tl;dr -- everything changes on Inferno, so scroll down and read only that part if you're in a tl;dr sort of mood. I apologize for any typos/grammatical mistakes; I should probably get back to work, and that guilt is enough to prevent me from proofreading this super carefully.
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So, I sort of agree with the linked post, but I feel it doesn't apply to the game as a whole, rather only to certain sections and to certain demographics. I'll explain by digging into the presence/shape of the reward and frustration loops (which can co-exist, imo!) for each difficulty level both with and without use of the Auction House.
On Normal: The game is never very hard. As a result, the frustration loop is non-existent for both AHers and non-AHers. Players using the AH and players not using the AH are pretty much in the same boat, though decent items are inexpensive enough in this level range (1-30) that a player can pretty easily flatten the reward loop entirely (and thus never find anything truly useful to him/her) by purchasing new "good" gear every few levels that's very likely to blow away anything they're going to find. tl;dr: on Normal, the AH serves only to destroy the reward loop (and removes all challenge from the game as well).
On Nightmare: The game begins to get more difficult; you realize things are a bit more serious the first time you see an elite pack with potently synergetic affixes. The increased challenge does not frustrate most players, and for these players the game (as well as the effects the Auction House has on rewards/frustration) is the same as on Normal. For inexperienced players, however, the effects explained in the OP's post begin to manifest themselves. The game gets tough in some places, and the AH can alleviate this pain at very affordable prices. Using the AH creates a frustration loop because buying cheap, relatively powerful gear is easier than learning to play better, and as such the idea becomes to "out-gear" rather than "out-think" challenges. This dampens the peaks of the reward loop significantly for AH users. Nightmare is very doable without using the AH, and as such many users are unaffected and the game still feels a lot like Diablo II.
As of Hell, D3 becomes much, much harder. Elite packs with deadly affix sets become common and characters can be killed very quickly at times whether or not they're prepared for what's coming. Hell, I think, is the part of D3 that is most negatively impacted by the Auction House. Hell is completable without using the AH, but it's hard enough/some parts are frustrating enough that many people will use the AH to augment their gear before finishing it (and will likely do so several times). Hell difficulty, IMO, is where the linked post really shines, and I think everything in the OP's article really describes this very well. Lots of people will use the AH to complete Hell, and as a result will experience the frustration loop and lack of a reward loop described in the post. Since the gear necessary to complete Hell is very affordable still, players can buy their way out of difficult situations and power through without the addiction that comes along with finding awesome stuff every so often.
If you've read this far, thanks! This is where the game changes.
On Inferno, the linked post doesn't apply. Starting with Act II, Inferno becomes incredibly difficult to the point where characters just "playing through" and even characters who have been farming (collecting gold and new items) for awhile in Act I are eliminated by foes instantly and frequently. Inferno is nigh-impossible (yes, some people have finished it, but the vast majority won't for awhile if at all) as it is intended to be and the absolute best gear is needed to progress without major pain.
This gear is very, very expensive, and most players won't be able to afford it. I don't have statistics to back this up (yet?), but imagine that gear quality follows a power law distribution in which there is a ton of crap and only very infrequently do the wonderful things pop up. The wonderful things are needed to progress on Inferno, so the demand for them is very high, higher even than it'd be if Inferno could be reasonably completed without them. The game is now different. Instead of being able to smoothly purchase the items you need as you go, there is a brick wall in front of you that says you must be THIS TALL to ride, and you're only half this tall. So how do you get THIS TALL? You farm.
You farm and farm and farm. The game becomes about total equippable assets. Say a suitable item for a given slot costs 1 million gold; 2x rings, 1x amulet, 1x chest, 1x helm, 1x boots, 1x pants, 1x weapon (2h for sake of example), 1x belt, 1x gloves, 1x shoulders = 11 items = 11 million gold. You don't need to find or trade for 11 suitable items; you just need to be able to purchase them. You feed the power law curve of crap on the Auction House by selling everything you think will sell for a reasonable price so that you can buy the super-expensive items you need to progress.
Here's the kicker: this means that the presence of the AH doesn't actually dilute the reward cycle! The inability to trivially purchase everything you need means that the items you find have full meaning. Even if you can't wear the good ones, you'll sell them or give them to friends who need them, building up gold and friend-goodwill s.t. they'll give you things they find as well. In short, the incredibly high bar set by Inferno combined with the rarity of the items needed to progress through Inferno balances with the effects of the AH in cheapening the reward loop, restoring the feel of Diablo IIness.
For those wondering about the Inferno frustration loop, I argue that the presence of the AH doesn't change it. Were it not for the AH, Blizzard would still find a difficulty bar befitting their highest difficulty. (It would likely be easier to compensate for having no AH -- or perhaps good rare items would drop more frequently -- but the difficulty would likely not change substantially.) In both cases, the very rare amazing finds are what pushes the player toward progression; in the AH case, the few major item find successes give the player the gold he needs to move on; in the non-AH case, the few major item finds are what you actually use. The reward loops then are awfully similar if not the same (hence the feeling of Diablo IIness).
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To sum up: for players who use the Auction House whenever it's in their best interest to do so before Inferno, yes, I agree with the linked post. The game is cheapened, the reward loop doesn't feel as good or doesn't exist, and a lot of the challenge is removed. This does, however, allow Blizzard to make the game more difficult for players looking for a challenge (as not using the AH through Hell is pretty tough!) while still making it possible for less experienced players (via using the AH). Perhaps that's part of their design, and they should have made it more obvious (like a recommendation not to use it for experienced players until later, etc).
That's where I think most people are wrong about inferno though. That difficulty rewards proper communication and group play. Sure, soloing everything requires a crap-ton of godly loot, but damage and defenses can be compensated by a proper synergy of group skills. Lack armor and resists? that Barb shout may just solve it. Your tank getting face-melted a lot? You could have a monk stack a 50% damage reduction debuff on the enemy. Your glass cannon wizard getting chased down? Have a witch doctor load up on CC skills. What I'm seeing everybody try to do is to gear up and go berserker on the enemy and it just doesn't work.
On Inferno the monsters scale quite massively with each and every player that joins the game. I believe it's 110% of hit points and about 15% of damage per player.
So your party have to synergize alot in order to overcome this scaling. This is further exacerbated by the Nephalem Valor buff's mechanics - a bonus to magic find you accrue after killing hard mob packs - which prohibits changing your skills and runes mid-game. Hence you cannot really have your party members leave and be replaced by someone of different class without losing the synergy (or the buff).
In solo play, of course, you don't have these problems.
Your post would be true if not for 2 huge problems.
1) You cannot get gear good enough for progressing through Act 2 Inferno from Act 1.
2) Items are actually absurdly cheap. It's the combat that is annoying. Other than the super geared barbs, every character past Act 3 Inferno is a wizard or demon hunter, whose every fight is a 10 minute kite or a reset.
Inferno isn't a challenge, its a stupid chore. Kiting is really easy and boring, and there are certain affix combinations a class will NEVER be able to kill. Kite and reset is how people play inferno. Or corpse hopping to kill the super easy bosses.
The only reason people have finished inferno is because people exploited their way past Act 2-4 inferno. Blizzard closed those exploits, but the people in A4 inferno then did non-combative farming (chests+goblins) which produced the gear you see on the AH and allows nonexploiting people to progress to A4 inferno.
If that's not totally broken, I don't know what is.
You effectively need 2 sets of gear for inferno: one for farming gold in Hell mode (particularly if you have access to Whimsyshire) and another for actually defeating the obstacles in inferno mode.
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So, I sort of agree with the linked post, but I feel it doesn't apply to the game as a whole, rather only to certain sections and to certain demographics. I'll explain by digging into the presence/shape of the reward and frustration loops (which can co-exist, imo!) for each difficulty level both with and without use of the Auction House.
On Normal: The game is never very hard. As a result, the frustration loop is non-existent for both AHers and non-AHers. Players using the AH and players not using the AH are pretty much in the same boat, though decent items are inexpensive enough in this level range (1-30) that a player can pretty easily flatten the reward loop entirely (and thus never find anything truly useful to him/her) by purchasing new "good" gear every few levels that's very likely to blow away anything they're going to find. tl;dr: on Normal, the AH serves only to destroy the reward loop (and removes all challenge from the game as well).
On Nightmare: The game begins to get more difficult; you realize things are a bit more serious the first time you see an elite pack with potently synergetic affixes. The increased challenge does not frustrate most players, and for these players the game (as well as the effects the Auction House has on rewards/frustration) is the same as on Normal. For inexperienced players, however, the effects explained in the OP's post begin to manifest themselves. The game gets tough in some places, and the AH can alleviate this pain at very affordable prices. Using the AH creates a frustration loop because buying cheap, relatively powerful gear is easier than learning to play better, and as such the idea becomes to "out-gear" rather than "out-think" challenges. This dampens the peaks of the reward loop significantly for AH users. Nightmare is very doable without using the AH, and as such many users are unaffected and the game still feels a lot like Diablo II.
As of Hell, D3 becomes much, much harder. Elite packs with deadly affix sets become common and characters can be killed very quickly at times whether or not they're prepared for what's coming. Hell, I think, is the part of D3 that is most negatively impacted by the Auction House. Hell is completable without using the AH, but it's hard enough/some parts are frustrating enough that many people will use the AH to augment their gear before finishing it (and will likely do so several times). Hell difficulty, IMO, is where the linked post really shines, and I think everything in the OP's article really describes this very well. Lots of people will use the AH to complete Hell, and as a result will experience the frustration loop and lack of a reward loop described in the post. Since the gear necessary to complete Hell is very affordable still, players can buy their way out of difficult situations and power through without the addiction that comes along with finding awesome stuff every so often.
If you've read this far, thanks! This is where the game changes.
On Inferno, the linked post doesn't apply. Starting with Act II, Inferno becomes incredibly difficult to the point where characters just "playing through" and even characters who have been farming (collecting gold and new items) for awhile in Act I are eliminated by foes instantly and frequently. Inferno is nigh-impossible (yes, some people have finished it, but the vast majority won't for awhile if at all) as it is intended to be and the absolute best gear is needed to progress without major pain.
This gear is very, very expensive, and most players won't be able to afford it. I don't have statistics to back this up (yet?), but imagine that gear quality follows a power law distribution in which there is a ton of crap and only very infrequently do the wonderful things pop up. The wonderful things are needed to progress on Inferno, so the demand for them is very high, higher even than it'd be if Inferno could be reasonably completed without them. The game is now different. Instead of being able to smoothly purchase the items you need as you go, there is a brick wall in front of you that says you must be THIS TALL to ride, and you're only half this tall. So how do you get THIS TALL? You farm.
You farm and farm and farm. The game becomes about total equippable assets. Say a suitable item for a given slot costs 1 million gold; 2x rings, 1x amulet, 1x chest, 1x helm, 1x boots, 1x pants, 1x weapon (2h for sake of example), 1x belt, 1x gloves, 1x shoulders = 11 items = 11 million gold. You don't need to find or trade for 11 suitable items; you just need to be able to purchase them. You feed the power law curve of crap on the Auction House by selling everything you think will sell for a reasonable price so that you can buy the super-expensive items you need to progress.
Here's the kicker: this means that the presence of the AH doesn't actually dilute the reward cycle! The inability to trivially purchase everything you need means that the items you find have full meaning. Even if you can't wear the good ones, you'll sell them or give them to friends who need them, building up gold and friend-goodwill s.t. they'll give you things they find as well. In short, the incredibly high bar set by Inferno combined with the rarity of the items needed to progress through Inferno balances with the effects of the AH in cheapening the reward loop, restoring the feel of Diablo IIness.
For those wondering about the Inferno frustration loop, I argue that the presence of the AH doesn't change it. Were it not for the AH, Blizzard would still find a difficulty bar befitting their highest difficulty. (It would likely be easier to compensate for having no AH -- or perhaps good rare items would drop more frequently -- but the difficulty would likely not change substantially.) In both cases, the very rare amazing finds are what pushes the player toward progression; in the AH case, the few major item find successes give the player the gold he needs to move on; in the non-AH case, the few major item finds are what you actually use. The reward loops then are awfully similar if not the same (hence the feeling of Diablo IIness).
--
To sum up: for players who use the Auction House whenever it's in their best interest to do so before Inferno, yes, I agree with the linked post. The game is cheapened, the reward loop doesn't feel as good or doesn't exist, and a lot of the challenge is removed. This does, however, allow Blizzard to make the game more difficult for players looking for a challenge (as not using the AH through Hell is pretty tough!) while still making it possible for less experienced players (via using the AH). Perhaps that's part of their design, and they should have made it more obvious (like a recommendation not to use it for experienced players until later, etc).