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Gold Capped: Relentless markdown wars

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Every week, WoW Insider brings you Gold Capped, in which Basil "Euripides" Berntsen and Fox Van Allen aim to show you how to make money on the Auction House. Email Basil with your questions, comments, or hate mail!

I got an email from someone recently about a new competitor.
I have recently returned to the blacksmithing armor and belt buckles market. When I researched my old stomping ground, I found that materials cost has increased, profits are almost non-existent, and competition was rampant! I didn't let that get me down, however. I watched the market, checked the reference data, got a good handle on the situation, then when the time was right, made my move! Competition dropped like flies, profits rose, and life was grand. Then one day, I got a new big-wig competitor.
He is one of those types who has his hand in all soups, and had set his sights on my little pot. For the past few weeks we've been having a war for the dominant spot in my market. It's come down to almost nightly bouts of 1c markdowns for hours on end- some nights it goes so low that we've even bought stock from each other (me getting the upper hand by a few copper, though). One night, to test his wherewithal, I posted stock very low. He undercut, and I bought it all. He proceeded to buy my low priced bait within seconds. Since then, from war to war, I've become accustomed to the prices he likes to set, his posting habits, and his general posting times, but even with all this data at my disposal, he still manages to keep the steam in his engine.

We've only had one conversation in all this time as rivals, which consisted of him asking if I would like to sell my stock to him at a low profit margin, and me asking him to sell me his stock instead. Not a single word since. My profits are slowly slipping away as he and I post undercut each other relentlessly. I'm still making a bit of profit, but where does this go? Are the 1c markdown wars worth the effort?
One of the things a lot of auctioneers don't fully appreciate is that the profitability of any market can be squashed by any one person posting near cost. Most attempts at reducing overall profitability in a market only last a short time because crafting for low profits is boring. There's a sweet spot in the middle of the trade-off between volume and profit margin where you will have the largest possible total profit. If someone deviates too far toward the volume side of this zone, the total profit of the market is reduced.

This can be an effective way to compete if it results in a larger share of the market going the way of the new competitor; however, it loses its advantage if another competitor is stubborn and forces the first person to split this new low-margin, high-volume business with them.

It sounds like this is what's going on here. You and your competitor have pushed each others' prices down to a place where it's barely profitable, and you're both sticking it out hoping the other chickens out first so the winner can increase prices to that sweet spot where the goods sell fairly quickly at a fair markup. As I can see it, you've made two mistakes.

"Owning" a market

Your first mistake is pigeonholing yourself into a single market that you own. You don't own markets; you rent them with a bunch of competitor as roommates. If you only work on a single market, you will always be at risk as the profit levels raise and lower and competitors come and go. You are playing the game of Who can sell the most belt buckles? when you should playing What's the most gold per hour I can make?

If you have competitors willing to sell close to profit margin, let them have their way while you focus your attention on more profitable places. Of course, this is just a ploy for them to raise their prices, but all you can do by preventing them from doing that is waste your time by forcing them to waste theirs. Move on to another market with more casual competition, and make sure that as soon as the competitor tries to raise prices to a profitable place, you're waiting there for him. TradeSkillMaster is good for this, as you won't even have to look at prices or make manual decisions. If the stock is in your bag and it's profitable enough to bother selling, it'll get listed.

Trying to own a market leads you to waste valuable time cancelling and relisting frequently, as well as having to craft a ton more goods when prices get really attractive to buyers. Unless you have absolutely no remaining profitable ways to spend your time, it's not worth babysitting auctions. Also, if he's made it clear that he'll undercut you immediately at the current price level, don't waste time undercutting 1c at a time. Undercut 5g a time, or undercut straight down to the lowest you're willing to park your stock and see whether he cuts bait. Nickel-and-diming your way down to that level will take you valuable time that you could be spending on another market.

Taking it personally

The next mistake you made was looking at the names on the Auction House. It doesn't matter who posts a batch of auctions; all that matters is the quantity, prices, and stack sizes. React to these, not the name of the alt associated with them. As I said, any one person can ruin a market by mass producing and heavily undercutting. As soon as it gets personal, this may seem like a decent option -- why bother making more gold per hour when you can win by beating someone else?

I've said before: The Auction House is not a zero-sum PvP game like chess. It's more like a imaginary casino game where the players have better odds than the house. There doesn't have to be a winner and a loser. Anyone can force someone else to lose profitability by flooding their market, but unless they can follow you around from market to market, they'll never really have an effect on you. Also, they can only delay you making a profit by investing their own time in crafting and listing. It costs them a lot more time than it costs you money.

The best way to get someone to go all kamikaze all over your favorite market is to send them a mail or tell. People rarely see past the fact that you're a competitor, so no matter what you actually say, all they're hearing is "Come at me, bro." If you want to talk to a competitor about how he prices, remember that just about the only thing that works is reverse psychology, and that's only if he's dumb enough not to ignore tells. If you legitimately want to talk to someone who plays the same optional minigame you do, don't bother trying to do it in game. Go to The Consortium like the rest of us.

Effective competition

All that said, you did pretty well, all considered. You used a very effective tactic by posting low quantity seed/bait auctions and buying up foolish undercuts. It's a good way to slap some sense into someone who is so single-minded in their pursuit of market share that they forget why they're selling goods on the AH to begin with.

You might also want to consider looking into materials arbitrage. It's borderline impossible to affect the price of base raw materials like ore and volatiles, but you can profit off volatility by buying when you know it's a good deal and keeping a small portion of your mats available for a slight premium. You can better gauge your real materials value this way -- and the better you are at picking up cheap raw materials, the better your competitors have to be to get the same cost as you.

Maximize your profits with more advice from Gold Capped. Do you have questions about selling, reselling, and building your financial empire on the auction house? Fox and Basil are taking your questions at fox@wowinsider.com and basil@wowinsider.com.

Filed under: Economy, Gold Capped

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