I was listening to Michael Munger’s podcast on price-gouging last week, and it reminded me of the price of silver in Middle Earth. “The only way you get low prices is by letting people charge high prices.”
Silver is a bottleneck for jewelers. There are two types of metal nodes at each crafting tier, and silver is the less common one in tier 2. If you want to advance a jeweler, you make a lot of silver jewelry or polish a double-lot of gems. As a tier 2 resource, it is where the level 15-20 folks hang out, not the level-capped masses. Because it is a less common resource with relatively few people collecting it, price is high. It was selling for higher prices than ancient silver, the tier 5 (top-level) jeweler metal (which was just made more common).
Now if you’re playing WoW, 10 silver pieces (vocab: 10s is “ten silver pieces,” because otherwise it will get confusing talking about silver ore and silver pieces) for a chunk of ore or an ingot isn’t all that much. Inflation is much lower in The Lord of the Rings Online™: Shadows of Angmar™. 10 gold pieces will buy literally the most expensive thing in the game, so 10s per resource is fairly high, particularly if you need several stacks to get through a crafting tier.
How do you react to this situation? Some people said it was unreasonable to charge that much. Others took to the forums and called for more silver to exist. The wisest people picked up picks.
If you’re mid-level, all the monsters in area that get silver nodes are gray to you. You can merrily run through, harvest everything, and sell it at a nice profit. The price of barrow-iron ore (the more common tier 2 resource) fell through the floor, as people cleared those nodes in hope of a better respawn.
You might think that the amount of silver ore in the game is fixed, because there are only so many resource nodes to spawn it, but how many of those are camped? In my experience, 0: the only resource I ever see people fight over is monsters. There are resource nodes out there right now waiting for you, if you think it is worth your while to go farm them.
At 2s per nugget, you would just keep farming on your level 50, but at 10s for ore, it is worth it to change zones. Each click on that resource node gets you 20-40s. You might even get some gems or other by-products along the way. Get some stacks of silver ore, post them at some silly buyout, and rake in the funds.
There are five zones that spawn silver nodes. That is a lot of silver that someone could be bringing in. While you are posting yours at 10s, someone else wants to sell his now so he can get his money. He will sell at 8s. (Why not 9s or 9.5s? Some people will sell at 9.99s, but people who want a guaranteed sale tonight often cut prices by 20-30% below the guy who has 20 auctions worth of stuff. I could match his price for a 1/21 chance of getting a big sale, or get a more or less guaranteed sale for a bit less.) And there are a lot of those 8s and 9s sellers. If half of yours fail to sell because of them, are you going to re-post the auctions at 10s, or drop the buyout a bit?
And in this way, the price you pay for silver ore quickly drops 20%, and it keeps dropping until it is not worth it to farm ore. And while you’re out there farming ore, you can farm hides for your tailor or finish a few deeds, so you will find a reason to keep bringing in the silver even as the price drops.
This is the story of why letting a few folks get away with ridiculous prices brings lower prices for everyone. Prices serve as signals, and high prices are clear signals that it might be worth doing something else for a little while. For buyers, use a substitute; for sellers, get more of that thing.
I am reminded of someone’s Star Wars Galaxies story. His server had adopted a norm that it was inappropriate to charge a big markup on crafted goods. You could cover your costs, but people would shun you and write nasty things on the forums if you wanted five or ten times your material cost.
So there were very few high-level crafters. Who wants to grind all the way to mastery when there is more money in farming rats? At least rats drop loot consistently; if no one is buying your blasters at 10% markup, you are just sitting there hoping to make some of your money back.
Then one guy, seeing a wide open market, worked his way to top-level gear. He charged as much as he could. People complained, and hated him, and grumblingly paid whatever he asked because he was the only guy who could make top-level gear in quantity. People were lining up to pay prices they complained about.
Someone else saw the money there, did some crafting, and started under-selling. He did not sell at 10% markup, but maybe at 10% less than the big seller. That was still a lot of money, and while there was some grumbling, people were happy about this new guy. Think how much they liked the next new guy, who knocked off another 10% to undercut #2? And so on, until you got a thriving market.
You can have nothing at low prices or a lot at temporarily high prices.
“Why are you charging 2 gold for this when that other guy is only charging 50 silver?” Why don’t you buy from that other guy? “He’s all sold out.” Come back when I’m sold out, and I’ll drop my price to 50 silver too. Heck, I’ll give you a discount.
Your mileage may vary by server. And if your server is still radically over-priced, I just told you how to profit from it. If you still think of it as price-gouging, switch to thinking that you are just asking for what your time is worth.