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.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.
[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.
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.
- 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.
- 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.
- 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.
- 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.
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.
- 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.
- 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.