Crashing the Glyph Market

According to common wisdom, the way pricing on the Auction House should proceed is as follows.

1. Every item has a "natural ceiling" price, which is more-or-less the most any reasonable player would pay for the item. This ceiling is a fungible value, depending on volume. If you had to sell a LOT of battered hilts, the price ceiling wouldn't be 20,000 gold. The glyph price ceiling seems to be 50g.
2. Any extra players in the market will undercut the original poster by some amount. 10s, 10% of buyout, and 5g are all very common undercut amounts.
   
3. Some AHers (campers) will continually (or at least frequently) scan all their auctions, cancel the ones in which they're being undercut, and repost at lower values. This behavior is rewarded in markets where the deposit cost is significantly less than the buyout price (typically: glyphs, enchantment scrolls, enchant materials, and certain very expensive epics)
4. Prices will naturally trend downward to the price floor (the minimum beyond which competition will not proceed, usually the cost to create the object in question, but not always).
5. If a competitor drops out of the market for any reason (their item sold or expired and they did not repost), the prices can reset to stage 1 again- you go to relist your item and find no competition, so you set the price to the ceiling.

The funny thing about this model is that it requires cooperation between all competitors in the market. It only works if everybody involved agrees on a ceiling price and follows that rough plan of "undercut by a reasonable amount". Cooperation is a pretty interesting phenomenon in markets, and emerges all over the place when people act rationally in their own best interests. Take a moment (if you haven't thought about this stuff before) and check out the wikipedia article I linked, especially the part about the Prisoner's Dilemma.

Consider the moment of sale. That is the moment when someone walks into the Auction House in order to buy a glyph. Let's assume for a moment that the market is indeed shaped by unspoken cooperation between rivals. The tension is: we all want to make the sale (and therefore have the lowest price at the time when a customer enters the AH), but we also want to maximize profit (and therefore have the highest possible price at that moment of sale).

You can see how that tension leads to two things: a desire to undercut by some minimal amount of gold (10s being the common amount), and a desire to have the largest window of exposure to the market. It is important that your glyphs be at the lowest-price position for a long time, especially during high-activity hours. Clearly, when cooperating with other glyphers, the cancel-repost strategy makes a lot of sense, as does staying logged in for extended periods of time (even alt-tabbed) waiting to hear that "beep" that your /friended competition has logged in and out. Once they've logged out, you can log over to your glypher character (because they don't know your spy character they didn't know you were watching them repost) and cancel whatever was undercut.

The natural question in this situation is: how can we "betray" the cooperative market? The obvious choice is what I alluded to earlier: lower the agreed-upon price ceiling significantly. If I ignore the 50g price on that glyph of mortal strike, and post my undercut at 5g instead of 49g90s, I'm definitely breaking the unspoken rules of play. There are some other ways of betraying the market which I will blog about down the road a bit, but for now let's consider the situation that arises while lowering the price ceiling.

I make a profit selling glyphs for 5g. I will not post a glyph that I lose gold on. I'm clearly not making as much gold as I could have by selling at high prices, but I'm still making money. On the other hand, by lowering the price ceiling so much, I've changed the buyout-deposit-time relationship enough that it's no longer reasonable for me to use the camp-cancel-repost strategy. If a cancel-repost takes an hour to complete (most of that time is spent at the mailbox chokepoint), and costs a little bit of gold, I'm simply not going to waste my time chasing after tiny profits with that strategy. Instead, I can just post all my glyphs for 48 hours and let them sit on the AH until they expire. If I get undercut, so be it.

That one feature (eliminating the thrice-daily need to scan-cancel-repost) is very intriguing to me. Under this new model of play, I hypothesize that my glyph competition will also drop away from the camp-cancel-repost model of glyph pricing and instead take up the long-post model that dominates most of the rest of the auction house. If my competition continues with cancel-repost, my sales will be so low that I'll just sit at nearly no profits for ages. If the competition is fierce (or has better herb sources than I), they can drive glyph prices below my profit line and push me out of the market.

The most interesting side-effect of this market manipulation is that as long as I stay in the market, even if I'm being undercut, I keep the profits low for everybody. That's the scope of the betrayal of cooperation here. It's a fascinating position to be in- I've got enough cash that I don't care about getting 10,000g in the next week or whatever. Provided I'm not losing money, I can afford to keep prices really low for a long time.