And some people argue laissez-faire capitalism does not naturally lead to concentration of capital and oligopolies/monopolies. I guess they should play MMOs ;)
This particular anecdote relies upon incompetent competition:
> Other buff sellers kept selling them at the going rate … so I did the rounds of the cities each night and bought up any HQ buffs which were under my price and added them to my stockpile.
As well as high barriers to entry:
> Buffs could only be made by the ‘doctor’ class and only by the top level doctors.
Basically there is massive demand for buffs, but the supply is restricted by the avian meat availability. Thus a huge demand for avian meat with low supply. The price should go up, and this guy brought the market price in line by outbidding everyone else.
He corners the market, and like any cornerer, he has to overbid the "market price" to shut everyone else out. Now he is in a weak and vulnerable position, to any of his competition. He has a large supply of capital goods that he overpaid for.
The overbidding for avian meat should induce more "mining" (hunting) of the avian meat -- it should be wildly profitable relative to effort invested. This should tend to raise supply, making the overbidding market cornerer's job even harder.
Anyone with half a brain should mine some avian meat and then offer to sell it for (pinky to lower lip) 1 billion dollars (or whatever). The market cornerer will either pay the asking price or relinquish some control of the market.
Since there is no monopoly on buff producers (per the anecdote), the meat miner can lower the price until it sells to a buff producer (whether the cornerer or not). The miner extracts the profit, and the buff producer, with such high input costs, should have smaller margins on the finished product.
> Anyone with half a brain should mine some avian meat and then offer to sell it for (pinky to lower lip) 1 billion dollars (or whatever). The market cornerer will either pay the asking price or relinquish some control of the market.
What prevented this from happening is that supplying a months worth of buffs required a lot of avian meat. And avian meat was a pain in the arse to harvest - you had to roam all over the map looking for the changing spawn points and if I remember correctly, you would only have maybe 20 pieces of the resource for every hour hunting - it was seriously time consuming. So I never encountered a hunter who was selling bulk amounts of avian meat - they all sold in dribs and drabs and so had no negotiating power with me. The small amounts they potentially could individually withheld would have almost no impact to my manufacturing -the only way to affect me was if they ganged up, which would have required substantial coordination.
I was also very dynamic with my pricing - the amount I set was based on what other vendors offered. With my huge bankroll (thanks to first mover advantage), I trumped any bid and scared other doctors away - they simply knew they couldn't compete. As soon as they gave up, I reduced my prices.
Ah, makes sense. I would still tell this story in terms of a first-mover advantage, as well as one of innovation. The point is, in a market economy, it is nearly impossible to maintain a monopoly (or oligarchy) over time. Your margins will get squeezed by new competition enticed by your margins. It seems like you got lucky in discouraging your competition, but I don't think that's a reliable tactic. A determined competitor could severely damage you and open up the market by forcing you to overbid.
I think innovation is baked into your assumption, which doesn't necessarily hold true.
On a separate note Video games are some of the best laboratories we have to allow us to test economics - and iirc papers have been done to test and learn from these environments. I doubt I can dig any up, if I can, I will post it.
No one has pointed out that the whole business ends up increasing market efficiency--the end result was that the price for buffs stabilized over the course of the month.
>The overbidding for avian meat should induce more "mining" (hunting) of the avian meat -- it should be wildly profitable relative to effort invested. This should tend to raise supply, making the overbidding market cornerer's job even harder.
I believe in this story, there was a limited supply of meat - it couldn't be infinitely mined.
If I understand correctly, two things enabled (the flippin’ brilliant) tobtoh to maintain his oligopoly:
1. An artificial, rigid caste system that allowed only a tiny pool of players to produce the best buffs
2. An artificial, rigid "ingredients" system that ensured the best buff could only be made from one extremely rare material (and no amount of innovation could escape this)
Anarchists would argue that those types of market restrictions are bound to cause oligopolies to form!
That said, even with his oligopoly, it sounds like he nearly single-handedly created a huge market for that avian meat, and that market enriched a lot of other players.
He didnt create a market - left to normal dynamics in video games, the resources would have been distributed normally, probably more efficiently on average as well.
Check WoW out for example - the analysis on the spreads, ideal prices to sell ores, gold, are at OCD levels of accuracy.
Addons scan the auction house for undervalued goods, undertake pricing strategies, hold historical data on those goods and allow people to know whether an item is under or over valued.
Websites are dedicated to identifying prices across all the servers and that leads to people doing cross server arbitrage.
He didn't improve the market, he just made a monopoly. A pretty cool one at that.
> Other buff sellers kept selling them at the going rate … so I did the rounds of the cities each night and bought up any HQ buffs which were under my price and added them to my stockpile.
As well as high barriers to entry:
> Buffs could only be made by the ‘doctor’ class and only by the top level doctors.
Basically there is massive demand for buffs, but the supply is restricted by the avian meat availability. Thus a huge demand for avian meat with low supply. The price should go up, and this guy brought the market price in line by outbidding everyone else.
He corners the market, and like any cornerer, he has to overbid the "market price" to shut everyone else out. Now he is in a weak and vulnerable position, to any of his competition. He has a large supply of capital goods that he overpaid for.
The overbidding for avian meat should induce more "mining" (hunting) of the avian meat -- it should be wildly profitable relative to effort invested. This should tend to raise supply, making the overbidding market cornerer's job even harder.
Anyone with half a brain should mine some avian meat and then offer to sell it for (pinky to lower lip) 1 billion dollars (or whatever). The market cornerer will either pay the asking price or relinquish some control of the market.
Since there is no monopoly on buff producers (per the anecdote), the meat miner can lower the price until it sells to a buff producer (whether the cornerer or not). The miner extracts the profit, and the buff producer, with such high input costs, should have smaller margins on the finished product.