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Tuesday, 25 February 2014

To not destroy a market

A key component in the art of selling slow moving, high profit items is knowing how far to push a market before over supply leads to rapidly falling prices.

The point about these slow moving but high profit markets is players that buy the items off the market are not buying because of price - they are buying because they need the item now and will take the price that is listed at the time.  In other words, the demand does not change in response to price.  These are very price in-elastic items.

This is not fast moving but low profit markets where the aim is to make 2% profits many times over (perfectly good strategy - just not for this blog) and lower prices encourage more buyers.

In this slow moving market, what drives price is supply.  If too much supply comes on the market then other sellers will seek to bailout by aggressively making sure they are the lowest price - which has the effect of driving the price lower and faster.  However, volumes of sales will remain unchanged.

Take the example below of Nova Heavy Assault Missile Blueprints.  This was a good favorite of mine to sell when i started out.  They can be bought of NPCs at Jita for 600k ISK and normally sold for 1.3m ISK in Dodixie.

However, at the moment there are 19 for sale at 997.9k ISK.



Unfortunately, volumes of sale per day are between 0 and 2, as shown below.



Hence, one sell order has c19 days of sales up which will only force a price war but, and here is the catch, without enticing more buyers into the market.

All the other sellers know that they can either wait 20 days (likely longer because further other sellers will be trying to get the lowest price) or they can discount in an attempt to be the cheapest when a buyer pops in.

People do not buy this Blueprint because it is cheap, they buy it because they want it now and are willing to pay 1.3m ISK if they have to.

They effect on the price is clear to see from the chart below:




We have a classic price war where the price has been reset for now but note how the volume has not changed since the prices fell from 1.5m to 1.0m ISK.


The seller of the 19 items just got too greedy . . . . . or this seller may force the other competitors out of the market and so take the market for themselves.  But they are likely to drive the profits down to 300k ISK per day - and if they allow prices to rise the old sellers will come back in.  Taking the entire market in what is quite a small market is perhaps not the best use of time here.

. . . . . .  and of course, volumes will remain at 0 to 2 per day, no matter how low the price goes!


9 comments:

  1. Some of Gevlon's classic posts dealt with the way he undercut people in WoW on glyphs. Similar market, small sector, only a couple of competitors.

    Once you wipe out the profit, your competitors, who after all are merely playing a game, will move to something else. Once gone they probably won't be back, in this case t1 ammo blueprints selling 1-2 a day isn't a great market.

    That's the psychology of the deep undercut, pure market pvp. On the other hand, and particularly since this guy bought so many he could just be an idiot.

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  2. I disagree.

    If margins are high you can pretty much count on it someone is camping the hell out of it making sure he gets most of the business.

    What I do is drive buy prices up quickly until I get one in spite of the camper and then use it to start dropping sell prices too. The only way the camper can stop me from lowering the sell price is to buy me out (at a nice profit for me) or wait until someone else buys it. If he undercuts me I'll just keep lowering the price until he stops undercutting or the margin is so low it's not worth my time anyhow (let him waste his time obsessing over preventing mine from selling).

    The only way he can stop me from buying more is to keep overcutting my buy orders. The higher the price goes the more get sold and he has to buy them all to keep control while all I need to get is 1 at a time. If he's not careful he can easily wind up buying them a lot faster than he can sell them and making very little when he does sell one.

    In the end he's either going to stop trying to "control" the market (maybe even leave it entirely) or run short of ISK and have a huge stockpile he paid too much for and can't move very quickly without taking a big loss.

    Myself, at the worst I lose some ISK on one or two items before prices settle at lower levels with slimmer margins.

    ReplyDelete
  3. @ stabs

    In a non automated (non-api) market that is true, EVE markets however (especially the jita-dodixie corridor) are heavily scraped and updated on market collector sites, so the stabilization of a market will be auto-detected by the in EVE normalized marketing tools.

    The best way to manage spread rates in EVE is by buffering on certain price lvls. Create an equilibrium that is not interesting for speculators, automated market-monitoring XLS sheets, and a lvl that keeps industrialist away to to low profit margins. To find this equilibrium is difficult. But in some markets it is doable.

    In my own markets I regularly buy out people as MoxNix to keep them out of my market. Let them have a small profit, but let me have the turnover of the item. The buyout trap as noticed in the next paragraph of MoxNix can be monitored by watching your speculation stock lvls by api. When you know the turnover rates of Empire Space (80% of stuff is sold in Empire), you can calculate the times you need to dump your stock if you want to get out a market. You can set a lvl that suites your marketing style, and still speculate very safely.

    Running short of isk can happen to anyone... but then the EVE mantra comes along; don't fly (own) what you cant afford. As in owning speculation in a market where you cant handle the isk volume traded is as a market that you should not have entered in the first place. The risk would simply be to great. Realize I like to watch markets from a long position. Short positions is another story entirely, but don't have a long term market dominance as suggested.

    Then, as said before, taking loses on certain positions should be a calculated risk for every marketeer.

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    Replies
    1. Aha, someone gets it!

      I don't worry about players like Jasper. He's obviously playing long term trends, understands how his markets work and has an intelligent strategy. The one's I'm battling are no-lifers and bots playing the mindless perpetual 0.01 ISK cut game.

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  4. I'm not sure I fully understand why him having 19 on sale matters? Is it because others *have* to compete with 19er because if they don't it would take too long for the order to get out of the market? Is there really a difference between someone with a 19 order, vs someone else who sells his stock of 19 items 2 at a time?

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    Replies
    1. yes - he has effectively put a wall up and if the other players want to get a sale they will need to go below his 19. Indeed, the incentive on the other players will now be to exit the market and recycle into another market - it is this rapid action that forces the prices down quickly but in the case of these items the sales volumes do not increase.

      Of course, if the seller of the 19 was to put up 2 at a time - i suspect the seller would get a better price but will be sharing the market with the other players.

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    2. Okay... but a player can build a wall just as effectively with 2 orders, each of 1-2 item each. Other traders see them, think "oh the market will clear it and it will be my turn" - except the wily trader keeps adding a second sell order when the first goes through the market. So even though an order is small in number of items, on a low volume market you have to compete for the price because just a few orders can block you as effectively than a huge stocked one...

      Your main point that for some items volume is low and will remain low is very well taken though.

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  5. Of course EVE is an aggression outlet for lots of people. I guarantee that there is MARKET GANKing in EVE.

    That is some people in EVE play specifically to tank market prices. Some to be mean. Some to be carebears to less wealthy players wanting to PVP etc. Some for philosophical politic reasons (Communism can work).

    In fact the EVE market itself is designed as a long term economic experiment in socialist (hybrid capitalist-communism- regulation in the public interest) economics. If you look at market design that are some very peculiar rules and inducement built in. For instance keep in mind most noobs take the market average as gossip -- especially when you can nasty official sounding warnings for prices too high or too low as if you were breaking the rules (sort of implying that proceeding will rsult in a another message "argh! too late now! you are flagged as an economic pirate prepare to have outlaw status).

    Now weight in that "wholesale" purchases for later resale are not separate from end-user retail sales. Thus you end up lowering the market average in that region before selling. Not good if you are reselling in the same region and your price deviates say +60%. Sure rich people with plenty of money and little time buy anyways. But newer players or those players not firmly based in that region, on an ISK budget and with not much market sense will go to a nearby region seeking prices closer to the market average.

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    Replies
    1. The market as economic research tool is well documented. EVE has its own real life economics professor. I doubt he is spending time simply for the modest sum CCP can afford to spend on game support. Nope suspect an "oh goodie 250K lab rats" from the professor and probably government and political foundation grants from Iceland to the UN level.

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