Wednesday, October 17, 2012

What would happen if people could trade?

The question of mirror-ability of strategies often comes up when I post my trading strategy. The 0.01 strategy is clearly mirror-able. If there are more than one 0.01-ers, then their income will be shared according to their camping strength, but the sum of their income does not change, since it's defined as the price (which they don't change) multiplied by volume.

The undercutter grabs bigger share by increasing volume. However the question rises: what will happen if two undercutters meet. The practical answer isn't interesting: "one of them will be unsatisfied by the profit and moves away". The interesting part comes if we assume that there aren't more niches than traders. Currently this is highly academic as there are very few undercutting traders and many niches. But what will happen if the smell of 2-3 PLEX/day lure more people to my blog (or they learn economics on their own) and the amount of undercutters grow to the point that you can't go to any untaken niche?

Well, the practical answer (the one that wasn't interesting) is still true: "one of them will be unsatisfied by the profit and moves away". Where? There aren't more niches! Aanywhere he can, probably farming.

If we add up the above, we get the result: if all niches are covered by undercutters, the profit of trading is nearly equal to the income of farming, since the only place a quitting trader can go is farming. It will never be exactly equal as trading needs capital, so not all farmers can go trade while all traders can go farm, but it will be near enough.

This is indeed what the moron letters scream: "you ruin the profit for all of us". Yes I do. 0.01-ing is cartel and cartel is the only way to allow more than one trader to have profit in the same field.

Maybe the 0.01-ers aren't simply dumb. Maybe they are socials. They do the "moral" thing and share the wealth with their peers. I'm not social. I can't care less if I destroy all trading profit and force everyone (including myself) into farmerhood. Till the moment it happens, I'll make more money than any 0.01-er, so I'm not being selfless, protecting the little guys from the evil capitalists. I protect the little guys from the evil capitalists because it pays well.

This result exceeds EVE or WoW or any other game. It's a universal economic result: if everyone could trade, no one would have extra profit. So if you want to stop the 1% from having 99%, the best way is to join them.

What will I do if it really happens and no one will make profit without actually having to do something useful? I already have plan B.

This was close!

Another screenshot from nullsec life: our enemy -A- almost saved their system by destroying our SBU. An allied fleet drove them away when the SBU was deep in armor. On the picture you can see us repairing.

One more picture. You read about the supercap battle at LGK?

Finally the moron of the day! While people can lose ships without their own fault in a battle or well designed trap, having your ship terribly fitted has no excuse. Look at this mining barge and despair on the lack of brain (for newbies: lack of cyno, lack of tank, too many MLUs, too small cargohold, rigs don't help mining or surviving).

Wednesday morning report: 168.7B (5.5 spent on main accounts, 5.8+0.7 spent on Logi/Carrier, 3.2 on Ragnarok, 2.7 on Rorqual, 2.4+0.4 on Nyx, 2.8 on Dread, 37.4 sent as gift)


Johnicholas Hines said...

You're entirely right, that given some assumptions (that are routinely used by economists), everyone has the same (zero) economic profit - in Eve, everyone would drink from the same spigot.

However, there's a possibility of long-term inequality in Eve, particularly via the use of violence. Violence breaks the usual assumptions.

Suppose that there was no Concord, and further that (against all real-world probability) newbies kept joining and trying to play. Then the game could easily support an equilibrium where the "haves" (those that have effective ships, manufacturing resources, etc) extract rents from the "have nots", sufficiently backbreaking rents that the "have nots" cannot ever afford warships, the ability to do their own manufacturing, etc.

CCP wants turmoil in null, so they provide hisec as a way for motivated newbie corps to produce as much real wealth (ships and ammo and materials) as they need in order to challenge nullsec incumbents.

With hisec added there's still a incumbent-dominant equilibrium, but the story is a bit more complicated. Incumbents simply need to do exactly as much in hisec as a motivated newbie corp could, in order keep the playing field tipped in their favor.

In practice, due to individual players interest waxing and waning, and because larger alliances and coalitions are harder to coordinate, there seems to be plenty of turmoil in null - and of course CCP tries to stir the pot with patches.

mordis mydaddy said...

The other missing partt of your equation is that people have to WANT to trade. I understand economics and your trading methods, have the capital to participate, and the desire to have more isk. I also cannot endure the boredom of spending even 30 minutes doing any of it. I would rather mine ice for 12 hours than spend 1 hour playing market games. This is similar to why you don't go orbit buttons in FW and make endless isk. So, you are safe from another segment of users who would not engage in market stuff no matter what the benefit.

tangurena said...

as there are very few undercutting traders and many niches

I disagree with this assumption. In the T2 ammo market, there are lots of undercutters playing 0.01 isk battles. Normally it does not matter, but when one seller dumps a massive block of ammo that represents several days of production, every other producer has to undercut the huge block in order to make any sales. I used to make T2 missiles, but the undercutting was so bad that the missile prices had dropped 20 isk (per missile) from when I started making the missiles to when I quit making the missiles - and that 20 isk happened 0.01 at a time.

In other niches, the profit margin is sufficient that it is worth my time selling to buy orders. For T2 ammo, buy orders are below the cost of production.

I don't find the 0.01 isk battles to be fun, nor worth my time waging. I'd rather quit making things for other players than waste my energies doing it.

Pim said...

".01 undercutter"
"Deep undercutter"

Because these are both "undercutters", it is confusing for you to use the term "undercutter" to refer ONLY to deep undercutters. As you can see from tangurena's comment, it has already lead to misunderstandings.

Perhaps it would be better to stick with "deep undercutter." Especially in this media format, when you have new readers coming by who are not familiar with your past terminology.

Terminology aside, it might be nice to read another post about the chain of events that cause deep undercutting to be effective: price elasticity, volume, the end-user's choice between purchasing or farming / crafting (or purchasing mats and sitting in trade hawking for a crafter, a la WoW).

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