In real life, I am employed as a trade economist. Naturally, the EVE economy has been something that fascinated me from the minute I stepped into the game. The more that I have played, I have become more interested in the economy and how to interact with it.
It was a blog post by croda that got me started with creating a trading alt. Croda has made billions by exploiting variations in market prices and has amassed an trading - and now manufacturing - empire. His success prompted me to try my hand at trading.
The markets in EVE are not unlike markets in the real world. There are places where the high supply of goods drives down the price, and there are other places where either a lower supply or higher demand push the price higher. These variations mean that there is the potential to make a good amount of ISK by buying in one location and selling in another.
I started in a similar fashion to croda, buying small things from Jita and selling them in a distant trade hub. As my wealth increased and I started buying more expensive goods, I decided that I couldn't keep moving 120 million worth of products in my destroyer. I outsourced my transporting to PushX, a group similar to Red Frog Freight, who are able to move my goods relatively quickly for a low percentage of my profits.
However, life is not as easy as it seems for a regional trader such as myself. As more and more people realize that there is the potential to make a good amount of ISK in the market, the competition to sell certain items grows, cutting into your bottom line.
I have found that some people engage in "market PvP", which sounds unusual but it is exactly what it implies. There are people out there who aim to do better than other players. In combat situations, this means killing your ship. In the markets, it means getting a sale by any means necessary.
Undercutting is easily explained by economics. If you are making positive rent from an item that you are selling (that is, the profits are greater than zero), you can afford to cut into your own rents by undercutting your competitors to get a sale. On one hand, you lower the amount of profit that you make by doing this. On the other hand, you increase the likelihood of selling your product by having the lowest price in the market. It's very easy to get caught up in the undercutting game and forget your bottom line. More than once I have noticed that in my haste to undercut a competitor, I have ended up setting a price that is lower than what I paid for the item in the first place. Luckily these mistakes have not cost me too much in terms of raw profits, but the lesson has been learned.
Another type of undercutting is this 0.01 ISK undercutting game that many traders seem to play. Everyone undercuts each other by 0.01 ISK, since the lowest price gets the sale no matter if it's 0.01 ISK lower than the next highest seller or 1 million ISK lower. To me, this seems very tedious. When you're managing in excess of 60 different items that you need to update your prices on daily, why bother undercutting someone by 0.01 ISK? It's extra typing and is more prone to making a mistake. Sometimes I login to find that I've been undercut 15 times but the price is only 0.15 ISK lower than my original price. This is nonsense, I revise my price by -100 ISK and call it a day. I don't have time to worry about all of the decimal places, and it seems to work fine for me.
The final type of market PvP that personally drives me mad is when someone comes in to a profitable market and destroys it by selling at cost. Usually by cost I mean selling at the NPC seeded value for skill books. Technically, this is unprofitable due to the taxes and fees that are charged on the sale. However, people still come into the market and sell 50 skill books at NPC seeded cost, shutting the rest of us out of the market. It is my hope that the unprofitable nature of doing this will drive the offender out of the market, but perhaps his hope is to reclaim the market by himself once the rest of us leave.
I still have a lot to learn about trading in EVE. Hopefully I can continue expanding like croda did and build up a trading empire. That's the dream, the tough part is achieving it.