-game DiabloWiki.com - gold gold as a currency (just as the WoW auction house does) and one which uses real world money such as dollars, euros or similar depending on which region you play in.

    Buying
    In order to buy items, all you have to do is transfer over money to your B.net account from your credit card, which will convert it into e-balance. You can then go right ahead and bid on items with your e-balance. If you win the auction, your bid is automatically subtracted from your e-balance and you get the item. If you bid on an item but someone else outbids you, it will cost you nothing. This is true for both the gold and cash AH systems, the only difference between them is that in one you will use actual money.

    Selling
    In order to sell items, it's a little more tricky. If you want to put up an item for sale, you have to pay a fee. This fee will be subtracted from your money whether you succeed in selling it or not and given to Blizzard. In the gold AH, this fee is a gold sum (again exactly like WoW), and in the cash AH it's your e-balance. This fee is set at a fixed nominal value (the exact amount we do not know at this time). If you don't manage to sell the item, it will remain in your stash and you can try to sell it again, but the fee will already have been removed from your e-balance. If you do sell it however, an additional selling fee is also applied and given to Blizzard, and afterwards one of two things can happen.
    By default, money that people buy items for will be added to the sellers e-balance (or gold total, if they sell in gold). However, it will also be possible to set up your account so that it will be added your credit card. This will require adding a third party payment service to the account to handle the actual transaction. Blizzard is currently negotiating with potential companies at this point in regards to who will handle this service, so at this point we don't know who it will be or in what regions they will operate. However, it will be possible to make money selling items in Diablo III. What will not be possible, however, is to convert your e-balance back into cash. So if you sell an item and haven't set up your account to give you cash, it will increase your e-balance instead. That e-balance cannot later be withdrawn as cash, but it can be used to buy other items and anything in the Blizzard store, including games and WoW subscription time.

    Blizzard has also stated that every player gets a number of auctions which allows them to put up cash auctions without paying the nominal fee. It's unclear whether this is a fixed amount for each account (x free auctions in a lifetime), a fixed amount concurrently (x free auctions at any one time) or a recharging value (x free auctions every week), but Bashiok has hinted we might be talking about a set number each week. In any case, using such a free waiver will provide you with the possibility of making money without risking a single cent. We'll get back to that further down.

    Example
    (NOTE: CONTAINS ENTIRELY FICTIONAL NUMBERS I MADE UP FOR THIS EXAMPLE.)

    Here we have three people: Sixen, Scyber and Nektu.

    Sixen has put up a leather cap for auction for 10$. In order to do this, he had to pay a nominal listing fee of $1 to Blizzard. Scyber sees this leather cap and decides to bid $10 on it. A couple of minutes later, Nektu sees the same item. He thinks it's worth more than $10, and bids $12. Scyber thinks anything over $10 is too expensive, and does not bid any more. The auction runs out a few hours later with no bids more bids being placed, and Nektu wins the item.

    At this point, $12 are subtracted from Nektu's e-balance while nothing happens to Scyber's e-balance. The selling fee, in this example also $1, is subtracted from Sixen's $12, which means he has made $10 total on his auction (-$1 listing fee, -$1 selling fee)

    Under normal circumstances this would be added to his e-balance, but if Sixen has also set up his account to forward him cash, the third party payment service will at this point extract a fee from those $11, say $1, in order to administer the transaction and give Sixen the rest, in this case a total of $9.

    So Nektu pays $12, Scyber pays nothing, Sixen gets $9, Blizzard gets $2 and the third party gets $1.

    You can use the cash AH without spending a dime
    Using the cash AH is entirely optional. Players aren't forced by Blizzard to use it to trade for items. However, many of you fear that having a cash AH will make it so all the best items only sell for real money, thus in reality forcing people to spend money in order to get the best stuff. And while that's appears to be true on the surface, it isn't really. Here's why:
    If you sell an item using one of your free weekly waivers, you can put up an item in the cash AH, sell it, and generate a positive e-balance without spending a single $. With that e-balance, you can then continue to put up items for sale and, using your initial e-balance, pay for the listing fees. Once you accumulate enough e-balance, you can then buy items for real money without having put in a single cent yourself. So you sell that legendary axe and legendary armor you found and use the generated e-balance to buy an awesome staff instead. The system doesn't lock anyone outside of acquiring the best items, what it does is allow people to spend money to get items faster. But it's still perfectly possible for anyone to use the cash AH.

    And you won't even have to exchange legendaries for legandaries. If Blizzard has done its job properly and accomplished what was intended, which is to make gold a valuable resource, then people will want huge amounts of gold for their crafting, repair and vendor needs even if they only use the cash AH. And since gold can be traded on the AH, anyone will be able to sell gold for cash. Of course, the exchange rate between gold and cash is impossible to predict as of now, but in theory anyone will be able to make e-balance without spending any money. Provided there are some individuals out there who actually do put money into the system, some original e-balance has to be generated with actual money. But they will not have to be a majority.

    In fact, the cash system will establish an exchange rate between gold and real money. The exchange rate will be an approximation since there won't be any mods available to track all auctions, but the market will probably reach a rough value. At that point, every piece of gold you make in the game will be worth an amount of $ equal to the exchange rate. This money cannot be taken from your e-balance (can't make e-balance into cash) but it can be used to buy items and blizzard products.

    It doesn't matter which AH you end up using anyway
    What did you say? Each piece of gold dropped will be worth a certain amount of real money? Not only does this mean that you are tecnically making money as you play, it also means that whether you use the gold AH or the cash AH will be irrelevant. The concept is called Arbitrage, and for those of you not accustomed to economics I'll explain how it works.
    Let's say that I find a legendary axe that I don't need and thus want to sell. I can either sell it for gold or e-balance. Looking in the AH, I see that there are incidentally ten axes, five in each AH, currently up for sale: five go for 2000g and the other five for $20. But I decide to see what gold sells for, and I quickly see that 200g costs $1 in the cash AH. Afterwards I proceed to sell my legendary axe for $19, which the sold for gold will be 19*200=3,800g

    That's arbitrage, the possibility to profit due to price imbalances in different markets. Even if I didn't want cash, it's still a better option for me to use the cash AH under these circumstances, since it gives me more gold. The next thing I do is naturaly to buy the other five legendary axes for 2,000g each, sell them for $19 again, essentially giving me 5*(3,800-2,000)=9,000g profit without having killed a single monster.

    This will of course not last, since eventually other people will figure out that the legendary axe is underpriced in the gold AH and correctly adjust their prices. I probably couldn't even have sold those five axes for $19 again, since I essentially bombed the market by doubling the supply of those axes. But that is exactly the point. This kind of equilization will happen continuously across all different items for sale in the two markets, and will work to create a stable exchange rate between gold and $. And when that has happened, it won't really matter which of them you decide to trade in. Even if you consider yourself a purist and never so much as look at the cash AH, the prices you see for items there should be same as those seen in the cash AH.

    Perfect equilibrium is generally upset by various factors such as transportation costs, taxes, varying legislations between markets, expiration dates on products etc. In the future Diablo economy many of these are removed: the the flat fees applied to purchases are a transaction cost and will generate some imbalances between the markets, but that's about it. In the end, it will matter little which one you actually use.

    Added bonus: It eliminates third-party selling
    But that's not everything the AH will accomplish. The purpose of the AH is to eliminate third-party selling of items and the inherent uncertainty that follows from using such sites. I will quote Don here:
    Quote from "Don_guillotine" »

    Well in D2 the market essentially worked just the way this real money AH will. Every serious player used D2JSP for trading because of the sheer effectiveness of it. And you could either buy forum gold for real money or sell items for forum gold. There was no way to convert forum gold back to real currency however.

    D2JSP was really easy to scam in (since you had to do the trade in-game and giving the currency in the forums) if you weren't careful. The site was also corrupt (they gave gold to their friends who didn't pay for them) and so forth.

    Most Diablo II veterans are familiar with D2JSP and the immense use it had in facilitating trade in Diablo II. It wasn't perfect, but it was much better than what Diablo II offered and allowed buyers and sellers to find and trade with each other using a (relatively) stable currency.

    With Blizzard now running a cash AH, they've established a low-risk market. Blizzard will in this case act as the insurance of every transaction: if you sell an item and the buyer for some reason has no money, you will still get your money and Blizzard takes that financial hit. All transactions will be guaranteed by Blizzard, which will facilitate a safe and secure trading environment. In addition to that, since Blizzard will not be selling any items and since the exchange rate between gold and $ will be determined solely by the players in a region, Blizzard will have no way to influence it and purposefully generate a corrupt environment. In addition, the cash AH is a much more convenient method of trade, meaning any competing sites will have a hart time, well, competing.

    I don't want this crap in Diablo
    So far I've explained why you won't be left out of the system and why you won't have to spend real money. But these are all technical arguments. A fundamentally different argument people raise is that bigger wallet = better character. Most comments seem to counter this with "dis would happuned aniway, deal with eet" but that's not entirely true. Yes some people would have bought items for money, but you could at least feel that Blizzard did not support such actions and that an environment where no monetary benefits in RL would ever affect your own gaming experience existed. But "legalizing" it so to speak will with certainly cause a larger percentage of the total gaming population to at least consider engaging in these activities.

    And to that, there's really nothing I can say. Because it is true that this will happen and that it will most likely affect how you view the game. Perhaps try to ignore other people's items? Kick their ass in PvP regardless? Secretly gloat that they're giving you money for your items? I don't know. Every change to a game is bound to be unappealing to some players unfortunately.

    Potential Hazards
    Finally we have the issue of the various kinds of potential risks this system faces: "chinese" farmers and hacks (particularly bots).

    Farmers
    The first fear is that loosing the restraints of the system will invite countless gold farmers in China and similar to pour into Diablo now that this is allowed. And at face value, we can say that there's no reason for such farmers to reduce in number because of this system, and there's also no reason Blizzard can ban them for. After all, all they've done is buy the game and play it according to the rules (working conditions and such aside, but there's no way for Blizzard to control that).
    How will this affect Diablo III? Well, under normal circumstances such farmers operate in a black market outside of the general trade system. They are competing against each other in this environment, but still away from the main body of trade occuring in the general game.

    Now however, every Diablo player will become a potential customer, and since the AH will be anonymous it will be impossible for you to tell whether you're buying items from a Chinese farmer or not. Of course, whatever items they generate will have to compete with the prices of every single item that every single player puts up, and the people who previously had to go to them for gold or items can now instead trade with the real players, thus hopefully pushing down prices and making it less profitable for them. Still, it will probably lead to a greater amount of items being generated, but so long as the problem of duping doesn't reappear, it shouldn't be a problem.

    Bots
    Botting is a second potential problem, one that doesn't really involve any running labor cost other than your electrical bill. Unlike farming however, this is actively prevented by Blizzard and we can only hope that their experience dealing with botting in WoW and SC2 has paid off and will allow them to contain this potential problem well enough. Has this cash AH given botters a bigger incentive? Undoubtedly. Do I think Blizzard can handle it? Yes, otherwise they've done some really terrible estimates prior to announcing this system.

    Conclusion
    Will this new cash AH force you to spend real money? No.
    Is it certain to work/flop? No, neither is certain.

    No one has done this before, and so it seems unlikely anyone can guarantee an outcome here. Individual future situations are not that easily prognosticated. But I don't think the outset is all that bad either. What it will do is to hopefully lead all trades to be handled through Battle.net, which will generate a more stable economy, a larger economy of more buyers and sellers, a more liquid market and an opportunity for people who want to spend money on items to do so freely while at the same time allowing people who do not want to spend money to still generate a net profit, and more importantly, still interact with the entire trading community regardless of financial situation. The problem will be accepting that people with more money can buy better gear, but if you can do that you should not be worried about what this system can bring.
    DiabloWiki.com - PlugY PlugY for Diablo II allows you to reset skills and stats, transfer items between characters in singleplayer, obtain all ladder runewords and do all Uberquests while offline. It is the only way to do all of the above. Please use it.

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  • #2
    Very well explained. All Pros/Cons in one spot, nice job Phrozen. There's still gonna be a lot of bitchin about this, but nothing we can do now I guess.
  • #3
    This is just trying to justify a very profitable system that has a lot in common with gambling. This was never right, legal, 3rd party or by Blizzard, as far as I'm concerned. Anyway, this is all quite low to me, and everybody knows what I think about this.

    In any case, good post, it does happen to be useful and concentrates some needed information that some people are unaware of.
  • #4
    Thank you Phrozen,

    GREAT deal of information at such an early date and well explained, you catz rock.
  • #5
    Awesome write-up. I hope this alleviates some of the fears that people are having. I really have no problem with the real money AH.
    My place really was here. I was too foolish and stubborn to notice. But, what I truly hoped for then was here. Why do I always realize it When I've already lost it.
  • #6
    Thank you for trying to settle some of the rage, Phrozen. +1 to you.

    Honestly, I think everyone is mostly just worried about being able to instantly gear out a character with a credit card and no skill, but they need to remember that somebody has to find this item and decide that selling it for cash is more beneficial than salvaging, selling for gold, saving it for another character, or giving it to a friend.


    Chinese Farmers may be able to farm gold fairly easily, but if they have limited Magic Find as well as it seems, they are not going to be able to get Legendaries left and right like in D2, and they have severely limited the teleport functions of every class.
  • #7
    Nice post. Kinda wondering if I should just ignore the real money AH or try and make a penny or two ;)
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  • #8
    Would "Chinese Farmers" really be an issue if our game playing is separated by regions? How can a Chinese farmer sell stuff on my server if he isn't in the region to begin with? Do we choose our region at start up, or is it automatically assigned to us by where we live?
  • #9
    Very clear and easy to understand. I'm sure this will benefit almost every person who reads this. +1

    Now I'm just waiting on the conspiracy theorists to start saying that blizzard will employ certain people to sell items and make money for them :hehe:
  • #10
    "And you won't even have to exchange legendaries for legandaries. If Blizzard has done its job properly and accomplished what was intended, which is to make gold a valuable resource, then people will want huge amounts of gold for their crafting, repair and vendor needs even if they only use the cash AH. And since gold can be traded on the AH, anyone will be able to sell gold for cash. Of course, the exchange rate between gold and cash is impossible to predict as of now, but in theory anyone will be able to make e-balance without spending any money. Provided there are some individuals out there who actually do put money into the system, some original e-balance has to be generated with actual money. But they will not have to be a majority.

    In fact, the cash system will establish an exchange rate between gold and real money. The exchange rate will be an approximation since there won't be any mods available to track all auctions, but the market will probably reach a rough value. At that point, every piece of gold you make in the game will be worth an amount of $ equal to the exchange rate. This money cannot be taken from your e-balance (can't make e-balance into cash) but it can be used to buy items and blizzard products."


    This states that it will be really a madness. In a system with infinite resources, create gold will just unvalorize it. If you want Bow XXX wich costs 10€ in gold value could be go long as 1million or 2million gold. Since gold will get cheap by buying it, and it's near costless to get than payed items, this for sure with time will be like dollar vs Afghani with they are so undervalued than you need many many many Afghani to buy a dollar. That mean if you need to reach some current price standard, you may be farming gold for over a year to get one single legendary item for free from the AH. Nothing obtainable easily from the game will have currently a good value stat. Unless Blizzard make this last "king of coins" replacing it for the real money option.

    I see no point this could make people not invest a single penny on the game. You want it trough gold, gold can be bough so its value in € should match the value of the priceless items. If a priceless item its valued for 10€ or 90€, then the gold should cost around .2 since you can create a faster rate gold, and sell it, it lowers its value until the point that, there's no way to trade gold for items since anyone can access 10k gold for let's say 0.20 cents €.
  • #11
    Long time lurker, first time poster.

    I am glad someone finally consolidated many of the hopes and fears associated with these new developments, but I would like to add that Blizzard is directly inflating the prices of all transactions involving the cash auction house. Just because you never enter a dime of your own money into the system, Blizzard is profiting from this arrangement. In essence when you sell an item in the cash AH, you are working for Blizzard to sell a piece of their intellectual property for them. They reap the benefit on any and all transactions which occur with real money.

    They have not yet divulged how much these posting/transaction fees will cost, but we cannot ignore that the cost, while possibly negligible in perception, is being increased due to 'Blizzard's take'.
  • #12
    Quote from Meera

    "And you won't even have to exchange legendaries for legandaries. If Blizzard has done its job properly and accomplished what was intended, which is to make gold a valuable resource, then people will want huge amounts of gold for their crafting, repair and vendor needs even if they only use the cash AH. And since gold can be traded on the AH, anyone will be able to sell gold for cash. Of course, the exchange rate between gold and cash is impossible to predict as of now, but in theory anyone will be able to make e-balance without spending any money. Provided there are some individuals out there who actually do put money into the system, some original e-balance has to be generated with actual money. But they will not have to be a majority.

    In fact, the cash system will establish an exchange rate between gold and real money. The exchange rate will be an approximation since there won't be any mods available to track all auctions, but the market will probably reach a rough value. At that point, every piece of gold you make in the game will be worth an amount of $ equal to the exchange rate. This money cannot be taken from your e-balance (can't make e-balance into cash) but it can be used to buy items and blizzard products."


    This states that it will be really a madness. In a system with infinite resources, create gold will just unvalorize it. If you want Bow XXX wich costs 10€ in gold value could be go long as 1million or 2million gold. Since gold will get cheap by buying it, and it's near costless to get than payed items, this for sure with time will be like dollar vs Afghani with they are so undervalued than you need many many many Afghani to buy a dollar. Nothing obtainable easily from the game will have currently a good value stat. Unless Blizzard make this last "king of coins" replacing it for the real money option.


    infinite resources - maybe... but i really doubt there will be many people putting hundreds of extra dollars into the game after buying it just to buy more gold(Edit: I would hope this is the case, but I'm sure they're out there).. WoW and other games are different in that you are already paying to play, but currency was very important and evolved as the game grew- evolved with limited inflation more importantly. A stack of resources varies from server to server, but relatively stays the same.
    If Diablo 3 is anything like they are describing to us right now, gold is going to have great purpose to building your character in order to craft, customize, etc... And gold is infinite if you are actually playing the game... Spending cash to rush the development of your character wont outweigh the alternative - level the character the traditional way, and when you are high enough level to craft more, you will have plenty of money saved up already.

    Here's a post on possible limitations on auctioning based on character level... I think this may be a solution on some fronts.
    http://www.diablofans.com/topic/26396-ah-items-restriction-based-off-of-difficulty/
    Does anybody really know what time it is?
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  • #13
    I think it's an interesting concept.

    And i also like the idea that when I eventually stop playing the game, i can just sell all my achievements and work for some real money.

    I guess the saying "Time is Money" will really apply here =P

    But i doubt i will use the cash AH to gain money except like i said when i quit the game.
  • #14
    Quote from Toddzilla1337

    Would "Chinese Farmers" really be an issue if our game playing is separated by regions? How can a Chinese farmer sell stuff on my server if he isn't in the region to begin with? Do we choose our region at start up, or is it automatically assigned to us by where we live?


    It will be the same as SC2, so if you buy a game from a US store, you're locked to the US Region. That's the issue I had with SC2. I wanted a CE, but they were difficult to get in Australia, so I got it from Amazon in the US. So now I am region locked to the US.
  • #15
    I wasn't sure if I was going to play hardcore or not, but after hearing these news I'm quite sure I'm going to play hardcore once I've cleared the games a few times on non-hc.

    Smart move from Blizzard. I don't mind if some people buy items for money, but I do mind Blizzard encouraging it. I don't really see how it's worth comparing this to D2JSP, as this game WILL (hopefully) have a working in-game currency, unlike Diablo 2, and that was the ONLY reason D2JSP was so popular.
  • #16
    If people hate it enough, why dont they get a mass populous to dump 2 or three bucks in the system and make sure you have no e-balance remaining at the end of the day. Logically wouldn this flood the market so the value of the dollar is super low? So at least those little kiddies stealing their moms credit cards will be beaten senseless when she finds out they spent an outrageous amount of money. This will heighten the deterrent for people to buy with real money but because its connected to blizzard they will still shop there instead of a dodgy third party site.....right?
  • #17
    Quote from Toddzilla1337

    Would "Chinese Farmers" really be an issue if our game playing is separated by regions? How can a Chinese farmer sell stuff on my server if he isn't in the region to begin with? Do we choose our region at start up, or is it automatically assigned to us by where we live?


    i was wondering about this too
    "We all need mirrors to remind ourselves of who we are"
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  • #18
    "so at this point we don't know who it will be or in what regions they will operate."

    Nice! So if my region dont have support for it gg for me?


    Those explanations didnt solve anything. Who cares if we can have limited free auctions every week (in the best scenario), your offers will last for just one day or a little more. With so much competition with chinese farmers you will most likely wont be able to sell your items before your auction expires and you loose all your free auctions. The farmers in the other hand will gladly pay Blizzard to refresh their offers and keep them in the top list of offers. Blizzard is minimizing (maybe on purpose?) the gigantic quantity of farmers in this world, they can and WILL dominate the economy.


    Quote from PapiLouis

    Very clear and easy to understand. I'm sure this will benefit almost every person who reads this. +1


    The only thing that will make me buy this game if they dont remove the real money thing is a decent amount of free auctions every week. They will probably wont do that since one of their currently options is a lifetime X ammount of free auctions.

    Now I'm just waiting on the conspiracy theorists to start saying that blizzard will employ certain people to sell items and make money for them :hehe:


    You really, REALLY think Blizzard wont do that? Dear dear...
  • #19
    I would have been fine, ecstatic, if it were just a normal in-game gold based AH. But like the OP said, Blizzard "legalizing" the ability to spend cash for items... that's a deal breaker. Sorry, but I just may not play the game for this very one reason. QQ and tell me to get over it, I don't care. You are the ones that will end up spending money on virtual items, and I'll be the one LOL'ing at you in the end.
  • #20
    This is such an interesting economic experiment.

    The first thing to note is that we are expecting a lot more players than were in Diablo 2.

    Second of all, it's a market, so it all comes down to supply and demand.

    From what we have heard, crafting will be the main source of end-game uber items (realistically, aside from the first 2 weeks, this is what the AH will be about), and crafting requires lots of gold.

    If farmers are going to be viable, they would need to be continually crafting to get these end game uber items. Assuming they are logical, they will exploit any arbitrage in the Gold/$$$ AH to maximise their gold, for crafting potential, but this won't last long if there are many people doing it.

    So, in order for farmers to create large numbers of high-end items, they need lots of gold/crafting materials, which they *might* want to pay cash for, or (more likely) list any sub-prime items on the gold AH. As for the $$$ AH, because there will be listing fees and selling fees, I think it won't be as much of a success for farmers. Remember, the total amount of $$$ in the game in terms of e-balance is only equal to the sum of the amount of $$ that people put into the game (at an absolute maximum, if anyone cashes out, then the total amount of e-balance is less) and if people don't cash out, then you just have e-balance continually being traded throughout the life of the game, with Blizzard getting a cut of every item bought/sold. What might originally sound like a good money making scheme for farmers may not actually work.

    In the end, it comes down to the rarity of items.
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