Matthew
Caldari
BloodStar Technologies
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Posted - 2008.02.06 12:56:00 -
[1]
 Originally by: Shadarle
The difference between Jita and elsewhere is large. In Jita there is little else to do but .01 under/over cutting. This is because everyone goes to the exact same station to trade.
While everyone going to the same station is a cause, it's not the underlying reason. Which is that the Jita market is horribly oversupplied on a lot of items. This is partially because of the myth of Jita as "the" place to trade, and partially because as the ultimate clearing house for the universe, the oversupply of all the individual regions tends to wash up in Jita eventually.
The problem is that people don't perceive the Jita market as saturated, because even the oversupplied price tends to stabilize at above the reprocessing price, so looks good compared to more local markets. Which is mostly a consequence of most of the supply for Jita being imports, and most of the final demand exports, and the extra costs of transport and operating in Jita push the break-even level well above the reprocessing level, whereas elsewhere they are usually very close together.
Originally by: Caleese
Due to the way the eve market mechanics are anyone who undercuts more than 0.01 isk is wasting isk.
In the situation where you have infinite cost-free time to spend on constantly monitoring and updating orders, you are correct. I've yet to find such a situation.
Playing the 0.01 isk game does, in theory, allow you to eke out some extra marginal profits out of market fluctuations. The problem with holding up prices artificially like this is that your competitors will have no qualms about undercutting you in return. Which is why it's is either a very time consuming, or very risky approach. In many situations, you're going to be better off making a move directly to the new market clearing price (or your best guess of it), and spending the rest of your time doing something else.
With 0.01isk undercutting, the price is still going to go down, it'll just go down slower. Either way, it will eventually hit one of two tipping points:
1) Market Clearing Price. This is the price at which supply equals demand. At this price, all the supply on the market will sell, and there is no need for further undercuts. At this point, the argument that "If you cut 100isk, I'll cut another 0.01isk and get the sales anyway" becomes irrelevant. We'd both get the sales, because the market will clear. All your undercut would do is deprive you of profit. If someone overcooks their undercut and goes below the market clearing price, their supply will be hoovered up without disrupting the sales at the clearing price.
2) Supply Cost. If this value is reached first, it indicates a fundamentally oversupplied market. In this situation you're likely to be having to make 0.01isk undercuts to make any sales at all, and the sales you do make will be on razor-thin margins. Obviously not a good market to be in, but it will reach that state whether the undercuts before came in large or small jumps. The market is then reduced to a game of chicken until someone leaves the market, allowing the clearing price to recover.
Of course, even if you are in position 1, players often see that their product is selling and produce more of it. This increases supply, and thus pushes down the market clearing price, necessitating further price cuts. When this is done without regard to the price elasticity of the product (i.e. if you halve the price, will you get more (good) or less (bad) than twice as many sales), it can shift the market into the second state.
0.01 isk undercuts help this to happen by delaying the market's price signalling. This delay leads to the perception of a different price elasticity to what is actually the case, and thus tends to encourage more supply to develop than is needed, resulting in a large oversupply when the changes unwind fully into the market price.
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