Greedy Goblin

Thursday, March 26, 2009

Monopoly

I wrote about it already, but this post made me collect my ideas about the topic. Such posts come up now and then. They "teach" the "great" idea for getting rich:

Select an item, buy up all of them below 120% (130, 150, 200) of the market price, and relist them all for your new price. Everyone will be forced to buy from you, so you'll be rich. Watch your item, if anyone lists below your price, buy that up and relist it.

First, as a rule of thumb: Never ever follow this trick! Ignore everyone who claim to get rich by this. You'll lose thousands if you try it.

The reason for the inevitable failure of monopoly attempts is simple: let's assume that the market was in equilibrium. The price was in the intersection of the demand and supply curves. If you increase it with a significant amount, the production increases, the demand decreases and you must suck the difference up.

Let's say 10 items were produced and bought at the market price. If you double it, 15 will be produced and 5 will be bought. To keep your price you'll have to buy 15 and sell only 5. Of course buying 15 costs more than selling 5. End of story, you are going down.


The second thing is to explain how can this trick survive. Why does it comes back again and again, despite being a complete disaster? It has two reasons:
  • If everyone who buys, sells and trades the item is dumb like a piece of rock, the trick may work.
  • If it works, it causes huge satisfaction, because all income is taken from other people and social people love to win over other people (as opposed to gain the same reward in same time with working). On the top of that it's about controlling the market, and social people love to control things, even if the benefit is small.

To see how dumb the others must be to let the trick work, let's see how many times could the trick be broken and lot of money made at the expense of the wannabe monopolist:
  • Let's say the market price was 50G, and the monopolist price is 100G. The producers can increase their income by increasing selling price. Instead of undercutting each other at the 45-55 range, they can list their warez for 70-80G and still the item sells quickly (the monopolist buys them). To fail to gain this income the seller must not check the market before listing the item. Note: Auctioneer automatically lists for market_price*1.2 if no items are listed in this range and "Enable price matching" is checked in. This move kills the monopolist by forcing him to buy items above the market price.
  • The producers can increase their income by producing more. If their item is quickly bought, and there are still no new items in the market price range, they should go back to farm/craft produce more and sell them. Even if they don't increase their sell price (as they should), they already had some profit included into their sell price. They can multiply this profit by multiplying quantity. This point kills the monopolist by forcing him to buy excess amount of stuff that he does not need or can sell.
  • The buyers can save themselves from losing money by simply waiting. The price will return to the equilibrium. This point kills the monopolist by denying him the point of his action: the income.
  • Anyone who has deposits of the item can make nice profit by simple shorting. He sells his items (or items borrowed from guildbank, friend) for much higher than the market price (10% below the monopolist price) so he gets large income. After the monopolist scheme collapsed, he repurchase the items at or below market price (and put the item back to the bank/friend). His profit is the price difference multiplied by the quantity moved. This profit is taken directly from the wannabe monopolist.
  • Anyone with some trading experience can make nice income by being "under-monopolist". If you find an item for sale before the wannabe monopolist, you buy it at market price and immediately relist at 10% below monopolist price. Your auction will soon be bought (either by a desperate buyer or the monopolist). You collect the fruits of the work of the monopolist. Obviously your profit is missing from the monopolist's purse. You can spice this move up by spamming trade channels for /2 WTB [item] for [monopolist price - 20%]. Lot of people will respond and you sell the already overpriced items to the monopolist for 10% below his price. If the monopolist notices your action and "overcut" you, he is buying items for very high price, killing himself. Not to mention that your spam alerts lot of producers and deposit-owners.

The main enemy of smart thinking is anger. When seeing an "evil" monopolist, people get angry instead of crushing his dumb nose into his own poop. If not just one or two people are not dumb, not individual people, but the invisible hand will get rid of the wannabe monopolist, without anyone noticing he ever existed.

There are some cases when the monopoly works. Not because of the trick, but external factors:
  • Being only producer: If you are the only one on the server who have the recipe, you can set a high price, since no one else can undercut you.
  • The market is about to shift, usually because of a patch. This case the "monopolist price" is actually the "new market price", and the very same steps are not monopoly attempts but investing.
  • Market of the fools: you can be a monopolist if your buyers are plain idiots. You are not a monopolist for someone who has more knowledge, so he can't even imagine why would anyone buy your stuff, therefore would not think of competing you. The point is that your buyers don't notice that they are doing something really stupid buying from you. Typical example was selling Ice cold milk during Winter Veil event. One of the quests were bringing the mentioned item to the NPC and the sorry noobs spent 1G apiece, although it was sold by every single innkeeper (including the one standing 20 yards from the questgiver) for 5 silver. No one undercut me, because no one else imagined that anyone would be so dumb to buy milk from the AH.


27 comments:

cryptfiend said...

The trick of course is to buy or bid under market and sell at normal price.

Plastic Rat said...

Glad to see a better explanation here. I've seen two articles on making gold with monopolies. One mentioned that you could 'Get your friends to help you spend a weekend creating a monopoly on a specific item'.

I've been sort of thinking about it, but something always just seemed odd about it. I mean, people are dumb.. but not THAT dumb. All it takes is one guy to see what you're doing and unload his entire stock under you. There just seemed to be so many dangerous holes in the idea.

I also thought to myself that I'd be delighted if somebody else tried to start a monopoly on anything I trade in, I have guild bank tabs full of some things I could unload.

It just strikes me as odd that I've seen this tactic mentioned on two respected wow economics sites now.

mute said...

@cryptfiend

While it of course differs from server to server, that trick is the ideal trick only. Generally you buy under the market price to sell under the market price again and this goes on until market price finally sets in a lower level. Then you feel another pressure from the market and vicious circle goes on.

Monopoly over items that can be produced by anyone can never exist. Mostly because there are enough actors in the WoW economy on a single server to prevent this from happening. I'm very glad it's like this.

In a normal economy and in my understanding, an expectation for a demand increase raises the prices even before the demand increase. However, I observe this is not happening in WoW nowadays. Take Eternal Earth for example. The demand for this item will -definitely- increase after the patch. But the prices are going down. On my server, prices went down for about 30% in the last two weeks. There may be several reasons for it.

One is, less demand. People are not buying Eternal Earth because the items they can produce with this material are not needed anymore and will be replaced. If this is the case, it's an excellent chance to stock the item because average price is lower than market value, you also expect the demand to come back (even stronger). Buy now, sell later. Period.

Two is, more supply. Producers predicted the demand for these items will rise and produced more. However, instead of stocking, they pushed their stocks to the market expecting crafters (or bigger stockers) will buy these items for later use. But then, when they see the prices are going down, they should stop, shouldn't they? They couldn't because there's a risk that the new market price will be set in a lower degree if this trend continues.

Three is, more competition. With expected increase in demand, more economical actors entered the business of Eternal Earth farming/buying the items and started selling the material instead of waiting. More competition resulted as a cutting-fight between several actors and market price fell nose dive down for 30%.

As I understand, times shortly before or after regulation change (patch 3.1 in this case) are times when you can make large profits but can also make large losses with simple reasons. A steady income sounds reasonable for a normal person, but for a businessman it is boredom. I enjoy being a businessman lots more at the moment than i used to be 2 months ago when the market was more stable. After all, it's just virtual money and the only thing I lose -in the end- is time. Imagine a market full of monopolists - you being one of yourself... That's bad...

Hirvox said...

The EvE version of the monopolist trick relies on the fact that there are a lot of people out there much richer than you. They don't particularly care if they get 50% less money for a particular item when they have hundreds of different items to sell. The opportunity cost of finding a better deal is simply too high.

Conversely, they don't chase bargains. Many players have billions in disposable income and thus won't even flinch if you sell commodities like drones (most of which cost less than a million) at 200% market price. They just want to get back to their moneymaking ASAP.

While those customers might seem to be stupid from the monopolist's point of view, the customers might have properly evaluated the tradeoffs and chosen logically.

Unglar said...

Gevlon, the only assumption in your post is that the market is in equilibrium, at the intersection between the supply and demand curves. Isn't that a rather big assumption to make? You've already commented that on your server the weekend is the time to sell, which suggests that the price is actually constantly moving and readjusting.
Maybe this is another reason why the monopoly idea keeps returning, because the market is always changing. This in turn suggests that a very short term monopoly could be worth pursuing? I'm talking about a single weekend in a niche market, before any other businessmen could react? Mind you, if you could predict that in wow when nobody else could, why not play the stock market!

pagb666 said...

I have dealt with people performing this stunt in the past. My tactic is to list a few of the given item at 10% lower than the monopolist. As you imagine, he/she buys them fast, then I list another few, and another, and another... after 4-5 postages, the monopolist got it, I have sold a couple of dozens of the item at a very good price and soon the regular people will buy my auctions!

Mahonnant said...

There is one more thing that works in terms of Monopoly : niche markets with low volume but steady demand (think cross faction pets for instance, or enchanters' rods), going for a quick buck.
Obviously you cannot do that for high-volume, high-profile goods because those are watched but it's quite easy to do this hold-up style for small niche.
For example the weekend market for enchanters' rod is quite good, you will always find a few people levelling their enchanter alt at those times. Just do a razzia on all available rods, relist them with a good profit, watch the market from then on but chances are nobody will catch up to you...
It's not a long term monopoly but short-term works for me...

Chris said...

I've been trying to find a "good" monopoly on my server for a while now, and finally found it last week - Bag of Jewels, the 24-slot JCing bag. None on the AH.

So I ran to Nagrand, bought the Consortium pattern and bought some mats. Made 10 of them for about 30g each, sold them for 70g each.

I've done it now for about 10 days, sold about 30 bags. I still haven't seen anyone else sell them.

Notmyrealname said...

The only time I've seen this work is for high-demand items in markets that are usually controlled by a few individuals when those players aren't present. For example, two farmers on my server provide 90%+ of all Northrend herbs on my faction by virtue of farming all day and undercutting casual farmers out of the market (One is professional overseas farmer, the other on disability).

One weekend, both farmers disappeared, supply dwindled away and someone enterprising bought up the remainder and relisted at 200%. By Tuesday, prices returned to their previous levels but for a very short window of time casual weekend players were buying at the inflated market price.

Agreed, not a wise strategy in general, but there may be small pockets of opportunity for someone who has deep knowledge of both the principal players in the economy and when peak periods of demand are.

Anonymous said...

My friend once made an absolute killing on Wool Cloth. In early 2007 he held a Wool Cloth monopoly for about 3 weeks on my server (Genjuros EU - alliance side) before he lost interest in the game. He earned quite a few hundred G prior to level 30, which at the time seemed like loads! He actually loaned me the money to buy my lvl 40 mount, even though I was higher level!

Not sure why his monopoly succeeded?

Perhaps because of the nature of the item. Wool cloth is largely gathered as you go rather than actively farmed, so not many constant businessmen, more 'bag clearers'. Also, because of the low unit value, the higher-level businessmen wouldn't be interested as they would have to farm the cloth in lowbie areas to increase supply etc, working out as an inefficent use of time.

Would this still work today?

yuripup said...

On the top of that it's about controlling the market, and social people love to control things, even if the benefit is small.

Huh? Social people love to control things?

Where did that come from?

Bri said...

Typical example was selling Ice cold milk during Winter Veil event ... the sorry noobs spent 1G apiece, although it was sold by every single innkeeper ... for 5 silver.

I expect most people do realize the innkeeper sells it. The question is one of convenience. I have several hundred or thousand gold in my bag, and I'm already at the AH. Is the time it takes to run over to the innkeeper worth 95s to me? Perhaps not. It's not a lot of money. 95s is the price of convenience, and if there's one thing people will pay through the nose for, it's convenience.

rvanmil said...

I don't think most players are dumb, they're just lazy. Which is why a lot of them don't care much about the price. They want it, and they want it NOW.

Cdin said...

I completely agree that no one can maintain a monopoly in WoW for the long term. However, I do think it is possible to maintain a small monopoly for a very short peroid of time and make some money. The trick is pricking the right product and the right time.

The main example I can think of is Raid Consumables. A majority of guilds start to raid between 6 and 8 server time. On more then one occation. If you can control the market for this short period of time then you will catch the late raider who didn't plan ahead. They will pay a significant premimum because they only have 30minutes before raid time and they don't want to get yelled at.

I find that it works best on Wednesdays and Thurdays because, most of the consumables farmed over the weekend by non-raiders have already been sold, and there are fewer people able to undercut you.

I'm sure you've mentioned this some where in you blog also, but as a piggy back to this. I like to buy consumable mats over the weekend and then resell them later in the week at a higher price.

I'm not really dedicated to these stategies because I am not a big gold player, but I've done pretty well with them in the past.

Graylo

Fixee said...

Gevlon: one thing I disagree with in your article: you say to buy item X at 20% the monopolist value?

Ok, here's my ploy: I take a low-volume item (say there is none on the AH) and post it for 2C gold, double the market value. I have 10 of item X in the bank. Gevlon advertises "wtb item X, paying 1.8*C, pst".

So I switch to an alt and sell you item X from my bank so you can undercut me, listing at 1.9*C. You might make small profit if your X sells, but you might not. Meanwhile I just sold you an item 30% over market value at the cost of losing my deposit. Maybe I sold a few, in fact, if many ppl act as you do.

Molinu said...

@Bri - I think you're giving people too much credit there.

Sherry said...

Anonymous:

I think the wool cloth trick is still working rather well even now.

Firstly, there is no singular good source of wool cloth. A high level character would probably have far easier and more profitable ways to make money instead of enforcing a monopoly on wool cloth.

However, wool cloth is still fundamental in advancing first aid and tailoring quickly. For a rich alt, simply buying out marked up wool cloth would have a lower opportunity cost than going out and farming for himself.

In such a case, the monopolist could buy all the stacks at under 3 gold, and relist them for 15 gold, using an alt to "undercut" at 11 gold. Competitors are unlikely to enter the market as wool cloth is hard to farm dedicatedly, and few people have stacks of wool hiding in the bank. And even if they do, the alt can continue "undercutting" making more than the price of the original cost of wool.

Supply for this commodity can be for a short period of time halted, and sold at a much higher price to meet demand. While it would not last long, it has a good chance of earning a few times more than the initial capital outlay.

Sydera said...

I agree with this.

The best way to make money, over time: sell things that people/want and need at reasonable market price. Good examples are flasks, potions, bags, ore, etc. You might not make much on each individual item but through consistent sales, overall profit will be good.

DougE said...

I've done a variation of this.

When I see one that one of the items I usually trade in only has a few up, I'll buy em out. Even if I take a small hit due to them being above market.

Then I'll relist the items with enough markup to be profitable, but not so much that I need to watch for undercutters.

It tends to work well at times, I may end up buying 1 or 2 items over market price, but I'll usually sell 4 or 5 at my new price before the market settles back to equilibrium.

You have to be pretty selective as to what items you do this with. I've done it w/ Enchanting shards & Eternals & it's worked out ok for me.

Dreadhawk said...

Yep I had a monopoly on engineer arrows for awhile in BC. The things cost almost nothing, but I'd list them for 3.5g. I was the only one selling them so I decided to see how much people were willing to pay for them. So I pushed the price to 5g. I got some hate tells but they all sold in the middle of the night every day. This lasted for about two weeks and then someone noticed and started undercutting. The price eventually fell to below their cost and with many suppliers. In a way I may have caused the demise of what had been a nice gold generater. Oh one thing about the hate tells. I would tell them those prices were for the idiots who'd pay that much and I'd offer to make them for 3g and they'd happily pay. I had a nice group of repeat business that way for awhile as well. To put it in Goblin terms I fed their social need to beat others.

Fixee said...

I think the wool monopoly succeeded (and would continue to succeed) because the player was low level.

The item here, wool, is almost never farmed, is needed by high-level rich toons who are power-leveling tailoring, but is not valuable enough for lvl 80s to farm: the gold/hr would be terrible next to what they could make otherwise.

But for a lvl 30 the gold/hr opportunities are quite limited, if they can't do AH trading effectively.

Someone on the EJ forums said he monopolizes Shadowgems regularly: buy for 1g, sell to lvlers for 12g ea.

Sherry said...

Interestingly wowinsider just had a post on wool cloth 14 hours ago.

http://www.wowinsider.com/2009/03/26/time-is-money-low-level-cloth/#continued

phoenixboy said...

Well, in short: A Monopoly depends way too much in the stupidity of others for survive. Funny how guys that cant move of the fire know how to undercut, but well. In EVE it sorta works because for buying something the cheapest possible you can need to travel a lot, so most guys will buy a sligtly overpriced item if its closer.

This works because EVE is big and how all the markets arent that easily connected like the AH, is easy get a monopoly in a system, at least for a while. Instead in WoW everything in a server is interconnected and so anybody can do the things that you do and undercut you without moving too much. And they will.

PS: Blogging is hard.

Orgauth said...

This occurred last night - as posted over at warcraftecon.net.

"Given the coincidental timing, I'm guessing that someone on my server saw this article and tried to apply it to the Infinite Dust market. Enchanting materials markets are an excellent source of income, as they are commodities that will never see a significant decline in demand during the life cycle of an expansion (Arcane Dust, for example, is much less in demand after release of WotLK - but still modestly profitable as there is always a new enchanter needing to powerlevel his profession).

I do apply the "Think OPEC" rule in my auction listing, as a flooded marketplace exerts downward pressure on prices. Yes, it requires more monitoring to post new listings as old ones sell, but it produces more profit in the end. So when I saw "Baynkr" buying up Infinite Dust as fast as I could produce it, I silently smiled to myself. Several other major players in the market also maintain "operating stock" - and they were also quick to keep him undercut. Eventually Baynkr's buying stopped (ran out of capital, presumably), and he is now stuck with mats he can't move - unless he is willing to barely break even.

The problem with trying to monopolize a "virtual market": unlike RL commodities, virtual commodities are practically infinite in availability."

I am going to send an in-game mail to the idiot, asking him how much he would be willing to spend to have his ass back - since I now own it.

Zanathos said...

This used to be more easily done before the BC era of the game, when high end crafting mats were more difficult to come by. If someone was controlling the market for Arcane Crystals or Essence of Water, it was more difficult to increase production significantly. High end mats tended to have a low chance to drop and the sources for them were regularly harvested as much as possible anyway. Additions to the game like prospecting make it impossible to control a gem market, and most other mats have multiple ways they can be acquired (transmutes, lots of elementals, and engineering extractors for Eternals). I'd guess people advocating monopolies are stuck two expansions in the past.

Vy said...

You dont even need a monopoly, for a long time. So long I can buy in and suck in huge amount of underpriced goods, and list them up at the lowest price for 6 hrs, my aim would have been reached.

Monopolies usually are not easily present on high pop servers in the middle of the expansion. But during the start of the expansion, having limited access to recipes is akin to having the license to print money. Take for example, JC recipes. The recipes cost 2-3 JC tokens to purchase and learn, and there is no way you can get more than 1 token per day. This is essentially some sort of hard cap/limit on the speed in which new gems flood the market. But choosing correctly, you can get certain cut gems earlier than others and price it as such a premium.

Usually monopoly has to be done in a fairly niche and forgotten market. In a well traded market, someone will either outproduce or outcut you etc. You might still make money in the long run as you clean up the AH of underpriced goods and slowly bleed it back into the market. But, it will be long and painful.

Anonymous said...

And of course anyone who has Stokpiled (is that a verb?) like a good little goblin can quickly sell their wares at 99% market price, pulling huge profits