Why are buy order prices lower than manufacturing costs?
It’s purely a theoritical question. It is something I don’t understand about the economy in the game.
Shouldn’t it work like this?
A factory produces something and sells for traders who put their own profit on the price and sell it to specific customers (who will use the product). In this analogy: manufacturing cost<buy order price<sell order price.
So why doesn’t it work this way in EVE?
(This question came up for me looking at the ship market.)
UPDATE:
I add some aspects to this first post so that people don’t have to read the hole topic. Choosing points is a bit subjective but you can always read the hole thing.
People mentioned many situations when selling to the lower buy orders is understandable and there are some explanations for this anomaly:
There are items that are dropped from rats and stuff. Let’s just talk about products created by players!
There are stolen items. The griefer just wants to get rid of the item, it’s a profit for him no matter what.
My answer for this is that he/she stole it from someone else. Someone else lost that item. And there is stuff destroyed constantly. So this should increase demand. So market should be able to balance it out.
Stockpiled items getting sold by people who just want liquid isk. My answer is that it’s mostly the same as the last point. Those items had to be manufactured at some point. And they didn’t show up in the market so this must have increased demand, increasing prices too. Sure, now they may be sold at a higher price but there is inflation so it’s still a value loss.
“Ores I mine are free” people. I doubt that there are so many of these people that they can cause this imbalance in the market. Also if there are a lot of them they shouldn’t be wealthy enough to have big effect.
There are many ways to decrease manufacturing costs. For example lower ore prices in regions, corporation infrastructure.
Maybe there is a slight overproduction because of the lack of destruction. Meaning that the average of sell and buy orders are above manufacturing costs but so slightly that buy orders are lower or at the same level of manufacturing costs. For example buy order=10isk, manufacturing cost=11 isk, sell order=14isk.
Seasonal imbalance in market because of moon mining changes.
There is no consumption in EVE.
No technological progress in items (a Raven stays relevant all the time because of balancing) and no degradation of items (a Raven in a hangar for 5 years doesn’t need service like cars do).
Bots. I don’t completely understand this point. Shouldn’t bots in fact help to balance out the market faster?
Irrational people. Some people find enjoyment in building their favourite ship even if it’s not profitable. But again, can they have such an effect on the market?
Centralized markets. In real life the bigger part of trading is about moving stuff to more effective locations. Maybe there isn’t enough of it in EVE. Everyone just goes to Jita or Amarr if he/she wants to buy or sell something. So the real life trading model doesn’t represent EVE.
Opportunity cost.
Buy orders above manufacturing cost get filled much faster than the ones below. So we tend to see only the lower orders when looking at the market at any time.
Items that can drop do not have a manufacturing price and can be sold way lower
Manufactoring prices vary from region to region
Stolen stuff has no manufactoring price, only a market price (thiefs did not have to pay to build the stuff)
If someone is setting a buy order, he want to make profit in reselling these. This will not work if he is already trying to buy them for the build price.
They calculate with the variance of prices and cost to build the items. And maybe even of the fact that someone need to sell items fast, no matter if they lose money on it (for whatever reason…).
Yes I understand that there are situations when someone gets items luckily and stuff. But does it happen so often that the market follows this trend? In case of the reward battleships and battlecruisers from arms race event, sure. But the other items too?
I don’t perfectly understand your question. I don’t simulate it with +0 ME blueprints of course. Or do you get a different result when you analyze the market?
Some people view minerals they mine as “free”. Tjry do not realize that selling the minerals separately would be more profitable.
This can be coupled with other factors such as movement of items. Yes I can sell 1 bil trit for a higher price but it will move slowly on the market and I’ll Have to play the .01 isk game for a while. If I instead sell say 2 battleships, yes I lose a little profit but I can move the items faster, with less baby sitting.
Now that is T1 hulls. T2 gets even more complicated.
If I invent and purchase all the materials to make a T2 hull, I may lose isk. However if I am out in nul, I can make PI products cheaply, harvest moon goo, etc. This way I can make the raw materials and do not waste isk buying. This lets me sell cheaper and still make isk.
Im just saying that with max skills, max blues and max facilities, the builders may find another way to cut cost.
Perhaps they gain their minerals in someway that is more cost effective.
But yeah if its signifigantly lower than best estimate, its chancers who make their money on those who just dump mixed bags of crap on the market constantly.
He is not talking about someone that is selling the stuff under the build cost.
He asked about buy orders, and these are not necessarily placed by builders.
If i place a buy order, i will choose the lowest price i have to pay. The only question is, do i find something who is selling me his stuff for this price.
For someone who want to sell something there is only the question: Do i sell it myself (via sell order) or to someone who has a buy order.
It largely does, but I think there are two main factors, especially in the ship market, that often keep the buy prices less than your manufacture input costs:
Different cost-basis: different people in different places have different manufacturing costs. This is not only because there are different bonuses and costs associated with various areas of New Eden, but this varies over time as well. Often stockpiles exist from times in the past when things were cheaper, and while some of those materials can be liquidated for the current market prices, others are already sunk into the cost of the ship.
Industrialists often suck at accounting. This is most often expressed as “the minerals I mine are free” and these dolts do apply a downward pressure on the market, but there are more mild forms of this, maybe related to point 1 where items or work was done in the past. If you bought a bunch of salvage materials years ago and use that value as your input cost, you will believe you are making a profit when you would have made more by just selling it. But often, industrialists tell themselves those massive profits that only they seem to be able to make are because they just better industrialists than everyone else, when really they just can’t do basic accounting properly.
There are other reasons, like people stealing stuff, looting and clearing out hangers, but largely I think building things is enjoyable to many people, and ship building is especially sexy for some reason, and often profit is secondary so people don’t account for the time and effort they spend cutting costs hauling things, tending to market orders, mining or whatever into their operations. They are happy with any profit, even if there are a bunch of accounting tricks they indulge in, consciously or unconsciously, to make that profit on paper. They love to quote massive ISK/h numbers that completely disregard all the preparation, hauling and trading that goes into their operations, just like mission runners do. So much so, they often fool themselves.
It’s also important to remember that the same ship/item can be bought, used for a while, then sold later for whatever reason. Long story short, I had gotten my money’s worth out of a ship, and anything I got off of reselling it was just extra isk in the bank. That buy order may or may not have been below build price, I don’t know, but that’s precisely the sort of scenario the people behind those buy orders are hoping for.
Opportunity cost is a real thing. Let me give an example. If my primary source of income, is say, exploration, then the money I make by selling that loot is my main source of money. I need to focus on that, and any distractions from that directly detract from the real money I can be making. If I’ve upgraded from a Helios to an Astero, I may sell the Helios just so I don’t have it collecting dust in my hanger. I may sell it at a semi-reasonable buy order if I have need for my trade slots and babysitting one Helios sell order isn’t worth my time.
another thing to keep in mind is that manufacturing costs are not universal. are you building in HS, LS, null or WH? what type of rigs are installed? are you going from jita mineral cost, ore cost, buy or sell prices? what is the shipping costs? are you sourcing your ore from corp buyback? what are your refining skills? what kind of refining rigs are installed? what is the stations job cost? industry index?
all of those factors and more can mean someone else is able to produce it for less than you.
Apart from other things that have already been said, you need to consider destruction of goods as an influencing factor. If there is not enough war/ganking/hard pve going on, there will easily be overproduction in EVE, meaning that people buy vastly more than they need. At some point they will stop spending ISK to buy even more stuff they don’t lose and as a general tendency it can lead to prices going down, even below production costs. While it might not seem like the smartest thing to sell low, not everyone can afford sitting on stashes of items in the hopes the prize will go up again. There is higher economic pressure on industrialists then on ratters.
While with ratting you get the “general equivalent” called ISK, industrial activities only net you products that you might get to exchange for that equivalent. Entirely depending on what is currently going on in EVE, as a producer you are either a greatly needed person or someone who has to take whatever she/he gets.
In other words: industrialists need war, ganking, every form of destruction more than anything else.
Good point. Maybe we should look at this problem from another perspective.
You have mentioned many situations when selling to those low buy orders is a logical behavior. But it’s a dynamical market which means that prices should balance around factors. I’m not sure if I express myself correctly.
Let’s say someone wants to build some stuff for profit. He should soon realize that he can’t just buy ore/minerals from sell orders and sell products for buy orders. He has to put up buy orders for ores and put up sell orders for products. But then he should realize that he could actually get about the same margin if he just traded without spending money/time on blueprints, hauling, manufacturing. So at one point everyone should stop manufacturing which should lead to higher demand, higher prizes.
Sure, someone who stole items must be happy with low buy orders but there is a person who lost that item. And ships get destroyed constantly.
Sure, someone could just want liquid isk and gets rid of his hangar but those items were built at some point. Inflation is a factor and the price of most items didn’t increase as fast as money lost it’s value. So it’s a value loss again which should lead to a demand.
There is also the “ores I mine are free” argument. 1. Most economic models look at people as logical beings. 2. Even if there are such people they should obviously have no capital compared to logical people who actually make profit so they shouldn’t have too big of an effect on the economy.
So I see some possibilities.
The majority of manufacturing is done by big nullsec corps who can make items at a very low cost using infrastructure.
Most of the manufacturers don’t act logically.
Trading doesn’t work like it does in real life. I mean the theoritical trader should pick up a big stockpile from a manufacturer and split it up bettween people who want to use the products. This activity should include moving the products.
Maybe the economy is too centralized. Everyone just sells and buys everything from Jita/Amarr. Don’t get me wrong margin trading is trading too but the traders bettween regions are missing.
