"Hey Markco/Call to Auction.
There is something that has been bothering me when I read a lot of forums posts. There is a concept that I believe you may not have addressed yet in your blog/podcast and it is really fundamental piece of information that all Auctioneers need to understand. Money is made on the BUY not the SELL. The best way to beat undercutters is by buying.
"It is at the time of buying when you set yourself up for future profits. But the profit potential that you control is 100% related to your buying decision."
This concept is often misunderstood when someone is complaining undercutters posting below cost. In all likelihood they are not. Unless they are trying specifically to drive competition out nobody will ever post below cost without it being a major mistake. Most of the time when people are complaining about posting below cost they fail to realize that the other person is posting below "your" cost, but probably not theirs.
This loops back to the aforementioned concept. You make your money when you buy, whether that be for flipping or raw materials for crafting. We're dealing in goods where everything is equal and there are very few factors aside from price that influence a buyer's decision. Now that we've acknowledged that we can assume that it only takes one person to set a price ceiling. As long as they keep one auction up all the time at a certain price they have set that limit. Sure you can post above it all you like but you will never sell your auction unless there is a demand spike or someone mistakenly pays more to you.
Now lets apply this concept. That person that is selling below "your" cost is very likely still making a profit if you are basing cost on auction house prices. This means they are getting their materials cheaper than you. This also means they win. Now in order for you to try to "muscle" them out with undercutting you will not only have to sell below your cost, but also below theirs thus taking additional losses. If their cost is below the auction house then we can reasonably assume that you can not manipulate their supply through control of the materials on the AH either. Now you are left with a losing game. On a long enough time line you are going to take greater losses and have to give up.
The real game is buying. Beat your competition buy buying cheaper than them and you always win on the sale end.
Dale"
You are correct Dale, as I've stated with buying low and selling normal, it's all about getting something cheaper than your competition and posting for the value a consumer is willing to pay. When people state "that strategy doesn't work, the competition are posting below market price" they are wrong. The competition is posting for the value they can and still turn a profit, barring any unusual tactics such as attempting to drive out opponents on the auction house with super low postings.
Be sure to check the tutorials section for how to bid, buy and snatch.
10 comments: on "The Power of Buy in Cataclysm"
Anonymous said... November 24, 2010 at 10:36 AM
buy low sell high - isn't that what any merchant tries to do?
Anonymous said... November 24, 2010 at 11:11 AM
The point is not to emphasize "buy low sell high." Anybody can read that an see how it generates profit. The problem is buy low sell high starts to fall apart when competition intervenes. The point here is people need to understand that rather than focusing on their prices (as most do). They should be focusing on their costs. If you keep your costs low profits will follow plus market control.
Anonymous said... November 24, 2010 at 11:14 AM
Everyone can see how buy low sell high works. The problem is that starts to fall apart when competition intervenes. The key concept here is that most people make the mistake of focusing on their prices when they should be concentrating on their costs. If you keep your costs low you gain profit and market control. Market control is more valuable than profit alone.
Draikking said... November 24, 2010 at 11:21 AM
THIS! +1 vote for quest post of the year! (in terms of economy theorycrafting, noone can beat the Glyphmas poem :) )
The Gnome of Zurich said... November 24, 2010 at 1:14 PM
Dale come perilously close to some big fallacies here, even as the central point is a good one (that you make most of your gold by how/when you buy, rather than how/when you sell).
It inspired a full post from me here:
http://gnomeozurich.blogspot.com/2010/11/perils-of-making-your-money-on-buy-side.html
Anonymous said... November 24, 2010 at 2:44 PM
Sancti here.
Some interesting comments here and in the related post from Gnome. However, opportunity cost to someone who is interested in playing 'the game' as opposed to the AH is more time in the game and enough money to buy what they need. Most of us collect mats in the course of questing/running instances and then when we have enough OR CAN BE BOTHERED we may put it on AH and undercut to ensure a quick sale. We find the AH boring albeit potentially lucrative sometimes. It is not a primary reason to play the game for us. In that light it makes ALL the sense in the world to just list at low prices to ensure a quick sale - post and forget basically. we get more than vendor price and take minimum time from the game.
There is nothing wrong in playing the AH, just remember that your opportunity cost is rarely my opportunity cost because we rate opportunities differently.
And that is also why much of modern economic theory is flawed - too many underlying unstated assumptions about value being an absolute that is common to everyone. It isn't.
Tarel said... November 24, 2010 at 6:50 PM
Good post and an excellent point. Most profit really begins at the buying stage as it is the one limiting factor.
Gnome, Your points in your blog are fine but that isnt what I see as the point here. This is really just addressing the buying part of the equation in your profit mix.
Sancti, another point but again I think it is just part of a slightly different issue.
What you buy at determines your profit and what you can sell for. As many indicate opportunity cost also comes into play. Snowfall ink is a great example of a complex item to price.
Syurri said... November 24, 2010 at 11:47 PM
Dear JMTC,
Does anyone know if The Schematic: Deepdive Helmet or Deepdive Helmet is obtainable at all now that the entire world has changed? I stocked up on the recipe quite some time ago and was selling it rather slowly to a halt recently because of competition, so am stuck with over 20+ of the schematic.
Then the world blew up and now I hear rumors both items can no longer be bought. If this is true, anyone who has it (or any other old-world recipe that is no longer obtainable) will be able to make a huge killing off the limited sales of such items.
Anonymous said... November 25, 2010 at 12:42 AM
i always post low and wait for other sellers to buy out my items.
that profit that i make is guaranteed. as long as i keep flooding the market with epics that i can craft uber cheaply the other sellers are going to keep buying out my items at my price (and my profit), and they'll never sell what they bought.
Anonymous said... November 25, 2010 at 1:42 PM
Like the previous poster alluded to, the problem comes when people fail to calculate their opportunity costs. I see it with gems all the time. "Oh I got the gems for free with badges, so it doesn't matter what I sell them at cut." They fail to factor that they could have sold them higher uncut, and so they are in fact losing gold. Same with anything crafted in any way. If you can sell the individual mats cheaper than you sell the crafted piece, you are losing money. But the casual player/auctioner doesn't tend to stop and think about it. All they see is "quick sell" or "high price item" rather than adding up individual costs. In that case, even though our costs are the same or less, it doesn't matter because they flat out don't care.
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