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Gold Capped: Monopolizing the market

Every week, WoW Insider brings you Gold Capped, in which Basil "Euripides" Berntsen aims to show you how to make money on the auction house. Email Basil with your questions, comments, or hate mail!

I got an email that got me thinking about monopolies.

I play on a medium to small pop server that is decidedly near the bottom of progression, and there is one individual on our server who has a monopoly on epics. He seems to play all day, regularly buying up underpriced epics from clueless people in trade, as well as the reasonable and even overpriced epics from the AH. He then jacks the prices up 10-15K. Based on what I can tell from
popular WoW economy websites, our server's epic prices are consistently 10-20K gold more than the average.

Kudos to this guy, but it's annoying me in some way I can't quite put my finger on. It doesn't effect me personally: I don't buy much BoE gear and I'm fine with my AH income. It's the idea of the monopoly that bothers me. I feel like it's hurting the server in some way.

My question is: there must be a few economic theory type solutions to busting a monopoly of this nature, but what are they?



What this guy is doing is usually called flipping, or sometimes, brokerage. Buy low, sell high is the easiest to understand business in any market, simply because it seems so obvious. If you have the money to fund a flip, all you have to do is manage to find someone willing to pay more than you did, and you've gotten "money from nothing." Or have you?

Nothing is really free

If there really were a way to get money for nothing, more people would be gold capped. In this case, while the broker who is buying all these epics didn't have to level professions or farm materials, he still has a few serious costs. First, he has to tie up his money in these epics while he waits for them to sell. This is money that he can't spend on himself and doesn't have in his bags while it's being used for flipping.

This also introduces him to the second cost: risk. While he may be making a profit normally, the fact is that every time he buys something, he's betting he can find another buyer who will pay more for it. If he's ever wrong, not only does he have to live without his money while it's tied up in stock, he also loses the difference between what he charged and what he paid. Risk and the amount of money needed to get started are the reason that you don't see everyone flipping epics.

Risk

I know first hand how easy it is to get burned when you decide to try out flipping. My very first exposure to the AH was making a successful flip and getting so excited by that win that I reinvested all my profits into a bunch of other promising-looking flips. My very second exposure to the AH was discovering, the hard way, that there is an element of chance involved as I lost everything I had made on my first deal and then some.

If I had researched a little better, I'd probably not have lost my money. I was level 12, and I consider the money lost well worth the experience, to this day. I've had some spectacular wins since then, but I will always remember the value of information and knowing what you're dealing in.

Buy low

Buying low is the art of finding something that's undervalued. It can, however, be very hard to tell the difference between something that's undervalued and something that's low value. One BoE might be worth 30,000+ gold, where another at the same ilvl could be worth as little as 5,000, and the only difference would be that there's a reputation epic that does the same job as the cheap one. There are some markets where the volume is so low that the market value for an item is all over the place, with a huge deviation from the average. Epic BoE gear is one of these markets, and this means that there will always be people willing to sell for the low end of the range.

Whether a broker finds an an item on the AH or in trade, he has to be online when the seller is looking around, or else his competition will get the deal. Part of the equation for brokerage will always be market presence: If you're willing to be online more than your competition, you'll secure more cheap stock than they will. The more your competition is logged in, the more stock they'll get, and the more you'll pay for your stock.

This is not the only part of the game (or the economy minigame) that rewards camping. I've long stated that Blizzard should allow players to buy the same way they sell, by posting their offers and logging off for 2 days. This way, people who camp trade and the AH all day would have no serious advantage over people who play more reasonable hours.

Sell high?

The second half of brokerage, selling high, is taking a commodity (the more rare, the better; the more highly in demand, the better) and trying to increase market value for it by releasing them more slowly than they're being produced. This technique is probably what most people object to, as it directly increases the average player's costs when trying to gear up. Most people don't object nearly as strongly to a broker's buying something at under market value, for some reason.

Selling high by constricting supply only works when the base material for the goods can't be farmed and when there is considerable demand.

Here's the thing: This isn't a monopoly. A monopoly is established on the buy side, not the sell side. If someone else can produce or buy whatever it is you're selling, he can and will compete with you by undercutting. That, in fact, is the hard reality of this type of business: Unless you have the means to control the supplies of your competition, you can't raise the prices by holding back stock. Your competition would step in and simply sell theirs instead.

Break down a camper

Firstly, since you're not directly being affected by this broker, my advice for making gold is to continue ignoring him. Don't let it get personal, and let the market sort him out. Focus your attention on some market that doesn't have a high presence camper, and enjoy your gold.

If, however, you decide that you want to take his market, you have to be prepared to do all the work he does for half the sales or less. Otherwise, you're not going to force him anywhere. Mind you, lowering the final price on epics will get them selling faster, which may pay out for both of you in the end.

In this case, the way he's making such a high markup is by being there all the time to buy. You need to spend your time in this market making your willingness to buy BoE epics known in trade and outbidding him whenever you can to force his prices up. When you win, you need to resell at low margins. Aside from that, consider directly contacting raiding guilds and offering them decent money for any BoEs they don't need.

Maximize your profits with more advice from Gold Capped, plus the author's Call to Auction podcast. Do you have questions about selling, reselling and building your financial empire on the auction house? Basil is taking your questions at basil@wowinsider.com.

Filed under: Economy, Gold Capped

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