I'm going to try and explain how I look at the market and what pictures are in my head when I see things. Hopefully I've gotten the concept of "Rate of Supply" "Rate of Demand" and "Equilibrium Price" across. I am going to be applying these concepts and seeing how they work on the Black market.
What I do is think of the Buyers and Sellers on a Line Graph... like this one...
Then I picture LOTS AND LOTS of buyers and sellers. I throw them all in the graph in my mind. Where they overlap, sales occur and these buyers and sellers are "satisfied" and move off my graph. Only players with outstanding bids remain
If more players come in and set reserve prices under 30, sales instantly occur. This is "supply goes up, price goes down."
If more players come in and set bid prices over 30, sales occur instantly. This is "demand goes up, price goes up."
Following the fluctuations in the rates is what causes prices to change over time. The rates are always changing.
As I've stated before, Equilibrium Price is where the rate of buyers at a certain price equals the rate of sellers at that same price. Identifying the Equilibrium Price on that graph...
So far, I've only done items "in my mind" with LOTS AND LOTS of buyers and sellers. The price has already stabilized. I'll take an item in City of Heroes and see how its flipped... this is what the Cartel does...
Somewhere between 1.6M and 2.1M is the Equilibrium Price. Where exactly? I do not know. There are a few interesting things on this line graph. Notice how the "Last 5 Sales" has prices ABOVE what some people are setting reserve prices.
A key thing to remember is the HIGHEST bid goes to the LOWEST seller.
In our example the "flipper" here is setting the reserve prices on his items probably around 1,900,000. However, buyers who come along and want their item now simply plop down 2,000,000. Regular players who list their item at 2,000,000 exactly do NOT get the sale. The sale goes to the person with the lowest reserve price. In this case it is the flipper. Why do people overpay? I cannot answer that. The important thing to note is that exactly what you list your item at makes a HUGE difference. If there are already lots and lots of people at reserve price of 2,000,000, and you list your item at 2M as well... you get in line behind the others who listed exactly the same. However, if you list your item at 1,999,999 you move to the FRONT of the line! However, the more you lower your reserve price, the more risk you are taking of actually having someone bid only that reserve price.
Flipping causes greater competition between buyers and sellers. Players battle in a game of chicken to see who's willing to set the lowest reserve price or the highest bid price. The "average price" does not necessarily go up nor down. The only thing that occurs when flippers move in is that the price stabilizes. If you leave bids up at 1.7M here, you will beat the flipper at his lowball price. You will get the item, NOT him. If you list your items at 1.8M you will get the sale, NOT the flipper.
Some items are underpriced on the market. Here's an example...
Here, the rate of people willng to pay 75M is HIGHER than the rate of people willing to sell at 75M. How do I know this?
1) Bids for the item, and not inventory are building up.
2) I ask people.
Often I go around and ask people about items I don't have. "Would you be willing to sell me an LotG for 75M?" "Would you be willing to buy an LotG from me for 75M?" Try it out sometime. Many many many more people are willing to pay 75M than sell at 75M. Thus the rate of demand is higher than the rate of supply. So the equilibrium price must be somewhere higher. So I ask again... "How about 85M?" "How about 100M?"
Items like this are where the cartel moves in and makes money. For whatever reason sellers do not set their reserve prices near the equilibrium point. Reasons can include: not being able to afford the list price, not realizing that the equilibrium price is higher, not caring about the equilibrium price and just wanting 30M or more... or many other things. Buyers are SCRAMBLING to get their hands on this item. This item is the Nintendo Wii. It flies off the shelf. When I say "you can stand in line with everyone else willing to pay 75M" this is what I mean. In our world, country and marketplace, when two people want the same thing the person willing to pay the most gets the item. For a multitude of reasons that is NOT occuring on this item. I support "the person willing to pay the most gets the item."
If there is a superior method of deciding who gets the item when 2 or more people want 1 thing I want to know about it. At this point in my life I can only identify three methods:
1) Pay the Most --> Is this Capitolism?
2) Wait in line the longest --> Is this Communism?
3) Killed everyone else to get it --> Is this the law of the jungle?
The Cartel is cunning, wise, devious and most importantly... greedy. I know, by my contacts with people who have money and want the item, that I can buy these LotGs at 75M and sell them as fast as I buy them for 100M. I can do this because the equilibrium price is MUCH higher than 75M. If the Equilibrium Price was only 75M then I would buy items at 75M faster than I would sell them for at 100M. I would not make money doing this.
Some items are the opposite. They are overpriced on the market. The Equilibrium Price on these items is lower than the last 5 sale prices.
I think that discloses EXACTLY how the cartel works and why it works. Personally, I don't see either of the two methods the cartel uses...
1) Instability/Flipping Deific Method or
2) Underpriced/Equilibrium Speculation Luck of the Gambler Method...
... as being "Price Gouging." In both cases I am using my knowledge of Equilibrium Price to my advantage. In neither case am I attempting to inflate the price to an unstable point.
In all honesty, I don't know how to inflate the price above the Equilibrium Price AND retain a profit. If anyone would like to show me then I am willing to put MY money where YOUR mouth is. Anyone want to teach me how to price gouge and make a profit? Frankly, the only way I can see it work is by taking advantage of player stupidity.