Behind the Price
Prices. They are argued over, considered, loved and calculated every single day. But what makes the prices in Neopia? Why can we get one stamp for 10 NP but another costs us 300 million? Like many questions, there is the long answer and the short answer. I'll be attempting to give you the long(er) answer, and try to give you the broad picture of what actually drives a price.
Supply and Demand
If you've read anything about economics, you've read about these. In basic terms, supply is how many of a certain item is in the market and demand is how many people want to buy that item.
High supply and low demand items are usually considered junk such as fishing prizes.
Low supply and high demand are usually the expensive items in the market that are easier to sell, such as stamps.
High supply and high demand are usually the cheaper times in the market with a high turnover, such as codestones.
Low supply and low demand, usually are expensive, and considered collectors items.
For every rule I mention, you'll probably be able to find at least a few items that go completely against that rule for any number of reasons.
A high supply usually means a cheaper price.
A low supply usually means a higher price.
A high demand usually means the item sells easily.
A low demand usually means the item is hard to sell.
Supply is just how many of an item we can see in the market for sale. We can know generally, but never an exact amount. Someone who wins a rare item from the Symol Hole after a couple of days may think it's a cheap junk item, like many dailies. Someone who gets the Peachpa Stuffed Potato in Faerie Foods, can't find any on the Trading Post may assume it must be expensive. When we talk about supply, we are just talking about our perception of whether there is a lot or a few or a certain item.
Another example of supply being just a perception of what the actual supply is, is someone has two Golden Mr. Irgo Stamps for sale. They sale the first for 200 million and then put the value up for the second to 230 million, as they know there's very few in the market, as they haven't seen many available for sale - supply goes down, price goes up. But, in truth, they have no idea how big of a percentage of the market their single stamp was - we know one left the economy, but that's it.
I'll talk about this a lot more, put prices, for a large part are driven by our expectations of the supply and demand of them and what we expect the price to do accordingly.
So, how do we say if supply is low or high? We do this in a few ways:
1. How many we can see. If an item is easily found in the Shop Wizard or Trading Post, we assume it has a high supply.
2. How easy the items to get. The more effort we have give to get an item, the higher we perceive the supply to be.
3. If the item is in continued supply. An item that is a one-off prize will be perceived as being in lower supply than an item that can be constantly achieved over years.
4. If the item is used up. An item, especially if new supply isn't becoming available, that is used such as books or stamps, will usually be perceived as dropping in supply.
If an item is no longer supplied and is seen as being used up or put on accounts that will no sell them, this will been seen as a further decrease to supply.
Like supply, demand is what we perceive the demand to be or what we think it should be. We have even less concrete evidence for what the actual demand is, than what the actual supply is as there's no numerical value we can place on it, we can say that there's about 500 Queen Fyora Stamps in the economy (I don't actually know, that's made up), but we can't say that the demand is about 30. What do you even measure demand in?
We base our perception of whether demand is low or high on a couple things:
1. How nice an item is. A wearable, for example, we can see as being very nice with lots of uses, we'll think many people will want it and perceive the value to be high.
2. If the item has a use. Stamps, with a popular use of collecting are seen to have a high demand. A rare toy, is only of interest to a gallery collector and is seen to have low demand.
3. How many people are looking for it. Sellers can base their idea of the demand on how many offers their item receives.
A Few Examples
Price: 200 million.
The Marafin was a plot prize in the Curse of Maraqua in 2005. Supply is seen as very low, as it was one of the higher-end prizes and it is no longer available to achieve. Demand is seen as high, as it's an aesthetically pleasing petpet. These two combined drive the price very high.
Queen Fyora Stamp
Price: 50 million.
The Queen Fyora stamp is a rarity 99 stamp that sells in a fast shop, while also having a popular use of being albumed and used for an avatar. It's continued supply does stop the price from rising as high as that of the Marafin, but it's still expensive.
Full Techo Armour
Price: 1 to 2 million.
Full armours (they are generally very similar) sell in a reasonably fast shop, Defence, limiting supply. Although, as the Battledome has become less popular the demand has decreased, dropping the price considerably as the previous group of potential buyers is no longer there.
Price: 2,600 NP.
Codestones are easy to obtain through the Battledome, therefore a high supply is available. They are also popular to use for training, increasing demand. The demand increases the price beyond that of a junk item, but not much more due to it's availability.
Rotten Left Shoe
Price: 1 NP.
The Rotten Left Shoe is easy to obtain through fishing, increasing supply. They also have no use, meaning a low demand, these together mean it has the lowest price possible.
The Buyer and The Seller
There's a lot more to what makes a price than supply and demand. There's also those who are buying the items and those who are selling the items and what they both want from prices and what they expect the price to be.
Generally, the buyer wants the lowest price and the seller wants the highest price. The price of an item is usually the point at which a transaction will be made without the price being generally considered as unusually low or high. In other words, the highest the buyer will go to meet what the seller wants, and/or the lowest the seller will go to meet what the buyer wants.
Whether a price is considered unusually low or high will usually be considered on our own perception of what the price should be, the price of other items available and the point at which we would buy or sell the item ourselves.
Patient and Urgency
A patient buyer will be willing to look at multiple sellers, waiting to find one that is willing to drop their price the lowest.
An urgent buyer (such as one on a one of Jhudora's quests) will snap up the first one the see, buying higher, although most will still avoid the very highest prices, seeing them as a rip-off.
A patient seller will be willing to wait for a buyer who is willing to pay more for their item, causing a higher price.
An urgent seller will sell their item faster for a quick profit, resulting in a lower price.
Overall, while the price of an item is a single number, what people are willing to buy and sell it for is a much broader spectrum, with what they would like to buy and sell it for (as opposed to what is realistic) is a much wider spectrum again.
Prices on the trading post, auctions and shop wizard are set by the seller. The buyer comes in to haggle against the price and to dictate whether an item can sell at a certain point. If anything, prices that are listed are higher than what items will be sold for, on average, simply because the buyer will not go over the listed price, but rather under. A seller can not expect to sell over the price they themselves have listed.
Perceptions of Each Other
This comes into whether we think an item is high or low demand. If a seller is receiving lots of offers on an item, they will see this as high demand for the item. While a seller would usually not put the price up based on a few offers entirely, what the seller can, and will, do is pick the highest offer. This makes sense, as sellers will take the highest they can reasonably be offered. This continues as other sellers then expecting to get that same, higher, price.
The seller is limited by how much buyers will offer. There may be outliers who will offer much higher than other buyers, and a patient seller may wait for these, but there is a point no buyer will offer on an item. Two new Booktastic books were recently released. Say I get one in the first day and put it up for sale for 10 million. I reason that it's in very low supply so the price should be high. But no buyer would pay that much, so if I want to sell, I'm forced the come down in price.
The seller is limited in how high they can go by the buyer, and the buyer is limited in how low they can go by the seller. It's a two way street that makes a price.
Demand and Serious Buyers
I would quite like a Scary Tree Stamp. I don't have enough to offer on one, even in the lower limits of what sellers will considered, but I'd still like one. Does this mean I'm still part of the demand? I think we often count this want as demand, even if it really isn't. Far more people would like an item than can actually make a serious offer.
But this pseudo-demand still increases the price. The highest echelons of stamps are a good example of this.
Buyers have certain expectations. If a buyer goes to purchase a Scary Tree Stamp, that will expect a price over 300 million. They have that expectation that it is a rare and highly sort after item. People are willing to pay the highest prices for stamp avatars, and prices will continue to rise as buyers are willing to pay more and more.
Take the Island Uni Stamp, it's expensive, part of the incredibly expensive Mystery Island album with multiple expensive stamps to complete. Not many could afford to complete the album for the avatar, which is where the appeal comes from. The price is pushed up as we percieve the supply to be small and exclusive. We expect to pay top neopoint for stamp avatars and for as long as a few can pay hundreds of millions of neopoints for a single stamp, the price will continue to rise, as high demand and low supply. But really, it's just that sellers expect the price to rise and buyers expect that same and consign themselves to paying more and more.
It's the expectation that drives the price up, rather than what the actual demand is.
Inflation and Deflation
These are the outside influences, unwieldy and broad terms. In general, inflation is the price going up, and is good for sellers. Deflation is the price going down, and is good for buyers.
We often see complaints about deflation, although it isn't a bad thing in and of itself. We've just lived so long with inflation or prices being at a status quo that deflation is different and we haven't quite adapted. Sellers don't like losing profit, even if as a buyer, they enjoy the lower prices. It's a give and take.
There is always a reason behind inflation or deflation. They can effect a single item or a wide range of items. It's sometimes difficult to give a single, simple reason for them, but sometimes it's more obvious. When a certain act happens (usually taken by TNT in the form of an event or adding items to the market) we expect the price to go up or down. Sellers expecting the price to rise will price higher, and buyers will oblige. Buyers expecting the price to lower will offer lower, and sellers will oblige them.
Price: 100,000 to 7,000 (November 2014 to current)
This was caused by the new restocking system. The supply of the item was and is being increased. It's become an item that's fairly easy to get through restocking, and as buyers are able to have far more options when purchasing, the price drops dramatically. This has been a general trend, which is especially prominent in the lower rarities, that have become possible for many more people to obtain.
Price: 30 million to 25 million (2015 Charity Corner)
The Charity Corner increases the supply of items, especially the r90 to r99 category dramatically. An increased supply means buyers expect decreased prices and sellers are obliged to sell lower, especially if they are looking for a quick profit, which many are. After the Charity Corner, prices rise steadily as the stamps are albumed and the sellers who were willing to go low and not wait for a higher offer have sold their items.
Tropical Fauna and Flora
Price: 80 NP to 50,000 NP (2015 Charity Corner)
This was the other symptom of the Charity Corner. This book suddenly had a use with potentially huge profits, meaning a much higher demand. The first buyer purchases all the books under 100 NP. The second only sees books for over 100 NP and goes up to 500 NP. The third only sees books for over 500 NP and goes up to 1,000 NP, and so on. The price hits a limit of around 50,000 NP when the books will no longer sell as easily. The sellers put the price that the highest point where they know they can sell.
Alien Aishas Stamp
Price: 300 NP to 150,000 NP (2009 to current)
This price increase happened, in fact, very quickly as the stamp was retired. Sellers assume that and start to buy up investments, driving the price up. But there was and still is hundreds in the markets - it's an easy stamp to find. It's jumped up to around 250,000 recently, for me, purely on the expectation that supply should be decreasing and therefore the price increasing, rather than an actual, significant drop in supply.
The most common thing we base our own prices on is other prices. We price our shop according to other prices on the shop wizard. We price our trades according to other prices on the trading post.
Being Competitive with Each Other
This is one of the most common ways a price is established. A seller needs to have one of the lower prices to make a sale, as a buyer will always go for the cheapest available to them. People buy from the first shop listed in the shop wizard, not the last. To make a profit, sellers need to actually turn items over and they can't do this without being competitive with other sellers. In broad terms, this pushes the price down.
Being Competitive with Shops
Sellers are forced to become competitive with shops when the items is incredibly easy to restock. Prices for these are usually slightly under the price they restock for, so sellers can stay competitive against shops and make a minimum loss. If the price drops past this, it's usually because the item is supplied somewhere else as well.
The Triple Tier Space Faerie Cake is a good example. It stocks regularly for 10,000 NP in a slow shop and could be expected to be 9,000 NP, but it's given out by the Battledome and premium scratchcards, dropping the price further to 900 NP.
The biggest place of established prices is the Hidden Tower. It's one of the reasons the Baby Paint Brush is a staple of the trading post. They are largely used as tokens in place of neopoints for trades that go above 2 million. The Hidden Tower holds the price as sellers won't go to far below and buyers won't go at all above the price the Hidden Tower sells them for. I talked about it a bit before, but it's expectation that a certain item will be a certain price.
What exactly makes a price is a hard thing to pin down. We can see general trends, but we often have no way of measuring them. Prices are, generally, established by what we expect the price to be and what we want the price to be.