Friday, August 21, 2009

Why Cartel's Don't Work in WoW.

A couple of weeks ago I mentioned how I am trying to make more money off of the AH. I've had modest success but I'm not going to reach the gold cap anytime soon. I am in several markets but this post will focus on my activities in the Netherweave Bag market. It's a great market because the bags are in high demand and the cost of raw materials is relatively low. I don't make a ton of money from it but it is a decent little chunk.

So, the other day I was at the AH making some bags to put up for auction when I get a tell. I don't have the exact quotes but the conversation went like this:

[Cartel]: I noticed your making some bags. People are willing to pay 10g per bag. Please don't post below that.

[Me]: Thanks, but no thanks.

[Cartel]: Grumble, grumble grumble. You're an idiot. You're losing money. We have over 1,000 bags and we are going to undercut you so that you don't sell any bags and lose your deposit.
Funny thing is, every single one of my bags sold. I did not lose a single deposit. I made money on every sale, and I don't have a single piece of inventory. Being a part of a cartel may sound good to the inexperienced reader, but let me assure you, almost all WoW cartel's are a bad idea.

What is a Cartel?

According to Wikipedia:

Cartel - a formal (explicit) agreement among firms. It is a formal organization of producers that agree to coordinate prices and production.
For a cartel to work, you need to control one of two things.

  1. Delivery Channel: If you control how a good is obtained and used then you can dictate terms to both suppliers and consumers. I think MicroSoft is a good example of Delivery Channel control. Windows is by far the most used computer operating system in the world. MicroSoft has taken advantage of this by forcing Internet Explorer and other programs to be installed along with Windows.

  2. Supply Chain: If you control the raw materials needed to produce a good then you control the good. OPEC is a great example of Supply Chain control. Its member nations control a significant portion of the world's oil production capacity and can increase prices by cutting production.

Why it Doesn't Work in WoW.

  1. Delivery Channel: There are only 2 delivery channel's in WoW: The AH and the chat channels. Obviously players have no control over either. A player could make a lot of money if it was possible to exclude all other producers from posting on the AH, but that's just not going to happen. The delivery channels are completely controlled by Blizzard. So, if you want to maintain a cartel you have to control the supply.

  2. Supply Chain: There are exceptions but it is virtually impossible to control supply in WoW. Especially for a product like Netherweave Bags. To craft the bags you need 3 things.

    • The pattern: It's available to every Tailor form the profession trainer. So you can't limit the supply by limiting the number of people that can craft the item.

    • Netherweave Cloth: It is dropped by 200 different types of mobs in Outland. Therefore you cannot prevent other people from farming it, or picking it up in normal play.

    • Rune Thread: Available from 182 vendors in the game in an unlimited supply. So you can't prevent people from buying it.
If you do manage to get the main producers of bags to agree on a common price, two things will happen.

First, new producers will enter the market. When people see that they can sell bags for 10g and the mats cost only 5g, they can quickly turn those mats in to bags and have hem on the AH for close to a 100% profit. This will drive the price down.

Second, cartel members are encouraged to cheat. All of their main competitors are holding the line at 10g. All you have to do is create a new alt. Transfer a bunch of bags over and sell them at 9.50g. Why sell 50% of your bags at 10g when you can sell 100% of them at 9.5g. You will make a lot more money that way.

Due to these two reasons the cartel will ultimately break down.

Where Cartels Can Work in WoW.

There are two times when cartels can work in WoW.

  1. The first is when there is a limited number of crafters within the market. This can only happen when it is difficult to obtain a pattern, which happens fairly often in WoW. If you get a pattern first you can dominate a market until the rest of the community catches up. This happens most often when new content is released that drops a new rare pattern, or when a pattern is a random discovery.

  2. The second is when the raw materials are not farmable by a majority of the player base. I haven't seen this occur in WotLK, but it happened in TBC with the Epic Gems. For nine months in TBC, the only way to get epic gems was to run Black Temple or Mount Hyjal. To run those instances you had to complete a very complected attunement process that including killing two of the most difficult bosses in the game. This gave the top guilds a gold mine where they could sell gems to PvEers who could not complete the attunement process and PvPers who had no interest in completing the attunement process and raiding.
If you do spot an opportunity like two I've mentioned above, capitalize on it, but don't go overboard. They can vanish in a flash. With the first example, as time goes on more and more people will pick up the pattern and increase your competition. With the second example, you never know when Blizzard is going to yank the rug out from under you by making the gems purchasable with badges or honor. You don't want to get stuck with a huge inventory and a diminished market.

9 comments:

lissanna said...

I just get mad when people put things up for a buyout price that is lower than what they could vendor the same item for. Dude they're losing money by putting things up on the AH sometimes when they could just trash it at the vendor for more!

Kamiken said...

Really Lissana I don't mind that people put things on the auction house for less then they are worth to a vendor. It makes me money every day. I have to say I make around 100g a week just from those people. Why be mad at them for giving you free money. For extra fun go around and start offering 24g per stack of Saronite Bars. Then turn right around and sell them to a vendor for 25g. I bet you will get a few messages from people willing to sell you stacks of Saronite Bars for that much.

I find all of this completely amusing since blizzard now has in its ui a function to tell you how much something sells to a vendor.

So really there is no reason to get mad about, just use it to your advantage.

Graylo said...

@Lissanna

I made a ton of money on Netherweave Cloth right after Sunwell came out.

The market was flooded because all of the daily quest mobs dropped so much of it. I would pick up a couple of stacks from doing the dailies on a single toon. So, the AH prices dropped dramaticly. What's funny about it is that the vender price for cloth is lower then the vendor price for Bandages. People would list the cloth above the cloth's vendor price but below the Bandages vendor price.

I literally made Hundreds of gold per week buying cloth for 2-3g per stack and reselling them as bandages.

Phil said...

'Cataclysm' IS COMMING

Xaktsaroth said...

Sadly blizz has ruined alot of the income you could make of cloth-bandage, ores- bars sells for money by reducing the vendor price with quite a big bit.
Wotlk cloth is worth less then Tbc same is for ores if I dont remember wrong, was some time now since I did it last.
But people that underbid is something I really dislike at least on my server where they are doing it like madmans. An rare item can easy drop from 1k gold to 50 in 1 day on my server. That happend to runed orbs, titansteel etc etc

Anonymous said...

Hi Graylo!
are you going to update the gear for moonkin to 3.2 patch?
I really would like to see some numbers of the new t9 sets and Totc drops.

Thanks for your blog :)

Libetter said...

I thought about this topic some days ago, about the same as publication of this article. I asked myself that if we could have a Cartel guild. But I soon found that it was a stupid thing. LOL. Thanks for analyzing this topic :)

~Gargen said...

I controled the frozen orb market on my server for a week. I acumulated alot of them from heroic badges and then I purchased all the orbs that were under 90G and placed them at the 90G I wanted them to sell for. I made enough to buy epic flight for two toons. Although sitting there for days on end in the AH with all the gold from all my toons on one toon was... well, it wasn't fun. There should be a better way to make gold... i wouldnt mind if they had a barter system where you could traid your old top lvl gear in for new gear or badges or something... I don't like grinding or farming but such is life so when I am in need of gold I make a sacrifice.

Mahonnant said...

You forgot one type of market that can work as a cartel : the high volume of references / small volume of auctions per reference. Typically the glyph market is easy to maintain at high level of prices simply because you can easily reset the price on each glyph. There is a mechanic tendancy for the market to spiral downward but most of the time you can counter this tendancy by resetting the price. It does not even have to a conscious decision, but with such high volumes of references it is no wonder that some glyphs are not in stock at the AH at a given time...
By having an agreement with the big players (undercut by 1s, whenever a specific glyph is not sold on the AH reset the price to x gp) we have been able to maintain the market at reasonable prices.