Tuesday, April 17, 2012

1c/0.01 undercut is cartel

For long I dismissed 0.01 ISK or 1c undercutters as "punks", considering them something that happens only in MMOs, abusing the fact that it's illegal to use a bot to manage orders and also, since there is no brand or quality in game, the buyers will buy the first item in the list. So I considered them human bots who camp the game all day, updating their orders.

However they have a real world version, the cartel. By undercutting by only 0.00001% of the value of the order, they are matching prices. Their idea is that if we keep the prices all together artificially high, we all make more money. And that part is true, if everyone agrees to a cartel by not making significant undercuts, the group of the sellers as whole is getting off better.

However as competition is eternal, cartel members don't share nicely. Not in game, not in real life. They keep on competing, just not on the price but on marketing. In the game it's done by being on the top of the list, hence the camping.

When you choose to undercut by only a little, you are joining a cartel, like it or not. You give up the chance to compete by having a more efficient production or by working for lower profit rate. You agree with the rest of the cartel members that you'll just compete by marketing aka update frequency. You do it to "not leave money on the table", maximizing the possible profit.

I never joined a cartel, simply because I'm sure that I can beat my competitors and take the market for myself. I undercut deeply to break the cartel and force them to work for much lower profit than they want. So they give up and go to hell. Remember that their scheme requires lot of player hour. Selling for 100K profit at the cost of 1 update in a day (5-10 seconds) is 72M/hour. Update it 20 times and you are at 3.6M/hour, you're better off running missions. Of course they don't want to sell for 100K profit, they want to sell for 5M profit, but I can quickly make that dream pop.

Important: till the 0.01 punks have stocks, you won't sell. No point cutting again and again, you are really leaving money on the table. They must liquidate their stocks. Them giving up means they won't restock, but you can't expect them to just trash their wares. After setting a new price, you must wait until they run out. Then you can sell, or you find that some of them are still there, restocking. Then cut again.

Another thing: if they left, don't get too happy and rise the price, they'll come back (or some new one). Write down your prices and if you find your 11M sell orders empty, with the lowest seller 15M, sell for 11.2-11.5, and not 14.5.


PS: I'm back and moderating comments, 20+ from yesterday processed, feel free to continue the conversations.

12 comments:

Anonymous said...

just fyi "the buyers will buy the first item in the list."

IIRC, EVE had some not completely intuitive behavior:
If you have something up for 1000 and I have it up for 999 and someone clicks on your order and buys it for 1000, I get the sale. I.e., I think that even if someone wanted to not buy the cheaper item, the market enforces the cheapest getting the sale.

Anonymous said...

You have talked about deep undercutting before in relation with wow.
To be honest, I have never really understood this.
In wow I am a glyph seller. And I sell ALL glyphs. I relist once a day and have a nice, steady income.
My "stop-loss" is the value of the ink used + around 10%.
So if anyone doing deep undercut, the only thing that happens is that the price will reach the cost of the ink to make the glyph much sooner. And if it goes below the cost of the glyph, I stop selling until it comes back up. If a deep undercutter continue to keep the price below the cost of making the glyph, he is more than welcome.

There are about 345 different glyphs in wow and if I sell them for glyph cost + 10% or more, I do make a nice profit, no matter how many deep undercutter there are. My "main" problems are the bots that relist every 2nd hour, not the deep undercutters

Sal said...

I still say they should introduce a minimum % undercut, or be forced to match prices. Resolving matched items in a FIFO manner.

I have yet to find an item in any mmo that is liquid enough to support 1c/0.01isk undercuts. (those that are hold no interest, since they have no value). Afaik; only currency is traded to the very last digit. And that's only because it's traded in _very_ high volumes.

Todays regime of taxing de-listing does not work very well. And is empirically shown to not prevent bots or "punks". Mostly because the de-listing and/or listing fee is rarely well balanced towards the item.

As it is the 2-hour relisting bot match your price and gain sales wihtout loosing income/margin. If the "government" add a minimum % undercut there is a cost added to undercutting. This is important because it would drive the market toward equilibrium faster, and once there, it is not profitable to undercut. Even a bot would have to stop at that point. That is barring a starvation game, or "farmin' for free", which the bot excel at. However; the bot/punk is then better of selling materials.

I too did the glyph market in wow. Inspired by this goblin here. I too had a steady income. My human counterparts had an ambivalent relationship towards me. As I'd drop the expensive glyphs by 50% at times (from 499g to 249g), and then undercut new 1c listings with 10% every 4-8 hours throughout the weekend. I stopped at 800k gold but still have 18000 BF inks idling in my alt-banks.

Well, that's just my $0.02
(See what I did there. I undercut your comment)
/Sal

nightgerbil said...

So the goal is market domiantion? I had issues as a jc, due to the extremely high deposit costs. I think I lost ~7k gold trying to sell current (max lev) gems, I only made a profit grubbing away in my market niche of solid chalcedony/sky sapphires for levelers. In theory if trying for market share it shouldnt matter if I had 1 or 50 competitors and moving to a high pop server wont help me if pursuing your strategy correct?

Oh my trial acct expired in eve, If anyone wants to use an invite a friend bonus I'm planning to upgrade my account to full.

Antivyris said...

Actually, there is a large advantage you may be missing, and it has to do with how the market works in EVE. No, not the economy, the market itself. If you put in a sell order for a very large supply, say, 40k small antimatter S at 10isk per, it's a very interesting thing to look at the transaction log when it is sold. You'll find, of course, most at 10isk per, but if you're at the bottom of seller list and someone buys something over priced, you'll see the following.

10000 - 10isk - BlahBlahOne
20000 - 10isk - BlahBlahTwo
5000 - 20isk - BlahBlahWHAT
5000 - 10isk - BlahBlahThree

Unlike WoW, the point of the .1 undercut is not entirely in being the first to sell, it's being top of the list to get the over-priced sells.

Anonymous said...

(I have not played EVE, but what I am going to write is true for WoW and other MMOs I've played.)

Every for-profit entity would want to maximize their profits. In MMO, undercutting with 1c or undercutting with large margin, are part of business strategies in order to maximize the margins.

A cartel it'd be if the sellers would discuss with each other how to maximize. It'd be legal in MMO, but it is generally not what competitors do.

Competitors generally respond via the market by undercutting the undercutter. Hence undercutting is merely competing. If there is lots of undercutting going on it is called a price war: http://en.wikipedia.org/wiki/Price_war

If competitors would e.g. whisper each other asking to not undercut the 450g item with 200g, instead keeping the price around 450g thereby keeping the profit margin 250g on each item it'd indeed be cartel but this is not what I have observed happening en masse.

As for Sal, botting is illegal. The problem was that they didn't catch you botting; not that you earned 800.000k with glyph business by botting. It is known that Blizzard does not do much against AH bots...

@ nightgerbil, market domination (the extreme example being monopoly) yields the highest profit margins.

Nielas said...

@Anonymous
"So if anyone doing deep undercut, the only thing that happens is that the price will reach the cost of the ink to make the glyph much sooner. And if it goes below the cost of the glyph, I stop selling until it comes back up. If a deep undercutter continue to keep the price below the cost of making the glyph, he is more than welcome."

Gevlon's primary advantage is that he has a very efficient glyph production system. Since he spends very little non-afk time on the glyph business, he can wait a long time to see if the competition leaves the market. He could keep the price of a glyph at cost for a month and hope that you get bored and go do something else.

If you are not concerned about sky-high markups and can wait just as long, Gevlon's strategy will fail and you guys will have to share the market. However, the 1c undercutters will rarely have the patience to wait him out and will abandon the market.

Sal said...

@anonymous

I don't know how you came to the conclusion that I was botting?

I have never botted and never will. IMO it kills the purpose of the the mmo economy meta game.

My 800 k gold was earned through fair play. Although the UI mods Auctioneer and Glypher helped me a lot. These are however allowed.

I bought herbs in bulk, milled my self and paid other players to mill. The server was high population with an abundance of herbalists (who may well have been bots).

/Sal

Sal said...

@anonymous

oh! this maybe? "My human counterparts had an ambivalent relationship towards me."

- Was a reference to my competition comprising of both humans and bots. I chatted with the humans and disregarded the bots. The bots where poor chatters anyway.

/Sal

Armond said...

The problem I currently have with deep undercutting is that there are people on my server who have been making glyphs for literally years (since mid-wrath, I suspect). I don't think there's any way I could drive them away - I think that'll be Blizzard's job (when they're bored of the content). So, in that case, the 1c undercutter is right - every gold I undercut is profit I'm potentially giving away.

Anonymous said...

@Armond: I've recently entered the glyph market on my server. in my oppinion everthing what Gevlon says in regards of deep undercutting is correct.
It took my competition around 6 weeks to leave the "lower" market segment to me. I guess this was exactly the time it took for them to sell of their stock. Since then I am making quite okay profit. Up until that point you will not be selling anything significant at all.

Anonymous said...

I've always sold at my prices, ignoring current market prices. Sometimes I didn't post anything, sometimes I undercut by 50% or more. My friends complained I was "ruining the economy". I never had to relist and I have much more gold than they do.

p.s. There is no such thing as "an economy" in a video game. It's not real money and doesn't hold enough value to force the rules of supply and demand to work. I've never played EVE though. Perhaps PLEX adds an element to help with that, though I doubt it is significant.

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