Cornering the Market – Why it is impossible for Diamonds

Discussion in 'Marketplace Discussion' started by ElfinPineapple, Mar 21, 2015.

  1. Warning: This will be a bit long and a tl&dr is at the bottom of the post. However, if you want to see how the market works in relation to a hypothetical takeover of the diamond supply in detail, feel free to read on.

    Recently, we had diamond ceiling prices increase slightly to give a bit of breathing room between the overall market and the Empire shop. Now, in an economic mindset there is a situation in which you can dictate prices called a monopoly. This is the crutch for the capitalist economy in general but is a good way to drag in a bunch of revenue. The key here is control of the supply. However, to gain control of supply you need to take over the supply lines into the empire. The Waste is too difficult to control and is slow to resupply. But shop supply, wherein stores sell supply on to the general population, can be controlled but you need rupees to do it. This requires an enormous investment and is out of reach for perhaps all of us on EMC.

    But let’s assume for the sake of argument that someone is not only able to, but decides to go out and do that. For practicality purposes, let’s say Todd_Vinton - sorry for picking on you in advance - is a man that hates price inflation/gouging, depending on whether your economic point of view is a Marxist or a capitalist. He had the means to force diamond prices back down to where they belong, so why not do something about the travesty? He burns most of his rupees buying every diamond for sale in EMC and sets up shop in smp1. He prices the diamond at 80r, a loss of 20-25r each. Yet, by controlling the flow of diamonds he can dictate the prices. Nobody can go higher than he is because they’ll never get a sale. Yet, if they go lower to try to take a piece of the market, they likely won’t have the money or resources to sustain the onslaught that would come – plus they’re losing more money than Todd is and will quickly go broke.

    This could be plausible in a frozen market like promos, where there a higher demand but no further supply output in most cases. However, a key problem here can be found in the voting rewards itself. Let’s assume for the sake of argument that 5,000 members on the server vote today. On average, they will receive 3 diamonds by the time the voting process is over. This inserts in about 15,000 diamonds, or a little over 4 DCs worth, into the supply chain. The current value of this amount is about 1.5 million rupees, assuming 100r each. Because of the 20r discount, Todd will start seeing business...a lot of business. He continues buying diamonds at 105r per to maintain control, but there’s a problem.

    A key part of controlling the market in a particular area is being able to ensure that your incoming supply is always greater than or equal to the outgoing supply. If this can be done, you will retain control of the market. However, people start noticing that if they buy from Todd they can sell back to him for a 20r profit. So a loop among several people starts going. While Todd gets new diamonds in from some people, the vast majority of his incoming supply is looping in from his own supply at a loss to him.

    He’s stuck now. He can’t stop buying diamonds because his supply will evaporate and whatever grip he has left on the market will be broken. But his rupees are evaporating under the weight of his own supply, which is not a fresh supply but is his own being fed back to him. Lowering prices isn’t an option because it’ll compound the current problem. If he increases prices to slow down the output flow he risks having a second party step into the market to undercut him.

    Note: He can’t raise the sell price to be higher than the buy price. This will fix the problem but a second party will quickly step in and undercut him. That’s not what he’s aiming for – he’s aiming for a complete control of the market. Only then will prices go back to a fair value for the diamonds.

    This is what happens when you try to force price deflation into the diamond market. However, what about the inverse? What if Todd is a tyrant and wants to exploit the diamond market for his own personal rupee gain? Again, he spends most of his rupees buying all the diamonds in the empire, but goes into his shop and sets the price at 400r each. He’s careful to not hit the ceiling price because that’ll draw business away from him. With the diamond supply gone and the only place to get them being at Todd’s…wouldn’t the diamond value quadruple?

    Again, he has to control the supply- this means buying at 500+ per diamond. While a lot of money would scatter across the empire, Todd would quickly run out of money due to his own loop discussed earlier. however, the more likely scenario is that a diamond hoarder somewhere will take advantage of the situation and step into the market to sell at 250-275 each. This will draw business away from Todd and back to the other supplier, leaving Todd with a lot of expensive diamonds and no revenue to speak of it. More suppliers will step in at slightly lower prices to get their share of the exploding market. In addition, it will only take a day or so for 4 DCs of diamonds to insert themselves back into the economy. By the time this comes, Todd will be out of business due to no funds and a large group of suppliers will be battling for a share of the market.

    Theoretically, you can see small price inflation. However, the price war will likely knock diamonds back down to around where it started by the time it’s said and done as it’s possible to undercut all the way down to 110-115 each and still rake in a profit.

    In short, voting is actually a significant deflector of monopolistic market control with diamonds. The more we as a community vote, the more we ensure people don't get into dominating positions within a particular high demand market.

    tl&dr: Don’t bother trying to control the overall diamond market – you’re going to burn a lot of rupees gaining control and will lose control again in a matter of days due to voting rewards and, to a smaller degree, resupply from the waste.

    As an aside, this can be applicable to emeralds and, to a smaller degree, stable vouchers and vault vouchers as well due to the supply output in the voting rewards.

    Thoughts on this?
  2. You may find that some shop owners will ban people from their shops if they try to buy all the stock just to resell.
    I mean i don't want to put in a lot of work just to stock my shop, for it then just to stock another's and then they make money out of my hard work when they did so little.
    Basically just saying if you do try to control the market, you may have less shops to shop at.

    If you want to alter the economy to your liking remember that you are messing someone's business up or making it harder for people that have less money, you are going to affect people.

    All above is just in general, as for diamonds it is pointless trying to control the market. Diamonds are easy to come by, you can get them from enraged mobs, by voting or the old fashion way mining. I'm pretty sure more people sell diamonds than people buy them. If you really must mess with the economy and people's businesses then best not to use diamond.

    'As an aside, this can be applicable to emeralds and, to a smaller degree, stable vouchers and vault vouchers as well due to the supply output in the voting rewards'. Emeralds not really because the supply is unlimited, people do a lot of villager trading. Stable and Vault vouchers there would not be a lot of supply of, and you would have to find someone selling at a good price, and people can vote to get more anyway, but some like me just use them, the supply can be very little due to that, but with very little supply you could use that to your advantage.
  3. Oh the days of 35r diamonds :'(
    Equinox_Boss likes this.
  4. Good stuff. I think someone with a lot of money can nudge a market, but as you're saying, with there being so much supply, it's like trying to hold back a river.

    Other markets can be effected though to a greater degree. A combination of buying out the under priced, keeping minimum bids up on auctions and general marketing can help you keep a price higher. This is especially true for manually generated items. People are getting lazier as they acquire more money.

    We've seen a major price jump with Obsidian recently for example, it just took one person willing to buy a few DCs at 30r per. Kryss needs to raise the shop price above 50r as it has become a limiting factor in the player driven economy. After 1.8 hits, obsidian should be sellable by players for 60-70r. If she doesn't, players will be limited to 45r.

    I'm not sure exactly how they balance the /shop prices. I know for EMC, it's very valuable if the prices of diamonds go through the roof, that means, with zero changes, they are giving more rewards for voting. They may look at non-voting items differently though and want to keep prices down. Too much though and players will stop supplying the item all together.
    Equinox_Boss and ShelLuser like this.
  5. The goal of controlling / cornering the market is to control the price in order to have higher profits.
    There is no need to cover all of the demand. If one company has a significant market share, like 20% of the demand or more and when the competition can not take that away, then the market is already cornered.

    Production costs:
    What needs to be considered is the production cost of the item in question:
    If I specialize in farming wood, I won't mine diamonds, but I'll rather farm wood, sell it and buy diamonds. But if the diamond price rises so high, that I would need to spend significantly more time farming wood than mining diamonds, then I'll stop buying diamonds and go mine myself.

    To corner a market one would somewhere have to control a part of the supply chain.

    On EMC...

    many are capable to start production of any item with just a moderate investment, so they will do it as soon as the price rises above some level.

    if it is about one item that is in high demand, it is easy to set up a shop and advertise, or sell on auctions. Even if someone would contract all main producers, the producers would tolerate only moderate margin and would start selling themselves if the margin would be too high.

    It does not make much sense to have a retail shop for just one or few items. People are not really willing and/or capable to remember many specialized shops, they will rather go to few bigger shops to save time. As it is all but easy to run a successful big shop, it is possible for big shops to corner the retail market.

    This did happen on EMC in the past, when at some time it was normal for big shops to have a margin of 100% or more. (!)
    But then, few people appeared who did see the potential to take over - Leowaste, myself and few others.
    Within few months, big, too expensive shops (as in too high margin) went out of business.
    But they did make some decent profit in the meantime.

    There is more to that, but I'm not sure if it is good to give people ideas about how to "play the market" :)

    I'm for fair trade.
    With my shop, I'm trying to offer a good service for a reasonable price - low margin.
    It is important that the people have means to exchange goods in a convenient and cheap way.
    Equinox_Boss and kevmeup like this.
  6. Sharp rise in demand due to building of massive overworld gold farms.
    I expect that more people will start producing again and that the price will stabilize.
    Obsidian is normally low volume business with very decent gain, around 30k per hour if you do it right.
    So, people, go for it :)

    The Empire Shop is not an active player here, it servers almost no purpose (any more).
    Prices are adjusted (increased) only when people alert staff that the market price is getting near.

    Aikar and Krysyy have recently written in the forum that they will not mess up with the economy and that the Empire shop will stay out of the game. One of the advertisements for EMC reads "economy that can't be touched".

    My impression is that the EMC community is very well aware of the importance of the stability of the economy and that Aikar / EMC top staff is aware that they would be risking way to much if they would break that promise.

    I have to say that selling rupees on the website actually means breaking that promise, but Aikar writes that only very few people actually do buy rupees for US$ and that this has insignificant influence.

    I think it would be better for EMC to either make rupees on the website way too expensive or stop selling rupees altogether, because many people here (and increasing with the increase of average maturity on EMC) do realize that this means draining from the EMC economy, that it does mean "touching the economy", that it means breaking the survival game and that it is a kind of stealing / griefing despite of the fact that the money is needed for, and is used to run EMC.

    Selling and/or buying of in-game currency for out-of-game currency is a social blunder, it's a no-no!
    Equinox_Boss and kevmeup like this.
  7. But why don't you adjust the price so that it is at least as high as the buy-price of the "big shops"?

    That. +10
    Equinox_Boss likes this.
  8. I haven't finished building mine yet, i was just saying. The idea of working to get things to sell, just so someone can buy them and make money from me isn't what i had in mind. I could care less about money, i want a shop so i can have a shop, its fun to have and run one, i will be running a mall with my mom. Last thing i want is to be used for someones lust for money.
    I'm trying to make my mall a nice place to hang out in, i will be making a massive fishing area, public use anvils and enchantment books. It is also next two of my other residences, one of which i am planning on having some sort of mini games there.
    Equinox_Boss likes this.
  9. A shop is good to sell own products and make earnings or to provide goods exchange service (buy/sell) and earn the margin by doing so.

    It requires quite some effort.

    You won't. Just get the prices right.

    Sounds like a very nice plan.
    Is the shop there to attract people to your residences / builds / mini games?
    If so, it is probably better to try to attract people in some other way, because the people that are looking to buy stuff usually have something of their own in mind right then - or just economical gain...

    BTW that ad in your sig ... it's strange to me to place an ad for a (big) IRL company into forum sig (?)
    Equinox_Boss likes this.
  10. No the stuff will be there just for fun, i won't do anything to promote my residences. I am in no hurry, and i don't care much about money. I am a person who is usually alone anyway, if no one comes then no one comes. I am happy either way. I won't try to force anything on anyone, it is only a game after all and fun is what it should be about. Hence why i said a nice place to hang out, but i have still got a long way to go till things are done.

    Its not an ad its a gif, purely just for fun. The gif itself is from my favourite game. The text just adds some humour.
    Equinox_Boss and ShelLuser like this.
  11. I sell diamonds at 69r each at my mall...

    I still need to adjust the price. :p
    Equinox_Boss likes this.
  12. I do not see why people go for over world farms. Nether farms are much better. If you buy 3 DC of Obby at 30r a pop that's 311040r, which IMO is way more than a nether farm that multiplies what you get in an over world farm.... Sure it is more work but still.
    Equinox_Boss and M4nic_M1ner like this.
  13. I built my gold farm without spending anything. It took a few short hours to gather all of the materials to build it.
    Equinox_Boss likes this.
  14. Yes, but many playes wont do the work to gather materials in order to make the farm. They will simply buy them
    Equinox_Boss likes this.
  15. I didn't read the whole post, but I know from a first glance that it doesn't need to be that long to explain it. Allow me to demonstrate.

    Nobody can claim land where they will have exclusive rights to mine the diamonds in either the Frontier or Wastelands.
    Therefore, nobody can claim land, and no one person or even a well organised group can monopolise it.
    Because one means of production for diamonds cannot be monopolised, diamonds themselves cannot be monopolised.
    Equinox_Boss likes this.
  16. I'd say diamonds as far as consumer to mall selling goes is pretty monopolized. There isn't as huge of a volume of diamonds as you'd think. Sure, 3DC is a lot. But then take a look at the demand for diamonds.

    You use diamonds for all sorts of things. From repairing and making tools to building. We love our diamonds.
    Equinox_Boss and M4nic_M1ner like this.
  17. It can be monopolised at another point in the supply chain, on EMC in (big) retail shops since it is not easy to make and run one successfully.

    True. Fortunately, that monopoly is as thin as the margin is thin.
    Check 12162 for example :)

    Few short hours are 100k-200k ... at least if you mine obsidian :)

    If they want to save time and they are able to calculate, the price of the stuff will probably be the major factor when deciding in whether to buy or not.
    Equinox_Boss likes this.
  18. Given enough time, this factor alone will break almost every non-promo monopoly that exists in EMC - both present and future. While it can't be fully claimed, the problem is that resupply from the waste is a slow process compared to obtaining diamonds from voting bonuses. The harder to find/make the item, the more time the monopoly takes to break via fresh supply distribution.

    EDIT: Should clarify that it'll break any monopoly that exists on a non-frozen market where supply has not ceased.
    Equinox_Boss likes this.
  19. Diamonds are really bad example here, choosed just for their price fluctuation (rise). Personally i don't use diamonds for anything else than diamond blocks. (and maybe for fireworks) There are other means to get diamond items and such ;) So people doing the same way are in most part out of diamond market (not need much of them, unless someone want to build diamond piramid).

    my diamond 2 cents.
    Equinox_Boss likes this.
  20. This is really old, but I have to respond because you talk some very flawed economics here.

    The waste is impossible to control without staff intervention, not to mention that the wilderness is also a potential alternative supply source.

    This also cannot be controlled. Players can freely set up shop. If you are talking about 'buying' other shops by paying the owners rupees and replacing their shop signs with yours, there will still be a huge group of players who you couldn't reach or who would refuse to let you do this. In addition, you would expose yourself to the potential where someone could drain all your rupees by repeatedly selling you diamonds then emptying the chest on their residence. That player would be banned, but you'd lose all your rupees.

    If you talk about buying out all the diamonds from every shop, this is definitely possible, provided that other shop owners don't take away your move flag, and you have the time and resources and patience and money to do this faster than shops can be restocked and new ones built. However, there are hundreds of shops on EMC and only one of you.

    The means to do this how?

    Sorry, but if Todd is buying all the diamonds for a higher price, wont Todd also buy out their diamonds? Therefore, they could price them for whatever price and Todd will buy them, so why would they bother going down to 80r?

    If Todd bought diamonds at 110r each, and sold them for 80r, the shop owner can buy them back at 80r (and any more Todd has bought), netting 30r each, and continue to sell them at 110r, now that Todd is out. The process can continue indefinitely. Even if you suppose that Todd is superhuman and able to buy out all the shops faster than they can buy him out, and doesn't need to sleep, his rupees are still being drained with every transaction. There's no reason for him to continue doing this.

    Losing money how? A diamond miner still makes money. Or they can just buy the diamonds from Todd and not lose anything.

    Sorry, but how is that being a tyrant? A tyrant is a ruler unrestrained by laws, who usually kills people. The whole point of an economy is for everyone to try to gain money, and you can't call them all tyrants for wanting to do this. You might have a valid argument if their actions caused hundreds of people to go starving and live on the street, as opposed to a virtual video game currency, but even then, tyrant is a stretch.

    Assuming Todd was willing to buy an unlimited quantity of diamonds at 400r each, the value would indeed quadruple. Anyone who mined diamonds would simply sell them straight to him, and people would buy from existing shops to sell to his. The process would continue until Todd ran out of money or stopped buying.

    No it doesn't. He just has to offer a rate high enough to convince diamond producers to sell to him instead. 125r would do it for many, 150r for all. He doesn't have to go to 500r.

    No he wouldn't. Every time someone bought a diamond from him he would be able to buy 4 more from others, until prices rose. And they would rise.

    If Todd still has money, he can just buy out this supplier. Or if he's buying at 400r each, let others do it for him. Plus, if he's buying at 400r each, people will make more by supplying him than the other 'hoarder'.

    Why? Why would the sell diamonds for less than 400r if Todd is paying that much? Why would they want to wait to make 200r when they could make 400r almost instantly?

    4 DCs? Where is this number from? Todd could afford 12 DCs with his profit from going away and doing nothing for 4-5 months. I guarantee there are probably more than that in the economy.

    The right thing to do in this kind of market if you run a serious shop is sell just below Todd's price. Anyone who bought yours to sell to Todd would get bought out. I wouldn't raise your buy price because it's very likely Todd will fill up quickly. If he didn't, then eventually you would need to compete with that if you wanted anyone to supply you diamonds.

    So, in summary, yes Todd can raise diamond prices, and I consider he did fairly successfully to somewhere around 115-130r. Though not to 400r. He'd go broke before he could buy all the diamonds at that price.