Proteas Guide to Market Participation
Or, How to Buy a Mu Vestment Without Losing Your Shirt
Introduction
This guide will attempt to educate players about the mechanics of the City of Heroes/City of Villains consignment houses. The aim is to provide players with enough information to execute intelligent trading decisions, based on an understanding of the consequences such decisions can have.
I will assume that readers are already familiar with the trading interface there is already a guide by Zombie_Man
here that covers that interface, and it is fairly thorough as far as it goes. It falls short however of analyzing the dynamic interactions that form day-to-day activities; and that is where this document comes in.
Basics
First, a review of the basic consignment mechanics is in order. Players can enter either
bids for items they desire to buy, or
postings for items they desire to sell. Bids and postings are similar in some ways but have important differences, and as we shall see, these differences can greatly affect how prices are decided. Throughout this document I will refer to these as bids and postings in text, or through the variables
b and
p when mathematical notation is called for. (In the forum literature, postings are often called offerings, and I considered using that terminology, but using o for a variable name seemed too visually confusing while b and p have a satisfying visual symmetry.)
Bids and postings can be entered one at a time for enhancements and inspirations, and up to ten at a time for salvage and recipes. Although the bid price is held in reserve by the consignment system on entry, there is no cost associated with placing a bid if a bid is canceled, the entire sum is returned to the character. Therefore, bids can be canceled and re-entered as often as a player wishes. Posting, however, requires the player to submit a
non-refundable 5% listing fee. This listing fee is counted towards the eventual transaction fee, assuming there is one (see below), but the listing fee does discourage cancellation and subsequent re-listing of a posting.
The consignment system is
instant-resolution when bids and postings overlap. When any item has a posting that is less than a bid for the same item, the system resolves the sale. The items sale price for the transaction is the bid price, which is by definition equal to or higher than the posting price. At that point, the seller is awarded the bid price minus a 10% transaction fee. Since the listing fee is credited towards the transaction fee, the actual numbers that appear to the seller when (s)he claims the influence/infamy are often strange and can confuse new players. The net result however is always a 10% fee to the consignment house.
When multiple transactions are possible, the system resolves them by giving preference to the lowest postings and the highest bids. This plus the listing fee encourage sellers not to enter postings for very high prices, since doing so may not only push the price above the point buyers are willing to pay, it also puts them at the end of the list should a bid come along that does satisfy their target price. If two people have listed Deific Weapon, one for 100 inf and one for 1,000,000 inf, the first 1,000,000 inf bid to come along will capture the former item, not the latter. On the other hand, anyone might come along in the interim and place a bid for 100 inf, capturing the first item at a very, very low price compared to the competition. We will explore this in more detail later.
NPC Stores and Relative Values
In some cases, items sold in the consignment markets may also be bought and sold directly at NPC stores. Salvage, common and set IO recipes, and regular enhancements may all be sold to vendors at fixed prices. Common IO recipes and regular enhancements may also be purchased from the invention tables and from vendors, respectively. This guide will not go into details about the process, other than to note that it does serve to narrow the reasonable transaction prices for common IO recipes and regular enhancements (and to a limited extent, non-rare salvage). There is a good post written by Tic_Toc
here. In general, however, selling to NPCs can be profitable for common IO recipes, but for rare salvage and for most set recipes, the NPC store price is so low as to be meaningless.
Influence/Infamy Transfers
Although some caution must be taken, it is possible to use the sale of items as a conduit for transferring influence or infamy between characters on the same account, even on different servers. This document will not go into details about the process since there is a good write up of it on the Paragon Wiki
here. This author has used it multiple times without interference, even going so far as to issue a challenge on the forums to disrupt the process.
Market Domains, Cherry Picking, and Patient Play
The instant resolution nature of the consignment house has an interesting effect on steady-state properties of the market. Lets suppose for a moment that the system is seeded with a large number of random entries for both bids and postings:
(b1 b2
bN) and
(p1 p2
pN)
The subscripts here denote increasing denominations of inf, i.e. both the bids and postings are sorted within their own pools.
As long as any bids are higher than any postings, the system will resolve transactions and remove those bids and postings from play. If there are any bids and postings left, which we would expect in many instances, there are by definition two domains in the market afterwards:
(b1 b2
bM) ... (pM+1 pM+2
pN)
That is, the highest remaining bid is lower than the lowest remaining posting. In other words, these two domains known as the
bid pool and the
sell pool - are disjoint. They have in a very tangible sense become two separate markets.
Lets further suppose that someone comes along and wants to capture either the highest bid or the lowest offering at that point in time. Either goal is very easy to achieve. Because there is no cost to re-listing bids, buyers can bid creep by entering low bids at first, and steadily increasing the amount until a sale is resolved. While this can be tedious, choosing rational increments makes this a very viable strategy, especially for high cost items where savings can be substantial compared to a blind guess.
On the sale side, capturing the highest outstanding bid is even easier: simply list the item for 1 inf. The system will resolve this instantly by picking the bid bM. Although we will get into more specifics later, I will caution readers now that
this is not always the smart play. Bid creeping on the buy side is much safer, because while buyers can change their minds and back out if bids become too high, sellers cannot back out of a 1 inf posting. If there are any outstanding bids at all, a 1 inf posting will capture it.
These two activities together I call
cherry picking, because they each pluck from the pool one of the items that exists at that point in time. Note that cherry picking serves to remove from play one of the two inner prices, either bM or pM+1:
(b1 b2
bM-1)
(pM+2 pM+3
pN)
The gap between the highest bid and the lowest posting has either not changed at all or it has increased. If the definition of market stability is price convergence,
cherry picking serves to destabilize the market.
So what keeps the market from steadily diverging to the point where no one can reasonably participate? The answer is the influx of bids and postings into the middle of the gap, in between bM and pM+1. Note that when a bid or posting is placed in this range, it will
not be instantly resolved. However, assuming it is executed at all, it will guarantee a lower purchase price to a buyer, or a higher sale price to a seller, than if that buyer or seller had limited his or herself to the pools available at the time of entry.
This is known as
patient play, and its tension with cherry picking forms the core dynamic of the market. A player must judge on a case by case basis whether receiving a good instantly (whether inf or an item) is better than receiving it under more favorable terms. In many cases, such as for lower priced items that are gating key inventions, patient play may not be called for. But in important high-cost purchases or sales, patient play is definitely recommended to the extent to which it is feasible.
Arbitrage
Savvy readers will already have noted that cherry pickers are buying high (from the sell pool) and selling low (into the bid pool). There is an opportunity here, because if one person can provide both the bid support and the posting support to cherry pickers on the same item, they can make a profit.
In order to leverage this dynamic, a player enters bids just slightly higher than bM in our original bid pool. Then, when a transaction occurs, they re-list the item by posting at a price just slightly lower than pM+1 in the sell pool. The next cherry picker to come along will buy their item, providing a theoretical profit of:
0.9*(pM+1) bM
This practice is called
arbitrage. Note that because of the transaction fee, the difference between the highest bid and the lowest posting must be at least 10% of the eventual transaction price in order for arbitrage to be profitable. Because it is so important to arbitrage, the cost differential between the two pools is known as the
arbitrage gap.
Although arbitrage practitioners are sometimes vilified on the forums and in game, they are actually performing a service. Arbitrage, as a form of patient play, acts in opposition to cherry picking and helps to stabilize the market. This is particularly true when multiple arbitrageurs compete; their constant one-up / one-down outbidding can quickly bring the arbitrage gap down to manageable levels.
In addition, because arbitrage transactions tend to be prepared in large amounts with constant parameters, time-dependent variations in pricing due to player patterns can be evened out as well. This author has watched in times of relative scarcity while buyers went through the inventory of cheap salvage and began eating into the higher tier of the sell pool; if not for profiteers, those items might not have been for sale at all, and instead sold to NPCs or even deleted during previous periods of abundance.
Monopolies, Price-Fixing, and Bid Stuffing
A participant in market activities has only limited direct information about supply and demand dynamics of an item. The three pieces of information available are:
1. Number of postings
2. Number of bids
3. Last 5 transaction prices
Based on those three pieces of information alone, unwary market participants may find it very difficult to know what price to attach to a bid or post. This is complicated by the fact that all three of these pieces of information can be directly and deliberately manipulated by other players, should such manipulation serve to profit them.
In early beta for issue 9, Castle listed market participation as a form of PvP activity. This comment rubbed many the wrong way, but given limited resources compared to demand in any MMO crafting system, his statement is reality. Sellers are up against buyers who want the lowest prices, and buyers are up against sellers who want the highest prices; in both pools there are players who wish to simply to profit.
The most commonly known form of market manipulation is monopolization. While the kinds of monopoly maintained by strict control of supply (e.g. by spawn camping) are not possible in the City Of markets, it is possible to obtain a short-term monopoly over items in both sell and bid pool. Arbitrageurs engage in this practice to some extent when practicing arbitrage. However, it has been demonstrated above that arbitrage is a self-correcting process in the face of competition. While many players have reported large profits in the short term by attempting monopolies, what they really have done is practice arbitrage.
It is also possible to manipulate the sales price history, simply by bidding at the target price. While it is impractical to drive the price history down, it is trivial to drive it up, since the bid price can be inflated to whatever level is desired. This practice is known as
price fixing and the intent is to mislead observers regarding the likely contents of the buy and sell pools. While bid creeping serves to defuse this kind of practice to some extent, if players can mislead cherry-pickers as to a likely first guess for bid creeping, it can have a tangible effect.
Finally, players should note that the number of outstanding bids may bear little or no relation to the number of
reasonable outstanding bids. Bids may be entered ten at a time, and there is no cost to entering large numbers of unreasonably low bids, even as low as 1 inf. For some set IO recipes, where equivalents exist across multiple levels for bidding, it may be advantageous to mislead players about how intense the competition is for an item at a given level. Stuffing the bid pool may not only mislead cherry-pickers into listing items for 1 inf, trapping them into unreasonably low sales, it may also discourage honest buyers from placing long-term bids in the mistaken belief that they are unlikely to win transactions at that level.
All manipulations of the available information can be regarded as a kind of psychological warfare against buyers and sellers. The intent is to trick players into making unreasonable plays on either buy or sell end.
Long-Term Informed Play
Given the dangers of cherry-picking, competition with arbitrageurs, and the potential for manipulations, some players may feel at this point that they should avoid the market entirely. While this reaction is understandable, the market is also the best way to exchange goods with other players.
The good news is that even under all the conditions listed above, as far as this author can tell, reasonable play gives reasonable results. What do I mean by reasonable? Follow these guidelines, and you should very rarely be unhappy with your experiences:
<ul type="square">[*] First, understand the actual gameplay value of what you are buying or selling. The prices do not materialize in a vacuum; in order for Hamidon Goo to be worth 5M inf, someone must be willing to pay 5M to get what Hamidon Goo can craft. The best resource for this that this author has found is the
City of Data Inventions interface, which can not only tell you what set IOs exist and what they do, it can work backwards from salvage to craftable recipes, from set bonus attribute (like +recovery) to set (like Miracle), and many other things.[*] Watch the market for a while on the items youre interested in. Are there periodic fluctuations due to play patterns? Are recipes going for more reasonable prices at slightly lower levels?[*] Decide how long youre willing to wait to get an item. In some cases, the cost associated with cherry picking is worth it for convenience, especially on some common salvage or unpopular recipes. In other cases, patient play can provide huge savings so try to bid into the middle of the arbitrage gap, and wait.[*] Dont make hasty judgments based on assumptions about the trading information. As noted above, all that information is subject to manipulation.[*]
Dont post items for prices at which youre not willing to close. If you think your Numinas Unique should fetch 15-20M, theres no reason to post it for less than what youd settle for in a pinch, say 10M. Posting it for less becomes dangerous, and posting for 1 inf leaves you very vulnerable to vagaries of the market and possibly even manipulations like bid stuffing.[/list]
Finally, have fun with the system! Its only a game, after all. The market is a dynamic and for many an interesting place, but if its not your thing, or you begin to feel frustrated, by all means step away from it. Everything for sale in the market is in a real sense optional; you can play from 1 to 50 using store-bought SOs and be quite effective.
- Protea
Many thanks are due to Arcanaville for providing insights, terminology, and enlightening discussion. This guide would very likely not have been possible without her input.
