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Filed under: Analysis / Opinion, Economy

I hear this all the time: "Hurrr! Undercutters are ruining this market! Durrr!". Today, we"re going to talk about this. Undercutting doesn"t ruin markets, high supply does. Also, if it"s still profitable, the market"s not ruined, it"s just being taken away from you. Cut your margins and undercut back. Or buy them out if you still think they"re wrong and you"re right.

But markets should be protected from undercutters!

Balderdash. Markets are a place where people can sell their goods for any price they want. You"re describing collusion between sellers to reduce "lost profits," where every time someone wants to undercut with a new auction, they do so by the smallest possible amount.

More often than not, all your competitors will have the same cost that you do, and as soon as they see you commit to an auction, they"ll undercut you right back. If everyone is knocking a copper off the next highest auction, they only way to undercut successfully is to try camp the AH and make sure you"re always the competitor who has visited most recently. Needless to say, this is a colossal waste of your time, and you would probably make more money per hour doing argent tourney dailies.

The only way to effectively sell your product in a market with a lot of competitors is to undercut by more than just a trivial amount. You need to make it just cheap enough that your competition is less likely to undercut you, but expensive enough that you"re still making money.

Continue reading The art of pricing

The art of pricing originally appeared on WoW.com on Wed, 17 Mar 2010 13:00:00 EST. Please see our terms for use of feeds.

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