1 (edited by Artem Blue 2010-11-25 01:38:22)

Topic: How to market

I'm assuming you're not a full-time speculator. Rather, you mine things sometimes, or make things sometimes, but you do other things too. I'm assuming you can detect that marketing and purchasing extensions, accounting and tax reduction extensions, all help with buying and selling things on the market.

In games like this, it can be difficult to choose reasonable prices, particularly as the markets are just starting up. This guide is a fairly straightforward strategy for choosing prices (technically based on "0.66 constant elasticity of substitution"), that will enable you to put buy and sell orders up and get on with your other activities - building things and breaking things.

First, pick your markets. They should be fairly liquid, and near to your other interests - a hdt miner might trade in hdt and isoprop in all three alpha terminals, someone trying to move out into the beta islands might trade in titan, helio, and hdt at "their" beta terminal and the corresponding alpha, a prototyper might want to keep a finger in the fragments markets, and so on. Suppose for a running example, we pick the Asintec titan and hdt markets.

Second, pick your preferred mix. Aside: NIC is a resource just like titan, hdt, or small armor-piercing bullets. Suppose that we decided that we prefer to hold inventory in nic, titan, and hdt, in a 10:2:1 proportion. When you're playing the markets, your inventory balance will usually be somewhere away from this mix, but this is your center of gravity. I'll come back to the question of how to pick your preferred mix.

Third, compute your "internal prices" from your current inventory. If you had 1000 nic, 200 titan, and 100 hdt, then your titan price (units of nic/titan) would be sqrt((10 * 1000) / (2 * 200)) = 5, and your hdt price in nic/hdt is sqrt((10 * 1000) / (1 * 100)) = 10. If you had less HDT, say 50, then your internal hdt price would go up. sqrt((10 * 1000) / (1 * 50)) = 14.4. If you had more money, then your internal hdt price would go down. Note: Internal prices should probably be secrets, because if someone knows your internal price, they can offer you the worst deal that you would (reluctantly) accept.

If your internal price for something is higher than the price it's being supplied at, that's a signal to buy. If your internal price is lower than the price it's being demanded at, that's a signal to sell.

If there is no standing supply or standing demand, you can create buy or sell orders; this is where you pick a price. If you have no better guide, you can use your internal prices as a starting point for buy and sell orders, but remember two things: 1. The price that you set in a buy or sell order is not quite the price you will experience, because of fees and taxes. 2. The internal price formula  is a local linear approximation - it will get progressively worse approximation as you get to larger quantities; for example, you should not use it to price exchanging all of your wealth from titan to NIC, or vice versa.

Instead, for large deals, you can use the real nonlinear "utility" formula, to compute what your "utility" would be before and after the exchange, and only do the deal if your utility increases. The utility from the running example is (10*1000)^1.5 + (2*200)^1.5 + (1*100)^1.5=1009000. That is, you multiply your inventory by your correct proportions, and raise it to the three-halves power. (Technically we should then take the total and raise it to the two-thirds power, but that last operation is monotonic, and we're just asking "would my utility increase or decrease?", so we can leave it off.) If we exchanged all of the titan for NIC at the "internal price" of 5 nic / titan, then we would be at (10*2000)^1.5 + (1*100)^1.5=2829427 - much less than 1009000. So you always have to fudge the internal price up or down somewhat to account for the nonlinearity of the utility function.

Where do preferred mixes come from? Well, if you are a energy cell manufacturer, then you use NIC, meta, and pri - and in characteristic proportions. If you (like me) periodically get knocked down to nothing, and characteristically buy specific items (or mats to make specific items) on your path to work your way back up, then you can use those items (or the mats used in those items) as your "goods basket". Another idea is to study your purchasing history in order to decide on your goods basket.

In economics, those items in your basket are "complements"; you prefer have both (or all three in such-and-such proportions), than to have just one kind of thing. The reason you know that you prefer a mixture is that if you had just one kind of thing, then you would go to the market and exchange some of what you do have for what you need. If you are a full-time speculator who wants to use this strategy anyway, the best basket coefficients to use are your estimate of what everyone else consumes.

If you have decent market skills, this strategy will make it easy to buy and sell at very competitive prices, making a small steady income from the gap between bid and ask, while maintaining an inventory that you personally find useful.

Internal price formula: sqrt( (nic_coefficent*nic_inventory) / (other_coefficient*other_inventory))
"Utility" formula: (good1_coefficient * good1_inventory)^1.5 + (good2_coefficient * good2_inventory)^1.5 + ...

Also see: http://en.wikipedia.org/wiki/Constant_e … bstitution

Contact me in-game if you want to talk about how I derived this strategy from the CES utility function - it's not hard, just a bit of derivation. If you understand how to derive this strategy, then you can re-derive it for other elasticities (0.66 is fine for many purposes, but it's an arbitrary parameter that you may want to change), or you can re-derive it for other utility functions with non-constant elasticities.

Re: How to market

Ugh... Really complicated. Is that from real world economics?

I just assumed that all materials I dig/harvest myself cost 1 nic, and use this in future calcualtions how profitable to do something.

Re: How to market

Radically simplified from real-world economics, yes.

Re: How to market

A better way of finding an appropriate price might however be to see how the good in question relates to other more well-priced goods (e.g. through recycling, or what you can refine it too) or ask someone else for a price check. Also, it would be irrational selling for the internal price if one thought the price one could get is actually higher.

Re: How to market

Step 1: Look at price of X item.
Step 2: Sell for 1 NIC less.

I am Perpetuum's Most Dangerous Agent and an equal opportunity troll.
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Re: How to market

Neoxx wrote:

Step 1: Look at price of X item.
Step 2: Sell for 1 NIC less.

0.01 less

Re: How to market

Melia wrote:

I just assumed that all materials I dig/harvest myself cost 1 nic

just take the average income per hour then divide that income per amount of stuff mined in 1 hour so you get the price fro ur minerals

To avoid criticism, do nothing, say nothing, and be nothing.” – Elbert Hubbard

Re: How to market

Neoxx wrote:

Step 1: Look at price of X item.
Step 2: Sell for 1 NIC less.

That's not the best idea.

If you want to save money also look at location. Not a lot of players are going to travel for a discount. And especially if some items are on beta, etc.

And sometimes it's better to be middle of the pack, if you're going to log or don't need the money right away.

9 (edited by Voodh 2010-12-15 08:04:28)

Re: How to market

If you place a buy order, please, don't up the price. Not with 0.01 nic or 1 nic and certainly not with 5 or 10 nics; if you want to continue to buy the stuff. (Prices of the ammunitions are really too high because people just put prices 1 or 2 nics below the last order. They don't get the stuff and the price rise and rise).

If you place a buy order, just put the same price than the last buy order, you will get the stuff and even if you don't because someone have put the same price behind you, the next day the price will still be the same.

Re: How to market

Voodh wrote:

If you place a buy order, please, don't up the price. Not with 0.01 nic or 1 nic and certainly not with 5 or 10 nics; if you want to continue to buy the stuff. (Prices of the ammunitions are really too high because people just put prices 1 or 2 nics below the last order. They don't get the stuff and the price rise and rise).

If you place a buy order, just put the same price than the last buy order, you will get the stuff and even if you don't because someone have put the same price behind you, the next day the price will still be the same.

If someone needs the item enough they will up the price on buy orders, if they want to get rid of it enough, they will lower the price to get rid of it. The market will balance itself.

Who the $#@% is stEvE?

11 (edited by Duncan Blackmoor 2010-12-15 13:14:23)

Re: How to market

Thanks for an interesting read, I'll try and see if i can apply this somehow, in game and see how it goes.

12 (edited by Voodh 2010-12-18 09:55:53)

Re: How to market

Zhyntil wrote:
Voodh wrote:

If you place a buy order, please, don't up the price. Not with 0.01 nic or 1 nic and certainly not with 5 or 10 nics; if you want to continue to buy the stuff. (Prices of the ammunitions are really too high because people just put prices 1 or 2 nics below the last order. They don't get the stuff and the price rise and rise).

If you place a buy order, just put the same price than the last buy order, you will get the stuff and even if you don't because someone have put the same price behind you, the next day the price will still be the same.

If someone needs the item enough they will up the price on buy orders, if they want to get rid of it enough, they will lower the price to get rid of it. The market will balance itself.

For the ammunitions, for exemple, they are sold whatever the price. If you up the price you just pay more for the same thing, and the others after you too. (in a certain limit of course, when it is too much, you are the only one to buy like expected, but for the moment, you have to put a really really high price for that, too expensive)