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Why do people undercut?

Author
Dixon Cutter
Savvys Corp
#1 - 2013-12-12 01:55:16 UTC
What is this frequent phenomenon, where someone would start rapidly undercutting the bids by large increments to the degree where it makes trading this item temporarily unprofitable? (I am not referring to the margin trading scam with large minimum volumes)

http://imgur.com/uzvPY4f

I do not see this much in the RL markets. It's a common margin-killing technique used for market manipulation in Eve, but I do not see the reasons someone would be doing that. On the surface it seems like a suicide-gank technique, just applied to the Market PvP. When I asked one of the traders who do that for the reasons, he told me: "I don't care about your profit. This is price discovery".

It made little sense to me - the definition of "price discovery" does not include any interference with the actual market. It's a method of price analysis based on the existing supply/demand factors. So what in the world are these folks doing? Is it just market vandalism or some subtle way of shifting the market currents to the benefit of the manipulators?

Also, is there a way to counter such manipulations without taking a loss?
Selaria Unbertable
Bellator in Capsulam
#2 - 2013-12-12 02:52:55 UTC
I guess it's either one of the following:
1. That person does not want to play the .1 game and does not really care for the price, as long as it's below market, or
2. That person wants the item badly and knows, that with that difference in buy orders, other buyers will wait until his buy order is fullfilled.

Those would be my guesses.
Ricard Chastot
Snake Eye Production
#3 - 2013-12-12 03:09:05 UTC
Not everyone that puts up an order is a market trader. The person that put the order up most likely wants to buy the item for 931M(+broker fees) and not for the amounts listed on the sell orders and is willing to wait for it to be filled without having to keep checking and +1 isking against traders. For a little patience he'll save some millions compared to buying from the sell orders, but not have to put in much effort beyond setting up the initial order.

I'm really not sure what's leading you to think that this is a manipulation attempt. Is there more information than what you've given us?

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Lord Jita
Lord Jita's Big Gay Corp
#4 - 2013-12-12 03:29:45 UTC
Because **** you, that's why.
Debra Tao
Perkone
Caldari State
#5 - 2013-12-12 03:52:23 UTC
I see 2 main reasons : the guy wants to buy the good without paying the full price offered by the sell orders so he puts up a high enough buy order to see it fill quickly without having to fight the 0.01 isk war. I do that when i have to buy PLEX.
The other reason is when a good has some incredible margin and the guy doesn't have time to fight the 0.01 isk war, cutting into the profit will generally drive away a good part of the competition while generally increasing the volume of trade. I do that a lot.

tl;dr **** the 0.01 isk war i don't have time for that.
Dixon Cutter
Savvys Corp
#6 - 2013-12-12 04:00:14 UTC
Thank you for your responses. However, the example I brought does not sufficiently demonstrate the actual mechanic of the manipulation. You may notice such manipulations when you see undercutting orders appear systematically and multiple times as soon as someone updates their order, and they either have a round number like 100,000,000.00 or same digit like 111,111,111.11 or 222,222,222.22. Many of them are bids for multiple items, which shows that the bidder is not a consumer, but a trader (who needs 20 implants at the same time).
Dixon Cutter
Savvys Corp
#7 - 2013-12-12 04:13:08 UTC
Debra Tao wrote:
I see 2 main reasons : the guy wants to buy the good without paying the full price offered by the sell orders so he puts up a high enough buy order to see it fill quickly without having to fight the 0.01 isk war. I do that when i have to buy PLEX.
The other reason is when a good has some incredible margin and the guy doesn't have time to fight the 0.01 isk war, cutting into the profit will generally drive away a good part of the competition while generally increasing the volume of trade. I do that a lot.

tl;dr **** the 0.01 isk war i don't have time for that.



Debra, that's a good method for when you want immediate profit for a singular or a small number of transactions. There is a positive side to the 0.01 ISK war - it keeps margins at the optimally profitable levels longer, which means repeatable profit opportunities. In 50% of heavy undercutting cases, especially those that contain multiple items, the 0.01 ISKers start piling on top...
PopplerRo
#8 - 2013-12-12 07:52:50 UTC
Would it ever be possible the person setting the high buy order is also in fact a seller and is attempting to raise the average buy order to hopefully push up the sell order before they cash out.?

example I buy high quantities of item A at low price x, I then begin setting higher and higher buy orders x+1, x+2 etc etc. If lucky overtime the sell order price may increase depending on supply/demand(yes, it's a gamble but profitable when it works) and then you begin cashing out just before you think the price is about to plateau out.

But from the image it just appears like the person wanted their buy order to fill fast and still receive the item cheaper than the sell order, no manipulation going on. Maybe a little OCD but I would have rounded off the number rather than what looks like just putting a random amount greater than other buy orders :p
Zahara Cody
Imperial Corrections Service.
#9 - 2013-12-12 07:58:39 UTC
Lord Jita wrote:
Because **** you, that's why.




Hating is free, that's why poor people do it the best.

Aluka 7th
#10 - 2013-12-12 09:50:21 UTC  |  Edited by: Aluka 7th
I see couple of reasons why would you undercut by bigger margin.

Example A
Item *** is on market for 10mil and costs 2mil to produce. Couple of guys play isk war at 10mil and that item is at 3-4mil in other regions. Sell volume is low and it wont get any bigger. If I have volume of that product, I'll put it for quite less then 10mil, probably 4-6mil and crash the price. Also manufacturing costs between people could be very different. In example someone used buy order and someone used sell order.

Example B (also mentioned by PopplerRo)
I want to make a profit on market diff of item ***. I put buy order for 4mil, it sells for 10 and i set up sell order for 4,5mil.
Now if I'm above some "usual" price, sellers will often sell to my buy order as it is already close to my sell order. As long as I'm buying little faster then selling I'm making 300-350k per transaction. Works best with fast moving items that goes in volume.

Example C
I came across item in loot can of guy I killed and want to convert it to cash as fast as possible to upgrade my pew pew ship and have fun in this game.

.......
Steve Ronuken
Fuzzwork Enterprises
Vote Steve Ronuken for CSM
#11 - 2013-12-12 10:16:07 UTC
Also:

I sell a stack to a buy order. I'm an idiot and don't use the simple option, or set it to a duration immediate. The stack is bigger than the order.
I now have a sell order at the price of the buy order, for all the remaining items.

Woo! CSM XI!

Fuzzwork Enterprises

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Billy Hix
Dreddit
Test Alliance Please Ignore
#12 - 2013-12-12 10:25:53 UTC
I do this sometimes when the market has been manipulated up and I want to get the stuff cheaper. It works best on a highly traded product.

Keep dropping the price and hope that someone else 0.1 isks you. Then do it again (sometimes I will just fight with myself. Others 0.1isk you and you set a new baseline for prices. Once it drops enough, I buy up a load.
virm pasuul
Imperial Academy
Amarr Empire
#13 - 2013-12-12 11:33:34 UTC
It's also a way to PVP.
They may want you our of "their" market segment. If they are aggressive enough you might leave.
You can also see this in real life where sometimes a business will sell stuff at a loss to drive the competition away or out of business.
A short term loss - even a big one - may make sense to drive away the competition for long term profit.

add in alcohol and a healthy dose of f**k you buddy on top and it can snowball :)
TheSmokingHertog
Julia's Interstellar Trade Emperium
#14 - 2013-12-12 12:09:48 UTC  |  Edited by: TheSmokingHertog
Undercutting for me has 2 reasons

- Pushing people out of the market by dumping stock
- I still make profit by undercutting under the production price lvls of others and make my money based on a high turnover

Undercutting that I see by others

- Mining gets you ' Free Minerals'
- People who dont get marketing mechanics and just dump stuff in the market

*

The picture you posted shows someone who wants a guaranteed buy.
Massive market manipulation is very normal in RL, think about the Libor fines of the moment.

*

The "price discovery" is not a term I would use, I would prefer to call it "testing market elasticity".

  • Do others have stocks,
  • Is it mostly a station trading or (inter) regional market,
  • do people monitor the market,
  • what is the production-cycle-reaction-time by producers,
  • on what margin do industrialists leave the market,
  • etc.

*

About countering the market, if it is a speculational station market, just wait out the wave and act acordingly.
If its an interregional market dominated by Industrialts, try to compete on volume, in stead of price.
Its dependant on the situation

*

And what other said ;)... Driving up the price by buy order lvl, or a market noob wanting a short term solution. The only annoying people are the ones like Billy Hix ;).

"Dogma is kind of like quantum physics, observing the dogma state will change it." ~ CCP Prism X

"Schrödinger's Missile. I dig it." ~ Makari Aeron

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Silvetica Dian
Imperial Shipment
Amarr Empire
#15 - 2013-12-12 12:34:33 UTC
Dixon Cutter wrote:
[b]

I do not see this much in the RL markets.


Yeah you do.
Megacorp arrives in a new town. sells stuff at a loss until the local family owned retailors are dead. then jacks up prices.
Now the only jobs are lower wages and oppressive conditions that take no account of peoples out of work lives. Yet more people semi - enslaved by the invisible bonds of capitalism.
short term losses to drive out competition to gain market share and future margins is not a rare rl action.

Money at its root is a form of rationing. When the richest 85 people have as much wealth as the poorest 3.5 billion (50% of humanity) it is clear where the source of poverty is. http://www.theguardian.com/commentisfree/2014/jan/20/trickle-down-economics-broken-promise-richest-85

Elizabetha Zateki
Hedion University
Amarr Empire
#16 - 2013-12-12 19:12:04 UTC
It's a far more realistic method of price discovery than undercutting by .01isk every 5 minutes.

It's a time/effort tradeoff. I, objectively, value my time and effort higher than those who want to spend their time checking their orders every 5 minutes to make sure they're on top. I say that without prejudice or insult; if they want to play that game, they are free to do so.

I'm simply happy to drive margins to slim levels in exchange for far more certainty that when I check my orders in a couple of hours time, they'll still be on top.
Patri Andari
Thukker Tribe Antiquities Importer
#17 - 2013-12-13 03:00:38 UTC  |  Edited by: Patri Andari
OP

There is sooo much more to market PVP then just .01 isking. The more expensive the item is the more likely you are dealing with someone who has been playing this game a while.

Why is that important? Reserves, Standings, and Margin Trading Skills. If they have an advantage in any or all of these they can and WILL force you out of the market if they choose to devote the effort.

There are people in this game who will happily take a loss for a week (or more ) in exchange for an otherwise profitable month.

You have been called out. Now decide if you will accept the challenge or fold.

Be careful what you think, for your thoughts become your words. Be careful what you say, for your words become your actions. Be careful what you do, for your actions become your character. And character is everything. - author unknown

Block Ukx
420 Enterprises.
#18 - 2013-12-13 03:06:40 UTC
Dixon Cutter wrote:
It's a common margin-killing technique used for market manipulation in Eve, but I do not see the reasons someone would be doing that.




Big margins attract a lot of competition. Small margins keeps people away.




Gypsio III
State War Academy
Caldari State
#19 - 2013-12-13 14:04:05 UTC
If immediate undercutting is preventing me from making a profit, why should I let you prosper?
Adunh Slavy
#20 - 2013-12-13 14:36:53 UTC
Quote:
I do not see this much in the RL markets. It's a common margin-killing technique used for market manipulation in Eve, but I do not see the reasons someone would be doing that. On the surface it seems like a suicide-gank technique, just applied to the Market PvP. When I asked one of the traders who do that for the reasons, he told me: "I don't care about your profit. This is price discovery".


People are motivated by incentive. The motivation for cutting price is obvious, to make the sale and we see that RL all the time. The thing you don't see RL is the big crazy price changes we see in Eve.

Again, it goes to incentive. No one in Eve has to eat, pay the mortgage save for retirement or save for the cat's liver operation. There is no incentive to not starve to death.

Also, compared to the real world, the Eve markets are tiny. Small markets tend to experience more price volatility. The fewer participants there are in a market, the less diverse is the pool of value judgements, or stated another way, much larger divergence in the possible participants' marginal utility of money.

For those of you who want an empirical view: If utils could be measured, which of course they can not, but bear with me here, imagine you could average out all the marginal utility of money for all of the participants in a market. And then average all those below and all those above the over all average. In the real world, the high average and the low average would be closer to the overall average. In a small market, the average high and average low utilities are further from the overall average.

Necessity is the plea for every infringement of human freedom. It is the argument of tyrants; it is the creed of slaves.  - William Pitt

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