Greedy Goblin

Friday, July 31, 2009

The goblin manifesto

I wrote several times on undercutting, getting more and more strange responses, about my heavy undercutting plan destroy the market if other goblin decides to fight back. No doubt it is the truth. The best comment was Wooly's "Have you ever thought what would happen if you played your own mirror image?"

I can tell you easily what would happen: the profit falls down quickly. One of us would be forced to leave that market and find another. Who would be that one depends on who have more money to survive the storm, who needs profit more, and who finds another niche faster.

I've never said that playing as a goblin allows you free ride. I've always said being a goblin allows you a free ride over the M&S. If others have brain, your golden age is over and you can't do anything about it. It's not written in the Constitution or the Bible or the Science magazine that "you shall never work and live in luxury". The normal thing is that you work hard.

What we goblins do, here in the game and in real life is abnormal. It exists for one and only reason: M&S, people who work hard for nothing because they are too dumb to recognize it, or too lazy to invest time in something that would get them out of it.

If I have a competitor (a person with brain), I will lose profit. I decide what way I will lose it. I can lose it in gold, by undercutting heavy. I can lose it in time, by undercutting by a silver and camping the AH all day. I can lose it by making an agreement with the competitor for splitting the market, accepting only half quantity and the risk that he will break the agreement. One way or another, my profit will decrease.

When someone is unsatisfied with his profit, he can find another field. Currently the goblin population is so low, that your options are practically limitless. You can go to almost any server with any profession and you can make money. If you bump into another goblin, you just find another niche. The economy is way too big for one person.

However if the number of goblins would increase, your profit would decrease. Not linearly, since more goblins: higher GDP, bigger cake to slice. Goblins generate GDP by filling holes. If there is no silver rod in the AH, the guy leveling enchanting will not buy materials but spam trade. With holes filled, there are less wait times for everyone, more active time, more production. However the cake can't grow indefinitely, so your slice will be smaller and smaller.

If we assume the utopic society where everyone has common sense, everyone's gold/hour (actually gold/life) would converge to the same value, since someone who is currently in a low G/hour job would abandon it, decreasing competition there, creating competition somewhere else. The GDP would be limited by natural factors like node respawn rates, travel times, crafting times, AH cuts, monster drop rates and so on.

Those who send the funny letters to competitors demanding fixing prices are idiots because they believe that they can upkeep their profit in the presence of a competitor without finding another niche. They seem to believe that they "deserve" their profit and the other sabotate it, while they were leeching on the M&S and it came to an end by the emergence of a non-M&S.

35 comments:

Anonymous said...

My guess is this, people who complains about heavy undercuting are the ones who can't use their on logical thinking to find something else to make gold with, or how to be more competitive in that market.

If certain blog doesn't tell them how to make money somewhere else they wont find it. That's why people keep asking if Engineer or Alchemy can be the next "apprentice".

I am almost positive that over half of those people asking for Engineer and Alchemy haven't install the addons that this blog has suggested so many times already for all professions.

Dmitry said...

This clarifies a lot.

I guess it's just your tone, Gevlon, but reading most of your posts gives a strong feeling that the author is saying "This is 100% right, works anywhere, and anyone who thinks otherwise is dumb or lazy". :) People get taunted by it, and write responses like the one you mentioned.

By the way, Naari the priestess won't apply for apprenticeship for the 3rd time. She is at 7-10k gold a week now. If she needs any tuition yet, it's on using addons - yes, about "What buttons do you press when you do the fancy stuff in your posts?" :) I think a post on that would be really helpful.

And thanks for this blog again!

Astmathic said...

Its the same in big business basically. For example in the computer business, if you want to win the deal for a global customer for maybe 50000 desktops over 3 years you will most likely have to sell them for -15% margin to be competetive. This is something you get back later by farming the customer and having obscene margins on accesories.

This means that the company with the most resources will be able to take the most deals since the big ones doesn't earn you money at first, it costs you.

Sven said...

The thing about starting a price war is that you have to be absolutely certain that it's you that has the deepest pockets. If not, you're the one who loses everything and your rivals are the ones who end up owning the market.

Whilst it's pretty likely that you have the deepest pockets on your server, Gevlon, that may not be true for all your readers. Since we don't actually know how much money our rivals hold, a policy of peaceful coexistence may be the best one. For example, there are approximately four other goblins in the glyph-making business on my server. I'd much rather have 20% of that market than risk an 80% chance of losing everything to have 100% of it. Given the way they are behaving, I suspect they are making the same judgement call. It's imperfect information that makes the "undercut 'til the last man standing" strategy so risky.

Gevlon said...

@Sven: I've never suggested or did "undercutting below material price".

It's possible that your competitor does not give up. Then it's smart for you to give up and find another niche.

tDv said...

When "a goblin" has to face another goblin they have to do what M&S ask when a goblin undercuts them: find an agreement.
There is no reason to fight a fight that clearly will have no winner and only losers.
The problem I think is how much time a goblin will take to understand is fighting another goblin and not the "normal" smart guy who elevates (tries to) himself from the M&S magma.

spinksville said...

It sounds like one of the important things is knowing when to cut your losses and find a different market. I think this is very difficult for people to go, because they hate admitting that someone else has 'won' even if it means they're losing money.

Carra said...

Yeah, the market is big enough to find lots of opportunities. It might take some investments (level an alts tradeskills for example) but there are ways to get new revenues when someone takes over your old one. Or you could just sit it out. Lots of people will get bored by making gold anyway and stop once they have enough.

Most people aren't interested in making gold anyway, they rather spend their time questing, raiding,... Having fun in their own way.

Observ said...

Supose you have the gold to do it, would it worht to try to destroy a goblin on all the markets he is on? Just for the sake of doing it :) not really for the profits but rather for the experiment.

About playing with your own mirror suposes that both of you have the same capabilities, gold wise, addon wise, etc. I think playing against your own mirror will make you (both :) ) quit the game.

Sven said...

@Gevlon

"It's possible that your competitor does not give up. Then it's smart for you to give up and find another niche."

You are now worse off than if you had settled for 20% of a market and not started the price war. That's the risk - 100% of a market may be better than 20%, but 0% is worse. This is why starting a price war is not always the optimal strategy.

Gevlon said...

@Sven: 100% of another market is better than 20% of the current.

Malstram said...

i don't know if mentioned before but regarding alchemy, Guru's Elixirs are a pretty good sell. They only need 3 Pygmy Oils + 1 imbued flash and usually the cost of the pygmy oils and pygmy suckerfish on the AH are way below the cost of the elixirs.

Sven said...
This comment has been removed by the author.
Sven said...

@Gevlon

100% of another market *may* be better than 20% of the current one, but it isn't necessarily so. Presumably there's a reason why you were in market A rather than market B to begin with, i.e. it was more profitable. it's all a question of return on capital employed. If 20% of market B is bringing you 100% profit per day, whereas 100% of market B is only bringing you 25%, that's not a good deal.

Secondly, there is no reason why being in market A precludes you from being in B anyway. I don't imagine you're short of investment funds. So it's not a question of 20% of market A vs 100% of market B, it's 20% of market A + 100% of market B vs just 100% of market B. The latter option makes you less profit.

But hey, if you're turning down good business just because you don't get the ego boost of "winning" in that market, that's fine by me. I'm happy to take the money.

Wooly said...

Thanks for responding to that question. I was still in doubt if I missed something or not.

What you mention is what I've been trying to do lately: actively looking for and filling gaps in the market. And even though there are many traders like me, there's always something not sold at a certain moment. I'm glad I started inscription now, because even though the biggest no-life 24/7 camper on the planet tries to rule that market, it's just to big for one guy. That market alone will usually have a gap somewhere.

Anonymous said...

@Gevlon,

You should take a look at the economic impacts of the macro/exploit ore miners and the impact this is having on the related tradeskills. With ore prices crashing on most servers, despite titanium ore being stockpiled by most goblins, and the upcoming major shift in the gem market, your perspective on how this is going to shake down accross the impacted markets would be interesting.

Anonymous said...

Okay, I give up.

What does "M&S" mean?

Yaggle said...

It is true that the more that people undercut, the lower the prices go, and this is bad for the businessmen and good for the consumer. But, like you said, when you can't make much profit, you have to find other things to make and sell. This is why undercutting is better overall to everybody than price fixing. The competition between businessmen forces them to change their business to find other profits. Then they must make and sell other items that people want. If everybody could fix their prices, what would happen is that all sorts of obscure items would never be created nor sold on the auction house, because no businessmen would be motivated to find other things that people wanted to buy. Sometimes it is me who has to do this work to find out what materials I need to buy or gather to make these other items and it is annoying but it is better overall. There are countless stories of grocery stores in the old Soviet bloc which only had very limited items for sale. This is what happens when there is no true free market and no competition between businessmen.

Sven said...

"What does "M&S" mean?"
Morons & slackers. It's defined on Gevlon's "about" page. It's his catch-all term for people who are too stupid or lazy to succeed.

Anonymous said...

I do believe that asking what an M&S given that Gevlon defines it within this blog makes him an M&S.

luv2bdryvin said...

@Sven-

The idea of a "price war" is way less complicated than you are making it. Here is how a goblin works:
Price of all glyphs: 20g/25g buyout.
Undercut by: 50s
Minimum listing price: 5g.

It costs me about 4g to make a glyph. I decided than anything less than 1g profit isn't worth it (crafting expense). I am happy to sell a glyph for 5g or for my max of 25g. Either way I make profit. What you could do? Batch post right after I do, every time, with your minimum being 4g50s. Yes— you would make 50s per glyph. Go for it. Its not worth it to me. Anything more than 5g I love though.

As depressing as this may seem: I probably won't even notice if you start a "price war" with me. It doesn't cost me a single copper to keep posting the way I do (ok... well... the posting fees, but those are tiny) and if a glyph goes unsold, I have lost nothing.

I don't have to have "deep pockets" to be in this price war thing. It may cause them to fill slower, but I'm not stupid enough to sell below cost, so whether you are "price warring" me or not, I still make gold.

@spinksville

Losing and winning? Hm... If you're talking with someone who has these kind of emotions, I don't think you're dealing with a true goblin. I have the feeling gevlon doesn't think about things in those terms.

Nice blog btw (I only read 4 blogs, you and gevlon are two of them)

@Observ

Do you really not get this? The only way to "destroy" a goblin is to be one yourself. And even then usually that just forces them into a market that you aren't in... this really doesn't bother them too much.

Just pouring money into trying to thwart them will generally just cause them to laugh, and usually cause them to find a way to make money off your stupidity. If you had infinite gold, this might be possible. But, even if you bought gold-cap amount from NiHao man that would run out fairly quickly, and a good part of that would end up in the goblin's pocket I believe.

Sven said...

@luv2bdryvin

What you're doing is pretty much what I do - small undercuts rather than massive ones designed to drive others out of business. This leaves plenty of room for others to make profit.

However, I don't think that's what Gevlon means by it. Judging by his previous posts, he seems to believe in large-scale "last man standing" undercutting designed to monopolise the market. I'm sure he'll correct me if I've misunderstood.

Sven said...

Ahah! Found a recent post on this:

Gevlon said:

"There are two kind of "price fixers". The first is not surely wrong (for himself), just ineffective. He suggest to undercut just by silvers. Of course the silver-undercutting war is won by the one who spends the most time by the AH. However the point of going to the AH instead of grinding elementals is exactly to save time. If you camp the AH 10 hours a day to always relist your stuff when undercut, your gold/hour ratio falls to the region of double gatherers. By undercutting several golds, you simply force the competition to either abandon their precious gold and undercut you or list on "normal" price and then your stuff will sell."

Anonymous said...

First-time poster, long-time reader.

This looks like a classic example of:

http://en.wikipedia.org/wiki/Game_theory

A.k.a. Market equilibrium

Anonymous said...

luv2bdryvin has an interesting point, one that I agree with myself. I am more than happy to sell my glyphs anywhere from material cost + 1g and up. It makes no difference to me, I believe that even on a bad day, the 1g profit on a 4g sale is acceptable. I have a very nice production set up so it takes very little time to mill, craft, and post up my daily listings. Most of the time I'm doing housework :)

The very low glyph prices serve two purposes to me, they identify the real goblins on my server, I can tell after a few days or a week if someone is testing the inscription market or is in it for the longer haul. I was able to eliminate many competitors on my server as the prices dropped below 8g a glyph, and even more as they went down below 5g a glyph. The very low prices also make the time investment worthless to most. I know I'm going to eliminate a competitor when I start getting mail from them begging me to use "common sense" or to "learn how to undercut" or to stop "selling below cost" Whose cost? I never sell below my cost, but if its below their cost too bad for them. When they start buying up my postings I go all out and reduce prices again so I know that they are taking losses.

The prices always start to creep up after I've driven them down to 3g a glyph..a week or so later those same glyphs are back to selling for 7 or 8 gold or more and with no competition. I let my addons take care of pricing and once a week I go through the logs and adjust manually where needed.

The same idea can be applied to any tradeskills on a smaller scale. I've an alt toon that is a tailor and enchanter and I've managed to develop a very nice income in the BC enchant business. I have almost no competitors there and I'm very careful to post only a few scrolls at a time so as not to create the impression that there is a big market for that stuff. Twinks never go out of style :)

Daniel Chapman said...

One thing that I don't understand is the assumption that the people sending the letters are expending something in order to make their attempt.

I once made a large amount of money selling Rich Purple Shirts. It was a rare pattern, I was playing on a roleplaying server, and well, I guess they looked cool because I sold a bunch for a good price.

Well, one day this guy sends me an email saying "I've been selling them for 50g, I see you undercutting me. If we keep the price at 50g, we can both sell some and we'll both make more profit overall."

I agreed. Took him all of five seconds to write it.

Later, someone did undercut us and that market became pointless, someone else didn't understand that the goal is not to sell as many items as possible, but instead to earn as much money as possible.

I also once had someone try and convince me to raise my price, which I did, and then he very quickly broke the agreement. It cost me about two days of sales to realize he broke the agreement, but hey... It didn't really cost me that much money, since I did make a fair bit of money at the new higher price.

Daniel Chapman said...
This comment has been removed by the author.
Daniel Chapman said...

Oh, and a corollary to that last post: I was making a large amount of money for that rich purple shirt for a period of a few months. (Several a day, I think 50g a piece minimum, very early vanilla WoW days when that was actually a good amount of money.)

I would occasionally see people list the recipe on the AH. Every time it appeared, I would buy it up. I didn't care about the price, I was out to stop the proliferation of that recipe. I was tempted to destroy or vendor them, but it turned out that saving them in an alt's mailbox was for the best.

When the market crashed, I made a large amount of money off of those stored up recipes. When someone made the market unprofitable for me, I had my little cruel joke as a parting gift. There were a whole lot of new tailors able to make that shirt.

warren said...

So Gevlon, what do you do in real life, that lets you fly high over the M&S in real life?

Day trading? Some kind of financial speculation?

Wooly said...

BTW..

About the winning a market by the Goblin with the deepest pockets: I think that theory works well in real businesses, because those always have continuous expenses to cover, whether they do something or not. They've got salary to pay (even if it's only their own, they've got to eat), office buildings to rent, etc. Also, there's the problem of people sticking to "known" sources, so if you lost a client, you have to do extra effort to get him back. This means you can't sit still, you've got to make profit sooner or later.

In this game, this does not apply. The war for a market could actually have a complete other outcome there then expected, because here it's possible to play the waiting game without losing anything. The most aggressive goblin with the most money might go lower then you, but you share resources, so it's not likely that he can produce cheaper then you're capable of, unless he's got private providers that don't check AH (very unlikely). If he decides to lose money for a while just to get rid of you, he's killing only himself. The reason is that he's losing gold, and all you need to do is sit back and relax for a while while he burns some of his his reserves. Of course, sometimes you could still undercut him just to keep him sharp.

Anonymous said...

Every market has a sub market that can be profitable. People need to look out of the box and I am not saying to totally leave your market, but instead to spread your investments out. Gevlon is writes on the inscription market. What off shoots the inscription market? I can think of a few things off the bat...herbs, pigments, inks, cards, books, disenchanting, vellum, and glyphs. These sub markets are in every profession and can yield profit too. Try not to get caught up in tunnel vision.

Joe Nothin' said...

Actually,
Sending letters only fails if your competitor is a goblin. If the competitor is an M&S, you send a letter, set the bar somewhere you are comfertable, and then undercut him with an alt.

And if he is a goblin, then he thinks your an idiot. Boo hoo, like i care.

Jeff said...

I am on a server with a ton of goblins in almost every market. By a ton I mean three or four at any time in any given market. I have found I make more money by diversifying. I sell only the most profitable glyphs, I transmute skyflare/earthsiege diamonds with my master transmuter (additional 25% production for the same materials) and pay a jewelcrafter to cut meta gems. I buy cloth and pay a tailor to turn it into moon shroud/ebon weave/spell weave (bags are difficult on my server selling at or near materials cost) Eternal Belt buckles with my blacksmith. I have found numerous small niches and use those to support 3-5k a week. Not Gelvon level, but it has paid for me to have an inscriber with every glyph, and the ability to buy pretty much anything I want.

Thaumaturgos said...

/Agreed completely with this post Gevlon.

I recently started a new toon on a server mor ein keeping with my time zone than my usual one. After 6 weeks I have 10k gold. I have done this through a couple of specialty recipies and via de'ing and selling the infinite dust etc residue.

When I arrived infinite dust was selling for an average of 4.80 gold per unit. The price now sits at about 3.20 gold per unit. This has come about directly as a result of the response from the other two business types who were in the market. For 5 weeks it was easy money, making a killing with little thinking, just the time needed to make the items I could then d/e for nice profits.

My decision is now whether to fight for the market or find another niche. The money opportunities are there. And as a sub-part of WoW it is a game I really enjoy!

Tonus said...

Heh, that reminds me of people who make a character on a PvP server and then complain when they get attacked by other players.

@Sven, I think you're taking Gevlon's comments a bit too strictly. Sure, if 20% of market A is more profitable than 100% of market B, you would be wise to retain that 20% of market A.

I think that Gevlon's point is that if there is another Goblin on your server and he is competing in one of your markets, you have to take stock of the situation and determine if it is worthwhile to fight him, or if there's a point at which you decide that you're better off finding another market. It's very likely that you are both taking a beating at that point, and other factors (pride, stupidity) are what is keeping you going.

The impression I get is that Gevlon's philosophy is never a case of "when A happens, always do B, no matter what." His philosophy seems to be built on the idea that you must be flexible and willing to make adjustments based on circumstances. Thus, if it's more profitable to retain a small portion of one market, you would do that. Otherwise you seek out more profitable markets and avoid fighting a battle with no winners.