Regional FlagThe AH: Supply, Demand, and UndercuttingSource
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Kaber
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#0 - 2006/12/18 11:55:11 PM
This is not meant to replace anything in Crackie’s AH guide (http://forums.worldofwarcraft.com/thread.html?topicId=11892545&sid=1), think of it as a companion piece to his final section about supply and demand – or rather a bit more specifically on undercutting and when it is, and is not, OK to do. I hate being undercut as much as the next person; however, you have to keep in mind that it serves a very real function of the WoW (and any real world) economy. I suppose my true reasoning behind writing this is two-fold: first, I have been seeing a far greater number of people talking about this lately, and second… well we will get to that later.

Why do People Undercut?

From the perspective of your average person trying to sell an item, he/she knows that by undercutting someone else, their own item will sell before the other guy’s. What buyer is actually going to spend more money on the same item just because they dislike the undercutting principle? It would not be very smart on their part for the sake of their pocketbook. Unfortunately, it is not always necessary or beneficial to undercut and the seller may end up losing out on potential profits. Even more importantly they can really damage the market for that item and hurt other sellers. Other times one may undercut unknowingly when reducing the list price of an item that has not sold for a few days. It is very important to know what your items are worth, so check out Crackie’s guide before you read through this and get to know your AH better.

Another much more common reason for undercutting is when people have short-term goals they need to meet. For example, if someone only needs 10 more gold to buy their gloves, they may undercut on a number of items because the need for their gloves is greater than their need to earn more money in a longer time period. I am not saying this is necessarily a bad thing, but it is more often than not one of the more prevalent reasons for undercutting (aside from simply not being aware of market values or potential profit).

And finally there is the deposit. Some items have a rather large deposit-to-sale value ratio, so if you have to keep relisting an item you actually lose more money than if you had simply vendored the item. If you are dealing in items of this type, do yourself a favor and look over Crackie’s guide, specifically the last portion about market fluctuation and time of day/week to ensure your items sell, because undercutting can be risky and damaging to the market. Take the current status of silk – people are selling stacks for almost what the vendors pay for them, meaning they get no profit after the AH cut much less if they have to relist the cloth even once because of the deposit. In this situation it would be best to do one of the following: figure out what you can create with the item that is of greater value (if you are a tailor, make greens and list them on the AH or send it to an enchanter friend/alt to blow up), or you can simply vendor them and pocket the cash without a worry. Once enough people do this the huge supply of silk will begin to diminish and the price will begin to rise again.

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Blue Poster
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#44 - 2006/12/20 08:24:37 PM
Q u o t e:
First - you make mention a couple of times of an item's "real value" as if there were an absolute determinant.

There is no such thing. The market determines an item's value, whatever that is, there it is. If someonce chooses to purchase a stack of light leather for 200g - well, that's it's market value at that point in time. (Whether or not it is likely to stay there is another matter.)

Sure, in many respects 'a thing's value is what the market will bear', but at the same time there is a bottom line value: the NPC vendor sale price. If an item's value is going to drop below vendor price, you've eliminated the reason to sell it on the AH. The market still has certain barriers of profit/loss which factor into market value.

Q u o t e:

Second - you try to set rules/guidelines for what you deem to be the correct usage of and strategy for "under-cutting." I sense that you have experienced frustration due to some people under-cutting to a degree that you felt was destructive. Well, unfortunately you'll just have to live with it.

I think he was merely looking at it from a group perspective or from a viewpoint of the collective market. I think he's simply aiming at sort of 'grassroots' actions which benefit the whole in a symbiotic fashion. I didn't gather that he was trying to eliminate undercutting at all, merely recognize its different effects, for good or ill.

Q u o t e:
The only thing that will dictate price is supply and demand.

As I mentioned before, it can and does go beyond simple supply and demand. There are 'trade laws' which factor in, such as auction time length, vendor price, deposit.

Q u o t e:
If someone wants to price his goods at 50% less than what you are charging, that is his/her prerogative. If it is profitable for him to do so, he will continue doing it, regardless of whether they fall within your guidelines or not. If it is not profitable at that price point - guess what? The price will come back up again.

No argument here, but as you say, it does need to be profitable.

Q u o t e:
Last - no one can "wreck" a market. Even If the market for something "crashes" due to heavy price cuts, if there is value in the product, then it will right itself eventually. Heck, you might even look at these crashes as an opportunity to make money.

Sure, but I think what the OP is looking at is methods that contribute to more stability in the market, rather than going through sudden crashes. Sure, the market is contained and simple enough that it can correct itself for the most part. However, a collective set of trading standards is something engaged in like a union, to protect or benefit a group, rather than individual sellers rights.

Interesting conversation nonetheless and I bump for economics. Try to refrain from flaming. This is a nice break from General for me. ;)

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Blue Poster
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#48 - 2006/12/21 01:03:12 AM
Q u o t e:
Don't worry, Tseric.

Compared to General, it's like everyone in here - and I'm no exception, is on sedatives. So don your straightjacket, have someone pull up a banana chair for you (you do have those in the States, I presume), and mellow out.

Cheers,
Shimono

I'll have a 'Morphine Martini', please.