Greedy Goblin

Wednesday, August 24, 2011

The price fixing archmoron

Another set of screenshots of the same old story. (note: material costs are 60G).

I laughed on them. I called them morons. I put their pictures on the blog. Now, after years of blogging, after a whole community has grown out to give gold tips, I'm rather sad about his existence. He is the pure evidence that even the simplest economy advices were ignored. He is not the random idiot who runs around without enough gold to repair and says "idc cba lol". He wants to make gold. He set up and industry. He leveled up his profession. He invested gold. He is just so ignorant that he has no chance. Like the guy who farmed all the pre-raid BiS, but did not enchant, gem. and his talent is a mess.

I fear he is not alone. I fear that even among the readers of this blog there are people who don't see why is he a hopeless, incompetent businessman. So instead of laughing, I explain it, as simple as I can.

No, I don't come with demand elasticity (for lower price there are more buyers). I don't know the elasticity curve. After years of making gold, after reaching the goldcap when people struggled with buying epic flying, I strongly believe that the demand for buckles is anything but inelastic. But I can't prove it. So let's accept his idea that people will pay any price for it.

The problem is that any one of us can produce enough to supply the whole server. Crafting one takes 10 seconds including running to the AH, getting materials from the mailbox, smelting, crafting. If I was alone, even then I would be limited by the demand. So with the 2 (3, 4) of us, what will decide who sells and who doesn't? The point is that there must be a system that decides who sells. The suggestion of the price fixer is to make that system "who camps the AH more". If we both sell around 300G, the one who listed last will sell. If you camp more, you can list more. Accepting this system would be accepting defeat. If I would just undercut by a copper, I wouldn't sell a single item in a year. I would simply hand the market over to him. By selling low, I change the system to "who is ready to work for less profit". With my expertise in AFK-crafting, I can accept very low gold/ character hour, since my gold / human hour is high. By the way, 60G/10 secs = 21600!!! gold/hour is anything but low.

Please note that my system, the free market system is the only that doesn't need agreement. He can't make me list for more. He can list for less or quit.


Jon said...

Just the other day I had someone whisper me because I was pricing my glyphs at 50g instead of 300g. They claimed that I was missing out on lots of gold. But something tells me that it wasn't my best interest they had in mind! Let them waste their time cancelling and re-listing. With crafting costs of 12g per glyph I'll gladly sell for 50g all day long.

As a buyer, I will never pay 300g for a glyph. It is hilarious when sellers think the value of an item is equivalent to the asking price for it. The two are completely different.

When another seller sends you whispers telling you to raise your prices it can only mean two things:

1.) They do not understand economics.

2.) U MAD BRO?

Lyxi said...

I'd like to see the conversation of him raging at you for selling him thousands of buckles at 100 gold each, until he runs out of money.

Lyxi said...

Oh, I almost forgot.

These people forget one simple thing about cartels. In RL they work because organized crime can and will use violence to mantain the status quo.

If the cartel can set fire to your factory and/or your home well...

Greed is supported by fear. Hmm.

You know, maybe you should make a new blog, named Fearsome Goblin and see how many people you can bully or cajole over the internet to get your way. Yould be a nice social experiment.

Quicksilver said...

While wrong in a perfect world, fact of the matter is, monopolizing a certain item is a valid gold making strategy.

The price fixing response is probably his frustration venting out when he meets competition.

Glyph, the Architect said...

This looks to be a very profitable situation. I would take his advice and raise prices. Just a little bit at a time and see at what point he stops buying them. Just below that would be the price is what I would go for. Just bleed him dry.

Twinstar said...

I have made a ton of money on the AH over the years. I very seldom need to repost items. I always find it incredibly funny when people claim there is an "economy" in a video game. There is no economy if the currency does not have some kind of equal value between the spenders. Some people will pay everything they have for a vanity pet because the game gold means nothing TO THEM. Some won't pay 50g for an epic gem because the game gold means a lot TO THEM. This inconsistency in value among the majority of spenders does not allow for a real, predictable economy to exist.

Imagine trying to price something when all your customers were billionaires. Some of them hoard their money, some of them spend it freely. No price would be correct. Some would pay whatever you listed it for because they want it and the cost is funny-money to them. Some wouldn't buy it at all because they value the symbol of having the moey more. Their money does not have equal value amongst them so you cannot set a "real" price.

If there was some mechanic that put a value on the gold that everyone could at least partially agree on, for instance, use game gold to pay for subscription time. There would be a semi-stable economy based on how hard it was to obtain gold versus the amount required to pay for a month of game time.

As long as you have no reference that the majority can agree on there IS NO ECONOMY, just people spending pixels, each doing so in their own way.

As for the AH: Keep an eye on trends, undercut by 20% or don't post, swim in gold, win. It's not like you can run out of things to sell.

Anonymous said...

I wonder what the underlying causes for this apparent general inability of many players to understand economics are.

- Delusions of power and control? Since your character basically is in full control of himself and the virtual world, are the other sellers treated as NPCs? ("... can make it elevate... by talking to other sellers") I wager the guess that noone would say that about sellers in the real world, so why in a MMO?

- Lacking a grasp of game theory / a dynamic system? So assessing what is in for me, looping through if...then...else over t1, t2, ... tn?

- ...?

Azuriel said...

I'd like to see the conversation of him raging at you for selling him thousands of buckles at 100 gold each, until he runs out of money.

While I agree with the premise of Gevlon's argument (collusion is zero-sum more often than not), I do not believe it actually works out the way you suggest. This guy obviously styles himself as a moneymaker or kingpin or whatever, which means he is after the Gold High Score instead of using gold to buy what he wants. Gevlon could sell buckles all day long, but he won't. This guy on the other hand will sell buckles all day because that has become the entire game for him.

That doesn't make him smart, that doesn't make colluding with him a good idea. It simply means Gevlon or anyone "running him out of gold" is extremely unlikely - at least unless Gevlon is as committed as this guy to making gold for the hell of it.

Also: people buy 300g glyphs, 300g belts, etc, all the damn time. If for no other reason than to avoid people like Gevlon yelling at them for being M&S.

Anonymous said...

Cartels also work because they are always businesses with very high entry costs, such as telecommunication or rail roads, where you need to invest billions before you can get a single customer. If four companies exist, it is more lucrative to give everyone 25% of the market at 500% of the competitive price point, since that is more money for each of them than if they were alone. In WoW, your entry fees are trivially low, around a few thousand gold and ten hours or so, to get your crafting skill from 0 to maximum value.

Bobbins said...

He is on about resetting the price at a higher level not 'price fixing'. It is the wisdom of buying out your 'wall' that is questionable not the attempt at resetting the price.

Krytus said...

How do you handle the morons who sell below material cost?

I usually don't like to deep undercut because even when you manage to drive some sellers away from the market, there is always a couple of players who will keep undercutting even below material cost. I imagine they think their farming mats are "free".

chewy said...

I'm slightly surprised that you spent time trying to educate him. He's a customer so don't try and put him off buying your goods. If he likes to think he can dominate the market, let him, you'll get richer by his stupidity.

It's the same principle that you use to encourage the opposing sides idiots to attend the BGs. If you'd responded with "lolz cba m8" he'd classify you as an idiot, leave you alone and continue to buy from you. If you get lucky he may even encourage others to join his hopeless cartel creating yet more customers.

Anonymous said...

If people sell below material cost you either buy his stock hoping to sell higher, or you find another market. It is impossible to compete with someone who "farms for free".

As for price fixing, there are some markets where it can be very lucrative to do so. For example, I remember when I had ~100g by the time I was lvl 20 leveling on a new realm. This was mostly from buying all stacks Linen Cloth and selling them higher.

The reason this is effective is because there is a) demand for it, and b) your target demographic is likely to have enough money to buy it. The target in this case are alts of higher level players with a bunch of gold sent over. New players without money don't mind to grind 2 minutes for it, but alts of higher players want to level now, so are more willing to buy. These are also the people who don't care if a Linen Cloth sells for 5 or 20 silver each.

So basically what Gevlon said: if one or a few people can supply the demand of the entire server, then price fixing is suboptimal. If the demand is high enough that items sell regardless, price fixing is a valid strategy. The cutoff point is when people will stop buying, rather than how much your competitors are willing to sell for.

Sten Düring said...

I've sold for below material cost in order to make a long term profit.

Sometimes I bomb myself, so be it. More often it's someone trying to move in on "my" market. In the long run my experience is that it's worth a week or so of losses to drive them away. If they persist, well, that market is dead for the time being.

Also, deep undercutting on high capital items ususlly isn't worth is. After all, the value of a market is defined by the profit you make over a period. If a 20k gold items sells once per week, then that market is worth 80k minus investments on a monthly basis. You could easily undercut your way where said item sells eight times monthly -- for a 100 gold gain per sale. That's a bloody awful market.

Anonymous said...

Surely price fixing doesn't work in WoW, but still, don't call it completely idiotic.
Cartels often work - they're illegal, but they work. Wow isn't much different, not many people each server take up industry in a specific niche.
Take the diamond cartel, for example. There's lots of un-used supply to keep the prices sky high.

Anonymous said...

I *wish* ebonsteel buckle materials totaled 60g on my server... I'm lucky if I can buy the 4 volatile earths for that price.

Michael said...

I've often disliked how artificial and contrived the WoW AH and crafting system feels. Goods all of the same quality, all with the same material cost, produced almost instantly, with extremely low volume, instantly accessible to everyone in the world. It makes for an unpleasant gold-making environment.

I like the crafting system in fallen earth, where it takes real time hours to craft some items. You load up on your mats, set a queue of items to craft, log off or go do other stuff, and the next day you have crafted items.

I like the market system of Eve Online. Buy orders alone would make WoW prices so much less volatile!

Michael said...

Also, @Jon, you shouldn't set an artificially low price in the absence of competition. That's a failure to understand opportunity costs. The value of an item is not in the amount you spend to craft it, but in how much you can sell it for to the person who currently is willing to pay the most for it. The price at the margin.

If you craft an item for whatever amount or simply find one and it _could_ sell for 300g, and you instead sell it for 50g, then you're 250g poorer than if you'd not sold it.

The reason to post lower than the sell price is to avoid playing penny games with undercutters, or to intentionally _move_ the price as you introduce higher supply and want to build demand.

Bobbins said...

'my system, the free market system is the only that doesn't need agreement'

I'm not sure yours is a free market system you seem to be deliberately over supplying the market in order to 'reduce' competition. Your goal is not to maximise profit but to force out competitors and to set a 'maximum price'.

Jon said...


Posting glyphs at 300g with no other sellers in the market is not something I do anymore for 3 reasons.

1.) It DOES encourage penny games as other glyph sellers will see my price and undercut by a penny.

2.) Most of the time the glyphs end up returned to me unsold. Yes, a few people will spend that much on glyphs, but from my experience if you have that much gold to spend, you're probably smart enough to just find a scribe in your guild to make it for free or at the cost of mats. I made well over 2,000 glyphs to contribute to my guild's Pen is Mighter achievement and would like to actually sell them instead of having to undercut and relist 1000 times.

3.) I'm already quadrupling my money making these darn things. I don't think I'm at a shortage for gold, seeing as I'm going to hit the cap in a month or two.

If you don't have much competition, your server is full of rich dumb people, and you need the gold badly - by all means charge an arm and a leg. I'll pass.

Silverthorn said...

It really depends on the item as to whether or not a buyer would pay 300g for something or go without. How bad do they need it? How soon?

The AH is a convenience mechanism. They buy a glyph from the AH because they don't want to level herbal to get the mats and then level Inscription to get the need glyph.

If I am willing to do either of these things, or simply walk away when the price hits 300g, then I am not the customer you're looking for.

You're looking for someone flush from the Molten Front dailies or their own lucrative professions and dropping an extra 100-200g isn't pleasant, but they'll do it they want the item badly enough.

At some point, you'll start to figure out that you might sell more if you dropped the price to a "more comfortable" level. If your profit margin increases, so much the better, but the point is, some items do command a higher price, sometimes much higher, simply because of availability on the AH.

Anonymous said...

WoW is only an abstraction of reality in this sense. There are factors this model ignores and are still crucial for adequately describing reality.

IRL, considering the current state of R&D and production, individuals very rarely posess the means to appear on the market alone. Corporations on the other hand has already perfected the way to bypass the restriction on their profit margin you mentioned.

Compared to this, all belt buckles being the same, factoring out vanity and other factors is only a minor inaccuracy when drawing real life consequences.

Anonymous said...

Welcome back Gevlon. Great to see you posting about this kind of thing again. Have you thought about wholesaling for this guy? Offer him the retail market if he'll buy your buckles COD in some quantity/week. It seems that your AFK crafting niche is ideally suited to wholesaling; why bother with the retail listings?

@Krytus, if someone is selling below materials cost, look at selling the mats. If they tank the glyph market, sell herbs, inks and pigments. By selling a lot of dirt cheap glyphs, they're going to need more production inputs. The only person this won't appeal to is one with strong vertical integration who manages their supply chain very well and is willing to farm for low gold/hour. Those people are the exception in my experience.

Anonymous said...

Twinstar claims:

"There is no economy if the currency does not have some kind of equal value between the spenders."

This is a really dumb statement since the same thing applies to the non-virtual markets we typically call "the economy."

Fex said...

i've always followed the tactic of selling lower, i aggressively undercut and camp, but i don't undercut by coppers, i undercut by a minimum of 10% of the guy listed above me. If i'm undercut again, that becomes 11% and so up. To compensate any sucessfull sale will lower the amount i undercut with. By around 0.3% per sale.

As a result i can pretty much dominate the gem market. In essence i'm the sole provider of gems, the competetion only sells after mine are sold out and i couldn't relist in time.

They will never learn. I still get demands to raise my prices. And i have found, regardless of relative value that gold may have to players. That selling gems at lower cost, will net me more gold and profit then selling them higher.

A high market price invites competition. You agreeing to a price cartel will just bring a third guy into the equasion that does undercut you both. Keeping prices artificially high on average brings 4 new jewelcrafters into the market a week. And it takes you about three months to work someone out of a market.

Keep listing them low. Don't raise prices, don't try to find the equasion where you sell at the highest possible price where your competition is unwilling to undercut. The fluctuality of competition makes it pointless. a new guy will show up changing the price levels again. Keeping them as they are now makes your market uninteresting for competition, generating more gold in total.

The reality is that guys that work the markets, have gold. And they are willing to pay a lot for whatever they need to buy right now. And they think everyone can afford, and is willing to pay those same prices.

Obviousely you know all this gevlon. I'm just trying to point some things out that weren't mentioned in your post.

Glad to see an economic post again, these are what i came to your blog for the first time.

nightgerbil said...

Thanks Flex, that made alot of sense. I mainly read the blog for gold help, I still struggle now. Never got over 20kg and I lost ~7k trying to make gold with my jcing. I find whatever market I am in I get undercut, If I deepundercut I get undercut and that farming then selling below mats cost still gets me undercut. Makes me want to give up sometimes and just go back to grinding/vendoring. I have vendored cut gems (good ones like +50spell pen and +60sta) because I simply couldnt sell them above the vendor price. Maybe the answer is to work out the price of every gems vendor price+ah fee and list all my gems at 1C above that. No possible (serious) competition then right?

Twinstar said...

@Anonymous: you said
"This is a really dumb statement since the same thing applies to the non-virtual markets we typically call the economy."

It is true in any local economy. Money has approx. the same value to the middle class (majority of spenders). Therefore an economy can/does exist.

If you made 3x as much as your neighbor on the left and 4x less than your neighbor on the right you would never know what grocery prices would be. They would be high when the market was trying to sell to your rich friend and prices would stagnate and drop when he wasn't shopping. There has to be a semi-agreement on the value of the currency.

The term "Global Economy" is a lie spread by the ignorant. There is a Global Economy for Corporations, they semi-agree on the value. There is no such thing for consumers.

TBTSan said...

Fex nailed it good: higher prices = more competition.
Right now I have almost all the glyph market without any competition because of low prices. Every time I increase price over 40g/glyph - I get competition and I'm forced to "fight" them wasting time on cancelling-relisting.
Now only problem is how to get cheaper inks/herbs;)

Anonymous said...

I totally agree with Fex, high priced crafted items just encourage people to enter in the markets and become your competition.

Gems and glyphs are all about quantity and maintaining a low price point.

Anonymous said...

Twinstar notes:

"If you made 3x as much as your neighbor on the left and 4x less than your neighbor on the right you would never know what grocery prices would be."

I don't know the incomes of my next door neighbors, but I do know that I live within easy walking distance of households with incomes >$300,000 and <$20,000. My income is somewhere in the middle and we all shop at the same grocery store on the east side of town. I can generally predict the cost of a gallon of milk to within a few percent before I even walk in the grocery store.

I suspect that you either need to spend more time in grocery stores or that your economic theories lack a foundation in observable reality.