Greedy Goblin

Thursday, July 5, 2012

The 0.01 trap

The 0.01 punks are not only in a cartel. They are leaving serious money on the table, despite they do what they do with the exact purpose to leave none. Their logic is simple: I want to sell for the highest available price. I can't sell higher than the other guy (because then he sells), so I sell for 0.01 lower. Logical, right?

Only for someone with the economy knowledge of a Guristas NPC. The 0.01 punks assume that sells and buys happens anyway, just the price changes. They completely ignore price elasticity.

Most items in MMOs are very price-flexible. After all everything in a video game is luxury product as playing video games is a luxury. You can't force players to accept your price, just like you can't force people to accept high refreshment prices. If Coca and Pepsi would go cartel and sell a liter of cola for $100, people would simply drink water. Also, they can't be forced to accept low buy prices: they simply stop farming it. While in real life, working has overhead and momentum (can't turn a bakery into a steel mill overnight), in MMOs an NPC grinder can change to mission running in a second. Also, he can just choose to not grind anything. Not like he'll be evicted from his station or his character starve to death.

0.01-ing is so prevalent among economically uneducated population that simple sellers and buyers (people who farmed the item for sale or buy for consumption) consider it the normal pricing. Of course they are defeated by professional (or botter) AH-campers, so they sell/buy nothing. They give up and sell to a buy order or buy from a sell order, just as the AH-camper bunch wanted. This means that they control the prices and they try to keep the buy and sell orders as far from each other as possible.

Since the buy orders are low, the farmers (who are more flexible than consumers) react by farming something else. This decreases the amount of items resulting an overdemand from consumers. They buy out the sell orders, so the next 0.01 guy can make his sell much higher, followed by the others. Since the difference between buy and sell orders grown, more and more 0.01 punks come to trade the item. If you see 20 buy orders for 50M and 30 for 150M, you see the result of this behavior. These wonderful creatures in their quest to leave no money on the table left almost all of it there. There are only a few items circulating and dozens of punks are undercutting each other, camping the AH for those 1-2 sells/day. Farmers find the item crap (due to low buy price) and buyers go cry on the forums for the developer to stop the campers.

Here I come with red underwear outside of my pants and big S on my chest with two vertical lines placed on it. Instead of placing the 21st buy order at 50000000.26 ISK, I place mine at 60M. The crowd follows. A day later I refresh to 70M. They probably curse me for ruining it for all of them. Next day: 80M. And something weird happens: the buy orders start to fill up. The farmers find 80M worthy of selling. Of course for 150M there are barely any buyers so all 0.01 guys start to accumulate items. After a few days they no longer place buy orders as they already have a dozen of the damn thing and still sold none. Then finally I get my first item which I should relist for 149999999.56 according to them. Instead I start with 140M. Then 130 and so on until I sell. The lower the prices are, the more buyers come.

At the end of the intervention I buy for 90M and sell for 110M clear from interference from the 0.01 guys. After all, who wants to camp the AH for 20M profit? Mining Veldspar pays better.

The funny thing is that I don't have any superpowers to break down the "evil capitalism". Anyone could break it. The farmer guy could list his wares at 100M instead of 149999999.85. He just don't, as he don't want to leave money on the table. The buyer guy could break it by setting a buy order at 100. But he won't as he either don't want to leave money on the table and go for 50000000.56 or buys from a sell order. Finally other businessmen could break it but they don't as they don't want to leave money on the table.

EVE is old enough and with buy orders well-designed enough to have an efficient economy. It is just too damn littered with morons who can't see further than their nose. But I'm not complaining. If they had brains, I wouldn't make 4 PLEX a day.

Finally, who else could be the moron of the day than the 0.01 punk who spent 40M to buy and sell just to figure out to whom shall he prove his utter idiocy. Thanks Mike for the screenshot:

Of course if someone sends you such moron letters, feel free to send it to me.

Thursday morning report: 85.0B (1.5B spent on main accounts, 1.3 spent on logi, 1.0 on Ragnarok, 0.5 on Rorqual, 0.9 on Nyx, 0.8 on Avatar, 2.6B received as gift).


Dave Rickey said...

What I would usually do was look at the historical market graph, and price according to the upper (if selling) or lower (if buying) swings of the graph. Sure, I might not sell it *today*, or I might have an open buy order for a week.

But sooner or later someone would come in with a market-blowing amount of whatever they were selling, or need an equivalent amount of what they were buying, and they'd blow through all of the .01 bids and reach mine (which were always in large volume, which I could afford because I wasn't churning them).

Even with high skills, an open order for a 50 million ISK that you're churning 50 times a day with .01 tweaks can use up all your profit margin. Meanwhile, I'm sitting behind you with a *billion* isk order, waiting for the real volume to hit.


Anonymous said...

Nothing wrong with your rage against 0.01 I do enjoy it. But you are wrong on so many assumptions here. As with everything you do all other ways are "dumb as rock".

Sadly, truth is different. You can't make 4 plex a day with 0.01 cutting but if you have low capital you can make more money than doing things in your way. Thus 0.01 is evolutionary step before your capital grows large enough so you can't bother maximizing the profit from a single item.

I did a screen of my week trade some time ago - . With 4-5B capital you can make 300-400 mil a day, station trading only

So Gevlon - sorry that anything outside of your approval still works.

Kuon said...

You shouldn't post the name of the punk who sent you that email.

He/She knows who they sent it to and can tell everyone the name of your alt (if they read or blog .. or know someone who does .. EVE is a small community)

Gevlon said...

@Kuon: why should I care if the name of Mike's alt is known? And why should Mike care? Will they gank the alt while he station trades? (If he undocks his station trader with cargo, he deserves to be posted here too).

@Anonymous: you can make profit with anything, including mining veldspar in a Bantham. Don't forget that 0.01 only works if you camp the market as the price is way above/below equilibrium, so someone (0.01 or not) will undercut you soon, if you just update once, you sell nothing. Therefore 0.01-ing has pretty low ISK/hour (though probably higher than Bantham mining).

With low capital one can do better by hauling to buy orders or doing missions.

Hexapuma said...

I always thought that 0,01 traders are socials - they swim together in a large school of fish feeding of the scraps rather than going for their own fish. They will get fed - but they will never get that juicy fish on their own.

Kuon said...

The alts's name was blocked out, so I guessed he didn't want it to be known.

Yaggle said...

This message from Gabriel Hillfinger of course is the same type of moron letter we got in Wow so many times from a fellow trader who wants to keep his profits high. I loathe this type of person but I do not understand their underlying psychological problems. I understand they want to control everybody else just like parents who want to tell you what classes or jobs to take, or grandma who wants to tell you what clothes to wear or how to make more friends. But I think what bothers me the most is that they are not self-aware enough to see that they are trying to control others just to satisfy their own wants, to make themselves happy. But why they cannot see this and instead bother us with these annoying controlling in-game letters, I do not know. So I feel compelled to do whatever they don't want me to do.

Phil said...

I don't understand how you think that any market can sustain your strategy. If everyone deep undercut everybody else all the time, there would never be any market stability.

You yourself have said that the goal is to drive out the competition, well in that case there can only be a very limited number of traders in any existing market. What is everybody else supposed to do long term? There can only be so many niches to fill, especially given that accepting a different niche means taking a sub-optimal profit (otherwise everyone would already be in that niche...)

Not everybody can be rich. That's pretty much the definition of being rich.

Gevlon said...

@Phil: Monday post

Anonymous said...


The end result of two goblins duking it out over an item is either razor thin margins or one leaving for 'greener pastures' until another sort of equilibrium is reached.

Anonymous said...

@Phil - in Eve everybody can be rich. There is only one thing required - to be a Moron OR a Slacker but not both.

@Gevlon Having 300 mil daily profit from 4 bil capital is way better than any high sec activity. It is very close to your result at the time you had such capital BUT you did hauling and I do only station trading - so my effort is less.

"Don't forget that 0.01 only works if you camp the market" - this is a capital NO. All you need to do is update twice a day - morning and evening AND choose the proper items. Yes, they will undercut me - so what? In several updates my orders WILL be executed - I play together with you on some books and I always undercut you with 0.01 on your 1 mil increment - I'm totally fine with it as I make more profit than deep undercutting you.

A week ago I bought 1.1 mil missiles at 130 ISK per piece. The sell price was 650, then it went to 800 and now it is 950+. Now I start slowly selling them with huge profit and 0.01 twice a day. It is much better than deep undercutting it.

Antivyris said...

You are also missing a decent sized snag here in the .01 isk crowd.

All of the users of EVE Mentat, and a few other un-named tools and websites auto-undercut at .01. These people aren't traders, all they do is update their buy orders, look for the red marks, and update those orders and go back to missioning/incursions/whatever.

Think of them like a hybrid between your average PvE'er and your average trader. They will only spend as much time as they absolutely have to, and use these programs (Essentially addons) just to make sure they are selling in the average price area. Beyond that, they really don't care about major margins, just decent margins.

Anonymous said...

"Join my cartel or else!!"

Except he's shown nothing which resembles a threat to the receiver of the message.

Replying and explaining economics 101 would give away the way you earn profits. It might anger him further, opting for some kind of revenge.

Ignoring him is best option. HE is a fool for wasting his time by writing what he wrote. And we are fools to read and provide attention to him.

Move along, move along.

Lochiel said...

This makes sense. If you are going to undercut, undercut enough to really hurt your competitors profit. Either drive them out of the market, or make the margins so low it isn't worth it for yourself. It really is a tactic of market PvP.

Seeing how much competition I got in Hek after your post, I expect to see prices dive over the next few days.

Rei said...

Normally i'd totally agree with this, but... I had a really awful experience with using this sort of method in Eve. In WoW I did pretty much exactly what you did (you're not the only ex-WoW tycoon who recently has found their way to Eve ;) ). But when I tried this in Eve, I basically wiped out all of my profits and got nothing out of it. Since then, for better or worse, i've been forced to (sort of) play this 0.01 isk game. I -hate- it, but I hate wiping out hundreds of millions of profit and wasting an entire day even more.

Though... that was a while ago... and I am much more wealthy now. Maybe it's worth a second chance... :s

Hivemind said...

I'm not going to argue with the success of your methods but the 0.01 ISK game also works fine for its players without "leaving a lot of money on the table" as you put it, right up until someone like you shows up and tries to take over the whole game rather than joining in. Obviously it is vulnerable to what you're doing, but until someone comes along looking to turn over the whole anthill it maximises profits and minimises expenses for the participants, and has the advantage of running off any casual sellers who aren't willing to camp the market and play the 0.01 ISK game themselves. Reading between the lines, even you're admitting your deep undercutting only serves to run off the 0.01 ISKers and it's not 'til then that you start making profit comparable what you'd get playing it yourself.

As for price elasticity in EVE, a lot of major trades are done by nullsec alliances for whom even a fairly noticeable price hike is acceptable compared to rewriting fleet doctrine because whatever they normally use is too expensive. Aside from SRP (Ship Replacement Program) purchases a lot of individual buyers are also after a specific fitting with more flexibility on their wallet than on their required performance; there's no viable alternative for Tech 2 shield hardeners, for example - there are no comparable meta items, and there is a very large difference between T2 and Faction price that is never likely to be equalised by 0.01 sellers inflating the price. That's also ignoring that the 0.01 ISK players also compete with each other to lower the prices as well as inflate them, which helps keep prices in check. Although the 0.01 ISKers effectively act as a cartel they are not actively working together - it's simply the result of shared motives and method (at least, as far as I know it is).

You're also making a mistake when you refer to farmers "react[ing] by farming something else" - it may well have happened in WoW, but there are only a few markets in EVE where such a thing is possible, mainly items tied to LP stores. For the vast majority of items in EVE, farming simply isn't an option - You get the loot that the things you're killing drop, and that's it. You can work for a specific faction to increase odds of fighting their enemies, but the selection is always very random and there's no guarantee that any given item will drop. Null space is no better - you've got your local flavours of rat, maybe a couple of types if your alliance holds space in more than one region, and that's all, meaning there is no flexibility to farm something else if the market is against that race's common drops.

Znybar said...

There's a dude in Amarr who has a pretty extreme but efficient way of driving off 0.01 idiots with regards to skillbook sells: he constantly has a stack of sell orders ~20-30% above buy price. If anyone tries to undercut him, he just changes a second set of buy orders to just cutting even (~1% above buy). When competitors try to compete, they have to sell out all their skillbooks at no profit, and tend to leave very quickly.

NP said...

I didn't want to accept your reasoning here... which is why I'm responding a few days later... but you're right.

While market PVP will always have a 0.01-ing element to it, showing dominance through a large order way out of the current "market dis-equilibrium" does "shoe the flies," if you will. Then it's goblin vs goblin, where you'll actually learn something (or be out-spent... my "market SP" [aka investment isk] isn't as great as my opponents... yet...).

Great blog!