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22 Sep 2004 Eve Guardian
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The Miner 2 Market: Case Study Example or Unique Event?Written by: J'Maybe Keens
For those that were not there the miner2 was a revolution in mining technology, and it did not come cheap. The way in which it was handled was considered flawed by many and a lot of people felt cheated out of hard earned isk. There were many many lively debates on GalNet about it, and still every so often people would refer to the incident in less than glowing terms. If we dont learn from history we will repeat the mistakes, so lets see what happened.
It should be noted the earlier figures will not be entirely accurate because there were a number of "off market" deals taking place and few of the lasers were actually reaching the market but were being sold direct to customers. The above table shows the monthly average price of Miner 2 lasers over the last year in a particular region (source: independently audited station records)
About a year ago a new technology hit the markets, the miner2. The BPO was distributed via agents. The basic idea was if you ran 300 agent missions the odds were very much in your favor of receiving a Miner2 BPO. Of course you could run 1000 and not get one, and more than one person claimed to have achieved just that unfortunate claim to fame. It turned out a near perfect monopoly was created initially.
While the specifics of the situation are not identical to the current tech2 BPO handout there are enough similarities for those that do make the comparison to be rewarded.
Firstly with the joy of hindsight lets do some rate of return calculations (you could have done these at the time, and those that did, saved themselves lots of isk).
At a selling price of 4,689,444 a power miner (this fellow is maxed out on all mining and refine skills) could see positive isk flows after about 30 hours of continually mining Veld (this is based on the average trit price of 1.3isk which was prevailing then).
This is relatively bad news but if there were no alternatives to using a miner 2 that would be that. However, as well know, there is an alternative, the miner 1 (lets ignore the other sundry named lasers for this analysis). The same power miner using a miner1 he makes 105,840isk an hour. Using his miner2 he makes 158,760isk an hour.
So the difference is 52,920 isk per hour.
So if we had two miners with identical skills and they both started with 4,689,444 isk and one miner bought a miner 2 (reducing his wallet to 0) and the other continued to use his miner1, after 88 hours of solid mining they both would have a little over 9.3million isk in their wallets.
And remember these are average prices, for everyone finding a laser cheaper, there was someone buying one at a higher price.
I choose Veld, coz you have to choose something, and because it only yields one mineral it makes calculation easier, do the math for the higher grade ores yourself if you wish.
It really would be very difficult to recommend the purchase of a miner2 at that sort of price level.
It was not long before someone checked the recycle value of a Miner 2 and the information was explosive. The actual laser cost about 30k to manufacture in terms of raw material. So how on earth could an item that cost 30k be selling for 4.5million?
Miner2's were the hot new technology and early adopters can always expect to pay premium prices for any new breakthrough. This has always been the case, dramatically the early adopters in this instance would still be waiting to see a return on their investment when those that had waited (either because of foresight or lack of funds) would already be seeing positive returns. Just waiting a month would save you 3 million isk per laser.
The clamor for this new technology was almost fevered and initially very few people actually new the cost of producing a miner2 so the selling price was not questioned perhaps as much as it might have been had this been known.
Also the fact the BPO was in very limited supply, basically a monopoly situation. The BPO having been issued by a high ranking agent after an awful lot of missions were completed.
So now we have a market full of buyers wanting the latest gadget and one/two corps capable of supplying that demand. Huge demand, controlled supply has to equal massive profits and it did. So there are two reasons to consider the initial price of the miner2 was seriously profitable.
Huge demand, controlled supply.
But something went wrong, from a price of over 4.5mill isk a unit, 3 months later the price had fallen to a little over 178,000 isk. By any standard that is a collapse in the market. So how on earth did the price fall by over 90% in 3 months and could it have been predicted?
This sort of price collapse represents something catastrophic happening to the market, it is not the normal shifts of supply and demand. This is likely to happen when the monopoly situation no longer holds. Although a duopoly (two suppliers) might well be able to agree a price and stick with it, as more suppliers enter the market, the chances of a cartel forming and fixing a price diminishes rapidly.
When there is basically 4.5million isk in pure profit and you can grab the entire market by cutting your price by 100k or so, the tendency is to break the price agreement and quietly sell a few units off-market, via private deals. Such price cutting can become acrimonious and if the parties involved in manufacture do not patch up their differences quickly and shore up the market price by re-negotiating an agreement they are going to suffer badly.
Good news for consumers, bad news for the suppliers.
A flash point will often be the arrival of a new entrant into the manufacturing process. Wanting their slice of the profit, they often drop prices in an effort to gain the crown of "the consumer's champion" the pitch being the consumer has been ripped off long enough by the monopolist/cartel and they are going to shake up these isk crazed behemoths. This sort of activity can destabilize a market pretty swiftly.
So now the manufacturer's are facing a market in freefall.
The price may well drop to the point where the original owners of the BPOs are likely to lose interest. After making very large profits on it, there seems less charm in just making a small profit. Now the BPO itself is the thing that is worth a fortune in people's eyes.
This will be when BPC's come onto the market and more profit is squeezed from the original BPO as prices of the actual manufactured item continues to fall. Clearly a BPC of a high value item is worth considerably more than the price of a low value item, so the BPC and the manufactured item are now chained to one another in a downward price spiral.
People will wish to get out as many BPC's as possible while the price is high for the miner2. Suddenly a glut of miner2 BPCs, other other owners of the BPOs will notice this and also want to get their BPCs onto the market quickly. This will result further price reductions as the BPC's are used to manufacture the finished item.
The final stage is the possibility the BPO itself is sold. There have been instances of this happening with the Miner2 BPO and it has been rumored to change hands for the sort of isk that barely makes sense from a manufacturing or BPC viewpoint. Some people saying the price paid for the BPO will never be recovered by manufacture or BPC sales. These people tending to forget the BPO itself may retain a good deal of its resale value, but that is a gamble the buyer is taking, or simply they have not done the math and have a lot of isk burning a whole in their wallet.
The people that take heed of these simple lessons are going to save themselves a lot of isk in the coming months as Tech2 items come onto the market.
Although there are subtle and not so subtle differences between the miner2 market and some Tech2 items, the basic framework described above is very likely to hold true.
Just because you can buy it today does not mean it is worth buying today.
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