The Art of Undercutting

Posting on Warcraft’s auction house is both simple and complex. You can post one or many. You can make them cheap or expensive. You can be a good citizen, but you can also be a dick. At the root of this is the practice of undercutting your competitors on price to make sure yours sells first. There’s nothing wrong with undercutting. It’s just a tool, and you can use it like a scalpel, a hammer, or grenade.

The Scalpel

In almost all cases, I encourage minimal undercutting. If the lowest price on that piece of armor is 420 gold, price yours at 419.99 gold. Very likely, the next person to come along will price theirs at 419.98. Each successive undercutter shaves off a trivial sum, and the prices stay high.

Yes, high prices are good for sellers. Sorry buyers, I’m in business mostly for myself, not for you. You go run three more daily quests and get back to me with another 50 gold.

The Hammer

I see bigger undercuts all too often. Someone sees that piece of armor priced at 420 gold and decides to whack a chunk off of that and sell for 400 or maybe even 350. There are a few possible reasons for this, but they’re all wrongheaded.

Bad Reason #1: “Round numbers sell better.” This is baloney. The items are sorted by price. Buyers don’t look for the round number. They look for the cheapest. And they’re not waiting for a round number either. They go with the lowest price at the time that they want to buy.

Bad Reason #2: “A bigger price drop will get me noticed.” Again, the buyers don’t care. They just want the cheapest at the moment. The only way it gets you noticed is by your competitors.

Bad Reason #3: “A bigger price drop will keep my competitors from undercutting me.” This is maybe 20% true, but that’s not enough to save it. The truth is that most profitable markets will have multiple sellers, especially towards the end of an expansion. A small fraction of these will be fleeting competitors, just trying the market out, and an aggressive price drop might scare a few of them off. But the majority of your competitors are there to stay, and they’ll be right back, undercutting you by a minimal amount.

Bad Reason #4: “Minimal undercutting is too much work.” Yeah, typing those extra characters is just soooooo hard. I’ll admit there’s a shade of truth to this, and it’s one of the reasons I rarely bother to undercut by 0.0001. But I almost never undercut by more than a single gold. Typing 400 is as many keystrokes as typing 419.

Basically, this level of undercutting is an annoying move, and if you do it repetitively, you will earn the reputation for being a dick. It’s also stupid.


Because you left money on the table. That’s almost 20 gold you left out here. I wouldn’t care if it were only you, but when I come back to undercut – and believe me, I will be back to undercut – that’s also almost 20 gold that I had to leave on the table. Now instead of selling my item for 419.98, I’m selling it for 399.99.

Get enough of you hammer-heads together, and before long, we’re having the same price war as before except it’s around 200 gold instead of 400 gold. Usually it takes a server shutdown before the prices can rise back up.

So, in short, DON’T DO THIS. Keep with minimal undercuts.

The Grenade

That is, unless you’re trying to blow up the entire market.

Some items sell at very high markup. They cost next to nothing and sell for hundreds of gold. There are lots of competitors working that market, and your only hope for sales is to time your undercuts just before the buyer shows up. It means you’re camping at the auction house, reposting every hour or two to undercut the other five guys who are doing the exact same thing.

One approach to get out of this reposting trap is to nuke the market. Figure out your costs down to the copper. Do what you can to get that price down. Remember to include posting costs and auction house commission costs. Know your down-to-the-bone minimal price.

And then start posting just a little above that.

Suddenly, items that had been selling for 120 gold are now being priced at 10 gold.

Holy hate-mail, Batman, but that’s going to stir up trouble. Competitors will argue with you. People will say you’re ruining the market. People will ask you to play along and bring prices back up. They’ll buy you out and repost at the original prices. In short, they’ll do anything to keep those prices high.

But if you’re committed to doing this, you have to press on. Keep posting at these rock-bottom prices. Sooner or later, your competitors will stop posting their wares. They’ll stop buying you out and realize they have bags full of items they can’t sell. Eventually, you’ll own the entire market. Then start raising your prices. You never get back to the original prices, but with 100% of the market you can sell enough to be making more money than you did before.

I admit this is a serious dick move. Asshole mother-fucking cunt-shitting dick move. (Thanks to George Carlin for that…) But in many ways, the auction house is the ultimate player vs. player arena, and sometimes you decide it’s necessary to be a dick. The biggest proponent of this goes by the moniker “The Greedy Goblin”, and if you read his blog, yeah, he’s a real dick, and apparently anyone who disagrees with him is an idiot living in the world of rainbows and unicorns.  (And I would know — by the time you read this, I’ll be holding on to Poonalooey’s mane as we ride across the rainbow fields of Everjoy!)

You want some idea of how much hatred you’ll get for this? Look at how many folks in the book industry (from bookstores to publishers) hate Amazon. Yeah, we’re talking “with the passionate heat of a thousand fiery suns” kind of hatred.

And yeah, you can also say that Amazon is providing a great service to the customers by cutting out all this bloat and middleman profit. I suppose you can also say the same thing about the Greedy Goblin, that he’s trying to bring cheap armor to the masses. Except Amazon at least talks the talk. Greedy Goblins make no bones about being in it for pure profit.

But ultimately, we’re all just playing a game. We’re all here to enjoy ourselves, not to pay the bills or finance our retirement. There really no joy in fucking someone else over, or at least, there shouldn’t be. As the great Wil Wheaton said, don’t be a dick.

Future gaming columns will include the way to beat the Greedy Goblin, thoughts on posting in quantity, some exceptions to my suggestions above, and even an argument for when it’s not so bad to pull a Greedy Goblin.

Retail vs. Wholesale

Hand in hand with the whole buy low sell high mantra comes this little gem that is so rarely employed:

Never buy retail, and never sell wholesale.

How does that fit into World of Warcraft gold-making? Through the two prices we set on products in the auction house: the minimum bid and the buyout price. A buyer can place a bid between those two numbers, and if no one else outbids him, he gets it at the price he bid. This is a great way to buy, but it’s a terrible way to sell.

Buying Wholesale

I frequently see items posted with a spread of 10-20% between the minimum bid and the buyout price. If it’s an item that feeds into one of my various production chains, I usually bid the minimum (or current) bid. Very rarely do I choose to pay the full buyout price in those cases.

After all, I make it a point to have large reserves of my various supplies, and their levels rise and fall with the uneven production and prices of my suppliers. The material I’m purchasing now won’t be sold as a finished product for two to four weeks. I’m in no hurry to snatch this particular bit. I can wait a day or two to see if anyone outbids me. Frequently they do. No worries, there will be more tomorrow.

About the only time I pay the full price in this case is when the full price is so low that it warrants snatching it up now, even though I could try for the lower price of the bid. If it’s cheap enough, I just grab it. Fortunately, I have add-ons that automate most of that logic for me. I set price levels and adjust them according to market price and the size of my current supplies. I typically end up paying about 5-10% less than what is considered to be the bottom market price, and that extra margin goes straight to profit. This is what I call buying wholesale instead of retail.

Not Selling Retail

Meanwhile, I never post items for sale with a spread between the bid and the buyout. Sure, I can understand the temptation to do so. I’m putting down a small deposit to put it up for auction. I can certainly hope to get the full buyout price, but if it doesn’t sell, then I lose that deposit. Wouldn’t it be better to put out a bid price that’s 20% lower so that if someone undercuts my buyout price, I’m still likely to sell it and not lose that deposit?

The problem is that most people going to the auction house are looking for an immediate purchase. If they had the patience to wait on a bid, they would also have the patience to go out and farm or grind for the item. The two exceptions to this rule are 1) high-end bind-on-equip epics where folks are willing to delay if it might save them 10%, and 2) people like me. Everyone else wants to buy it now, and when they come along and see your item, they’re going to just pay the full price and take immediate delivery. If someone has undercut your buyout price, then they’re going to buy his instead, never even looking at your cheaper bid price.

But… but… NO

But still, isn’t it better to sell it to an industrialist like me than let that deposit vanish? I would say yes if, and only if, the spread between bid and buyout is less than the deposit. Otherwise, you’ve effectively lost the deposit anyway, plus whatever further discount you provided me. You sold to me at a wholesale price instead of demanding I pay retail.

So, when you’re posting items for sale, never EVER do this.

Unless you’re one of my suppliers, and then I urge you to keep on giving me extra profit.

Bots, Farmers, and Cash

Last week I was cruising past 700,000 gold, but instead of being halfway to 800K, I’m down to 650K. Why? Hookers? Blow? Nope. I spent about 100,000 gold on various materials, mostly metal.

All of my various World of Warcraft professions require raw materials that I then turn into more valuable items via the different crafting skills. These raw materials come from the world at large, i.e. ore from outcroppings of rock, herbs from plants, leather from animal skins, etc. I have the ability to gather these myself, but I don’t.

Why? Because it’s boring.

And also, because I don’t have to.

Instead, I simply buy these materials on the open market. Prices rise and fall, supply comes and goes, and I sit on the sidelines with a big pile of cash waiting to snatch it up at the right moment. And this last week was the right moment.

Commodity prices generally move up and down within a band, but there are two kinds of events that cause the price to either spike or plummet, and they’re driven by the absence of farmers and appearance of bots.

Farmers are players like you or me, though for all I know, they might be chained to their computers in an underground Chinese prison. Either way, they grind out the material hunt day after day, putting up with the boredom so that I don’t have to. They post their goods in a chunk every day or two, and the amount posted looks like an amount that could be reasonably farmed in that amount of time. Their presence is fairly steady.

Bots take advantage of API’s and hacks to pump the necessary actions through the user-interface to play the game for them. They gather obscene amounts of raw materials in a short amount of time and then dump them on the market at ever-decreasing prices. Blizzard calls this a violation of their Terms of Service agreement, and they kill the accounts of players caught employing these botting tools. They also beef up the software to keep the bots from working, but like all security efforts, it’s a never-ending battle to plug holes in the dike.

So, how do these push the normal supply/demand out of whack?

Farmers go on vacation or move on to other things, and then there’s a sudden drop in supply. If you have a large supply waiting in the background, you can cash in on a temporary price spike until new farmers are attracted to the market. I see this happen often enough in some markets to actually make decent money smoothing out the volatility, i.e. buy when cheap and plentiful, sell when expensive and rare.

Despite Blizzard’s best efforts, botters eventually find a way through the security, and the market floods with cheap material. Instead of five or six players posting twenty stacks each, one player shows up with six hundred stacks at half the price of the regular farmers. It can take a while for that bloat to be absorbed by the market, but it’s accelerated by people like me, willing and able to slap down thousands upon thousands of gold to grab a good deal while it lasts.

It’s a bit of an ethical quandary when buying from someone you suspect is a botter, because when I do so, I’m rewarding a cheater. I feel a bit bad doing so, but I know I’m not the only one opening his wallet. Eventually, the whole market absorbs their output like a nation of giddy SUV-drivers suckling at the oil spigot of a greedy dictator.

Plus, I can’t say for certain they’re botters. Even Blizzard considers it a tricky measure and only whacks them when it can detect the actual bot software, not merely when they detect the bot’s prolific production.

At least I can be pretty sure the botters aren’t using their ill-gotten gold on ethnic cleansing or terrorism.

Meanwhile, my newfound supply of elementium ore should last me most of the rest of Cataclysm and possibly into the next expansion.

Gaming the Economy

Someone suggested that I blog some of my gaming exploits here as well as my SF/F thoughts since, perhaps, there is some crossover between gamers and SF/F fans. I don’t know if this will be a regular thing or only pop up on the occasional patch day.

But to be clear, my passion for gaming is not in slaying damsels or rescuing dragons or… wait… anyway, it’s not any of those things. My passion in gaming is mostly economic. I want to make money.  Well, not real money, but virtual gold.

Now, I’ve been involved in role-playing games since I rolled up my first fighter in 1980. It was Advanced Dungeons & Dragons, first edition. I didn’t immediately launch into advanced finance, but I did spend a lot of time designing castles and figuring out how much they’d cost. My early forays into Traveler quickly devolved into my quest to build a vast and profitable trading empire, and when Ultima Online started up, my first thoughts were around setting up a blacksmithing business.

That’s not to say I’ve never played a character with depth beyond his pocket, because I have. There was Rolnib, the half-orc assassin whose lifelong quest was to rid himself of his orcish nature, purify himself from his evil ways, and take up the holy orders of a paladin. There was Argus, the wizard with the tragic backstory of spoiled love. And Siclari, the wise old elf who was truly a youngster with an invented past, desperately hiding his true name, Boweezle Appleprick. Also Terrin, the paladin who made a better bad cop than a good cop. And of course, Rhys, the illiterate ranger who could debate the nature of chaos for hours.

But the money… ah yes, the money. The siren call of the virtual economy was strong, and so it’s no surprise that after a couple of years of playing World of Warcraft, I started working that economy in earnest. Actually, the real surprise is that it took me that long, but I will say that the game itself was pretty engaging. So, I started with a blacksmith who also mined. Eventually, I added a tailor, an enchanter, a leatherworker, and so on. I now have one of every profession, but only five of the eleven are fully trained. And then there’s my banker.

Banker is not an official class in World of Warcraft, nor is it a profession. There are no skill or talent points to assign to it, but nonetheless, quite a few of us have characters that we consider to be bankers. My banker is a level-three elven rogue who never leaves the city, but I play that banker more than any other character. Even though I have characters at or near maximum level, this is the one I play the most.

She started off just as a character I left at the auction house in the city so that I could mail her excess loot to sell when I was out in the badlands, but as my main was grinding out the gold to get that epic mount, I decided to do a little speculating. I gave her 100 gold pieces, which at the time was a big chunk of money. The mount I was saving for was going to cost 500 gold, so putting 100 of that at risk was a big deal. Well, it’s been about five years, and I’m just now cruising past the 700,000 gold mark, so I’d say it was the right decision. Certainly there has been some inflation in that time, but not 7000 to 1 inflation.

But what am I doing to generate that gold? Some of it is classic buy-low/sell-high, but the majority of it comes from production aimed at meeting the needs of other players. Careful purchases to keep my costs low combined with doing what I can to raise prices keeps my profit margins reasonable without being obnoxious. Still, most of the products I create give me anywhere from 50% to 200% profit.

The products themselves are usually fairly simple, no rare or epic weapons for me. They’re just little odds and ends that many folks could make for themselves or for a friend, but in low volume it’s a hassle. But in massive volume, that profit adds up. Almost every item I sell is under 300 gold, with many in the 1-5gold range. I don’t think I’ve ever sold something for more than 1000g. It sounds like a lot to manage, and maybe it is, but I’m rarely dealing with more than 70 different items.

It’s crass to say it, but in terms of the World of Warcraft, I have become the 1%, with wealth and income far outstripping the average players. I didn’t do it to be elitist, and once I got that epic mount, I can’t really even say I was doing it for the gold. Seven hundred thousand is an insane amount of gold. There’s not really anything to spend that much money on.

But it’s a score, and I find that virtual economy as engaging a game as any fight against the Lich King. So I keep going. The maximum amount of gold a single character can have is one million gold, and that’s what I’m shooting for. And after that? Who knows? Maybe I’ll work on that second million, or maybe I’ll waste it all the WoW equivalent of hookers and blow.

Anyway, depending on how this goes, I might be documenting the life of this virtual banker here.