Simple Microeconomics of the Grand Exchange: Learn Why Merchanting Clans Doesn’t Work and the Six Golden Rules of Merchanting

The grand exchange follows the basic laws of supply and demand. The law of supply says that as the price of an item increases, suppliers will be more willing to sell that item. The law of demand says that as the price of an item increases, people will be less willing to buy the item. When more people demand an item than people supply it, there is a shortage of that item, and the price will increase to reach equilibrium. When more people supply an item than people demand it, there is a surplus of the item, and the price will decrease to reach equilibrium. The goal of the grand exchange is to set the price level at the equilibrium level, in which the quantity demanded of an item will equal the quantity supplied. This is accomplished through the data recorded of the number of transactions and the prices at which each transaction takes place. If people buy and sell at the maximum price, or if there are people buying but no people selling, the price of the item will increase the next day. If people buy and sell at the minimum price, or if there are people selling and no people buying, the price of the item will decrease the next day.

However, these calculations are all computerized. Consequently, people, or specifically, merchanting clans, are able to “trick” the grand exchange into believing that there is a shortage of a product, which will increase the price of that item. The object of the merchanting clan is to increase the price of an object as much as possible, and then “dump,” or sell it at a certain price. This is achieved through each person in the clan buying a certain item (more on that later) at the maximum possible grand exchange price. When hundreds of people, both inside and outside the clan do this, the computer infers that the equilibrium price is above the current price level, and will increase the price. To maintain the price increase, new people have to buy the item at the maximum price each day, hoping to reap in some profits.

There is a major problem with this system. Remember that in the grand exchange, despite the price increases and decreases, the quantity of coins in the economy remains constant. For example, let us simplify the grand exchange to a two person trade; Victor owns a toadflax seed, originally worth 1,000 coins, and Brian owns 99,000 coins. For the purpose of this example, we will assume the toadflax seed rose to 2,000 coins the next day, and Victor sold the toadflax seed to Brian. Now, Victor has 2,000 coins, and Brian had 97,000 coins, and a toadflax seed, worth 2,000 coins. Before and after this transaction is made, the total amount of money in the “economy” of these two people remain constant at 100,000 coins. Here, we encounter the problem. These merchanting clans claim to “make you rich,” but remembering that the quantity of coins in the economy remains constant, one person’s merchanting profit must be another person’s loss. Disclaimer** Loss is defined here as the reduction of coins one has. This applies solely to merchanting, because if you bought a toadflax seed for 1,000 coins, you would be defined to have a loss of 1,000 coins. However, if you plan to use it to grow toadflax herbs, the seed has utility. Merchanting items should not have any to the merchant only. The merchant can be able to use it, but he/she will always consider to the item be a form of “reserved wealth,” in which he/she could sell the item for coins. ** This is where these merchanting clans deceive you for the owner’s benefit. Imagine, if the dump price were achieved, and two hundred people all tried to sell large quantities of the item at the same time, and the supply would surely exceed the demand. Most of the people will not be able to successfully sell the item on the first day. The owners, and the high ranked members of these merchanting clans want to make sure they earn a profit, so they will always set a “secret dump price” that they will first sell the item at. In time, the quantity of people demanding the item will decrease, due to the law of demand. When people stop buying the product at the maximum price, the price of the product goes down. By the time this happens, the merchant leaders have already made their profit. In addition, panicking people trying to maintain their assets will frantically sell their item at the minimum price. This is another major mistake people make. Normally, when people see the price of an item is going down, unless it has a large amount of utility to the person, the quantity of demand will decrease, and people will be unable to sell the item anyway. However, everyone tries to get rid of his or her share of the item by selling it at the minimum price. We learned that when people sell items at the minimum price, the price of the item will just go down more the next day, and people will lose more of their coins.

“How do I correctly merchant then,” you may ask. There are a few rules that everyone should follow. The two golden rules of merchanting: A) Buy low, sell high. B) HAVE PATIENCE. We encountered two more of these rules in the last paragraph. Number 1: Do not join a collaborative merchanting effort, because everyone is out to maximize his or her own profit. Number 2: Do not panic and immediately sell when the price of an item goes down; eventually, its price will rebound. The first step to becoming a good merchant is knowing how to pick a product to merchant with. There are a few options. First, you could look for an item that has increased anywhere between 20% to 50% in the past month. Any less than that, and the product price may not grow at all, or at a very slow rate. Any more than that, and the product may already be close to achieving its peak price, where the demand is so low that the price cannot increase any more. A second option would be to read the coming updates and predict changes in demand. For example, if a new and improved player killing game were to come out, the price of commonly used foods (such as lobsters, swordfish, sharks, and tuna potatoes), and the price of commonly used weapons (such as rune scimitars, dragon scimitars, rune 2-hand swords, and rune crossbows) will probably increase due to the large increase in demand. Also, if an item were to experience a graphical updates (specifically one item, not the whole game), like the dragon platebody a month after it first came out, the price will also increase. When you pick an item, make sure it has utility (it is useful), which will make the demand of the item more inelastic. Elasticity is defined as the percentage for which the quantity demanded changes divided by the percentage for which the price changes. An inelastic item means that the percentage decrease in the demand for the item is less than the percentage increase of the item price. For example if the price of a top hat, which is around 2,000,000 coins, increased by 5%, people may not want to buy it anymore because it provides no defense bonuses, only looking good when worn, and therefore having no utility. However, if the price of a dark bow, which fluctuates around 1,000,000 coins, were to increase, people would still buy it because it is very useful in player killing. Now we run into rules number three. Number 3: To merchant, pick only products that you know will increase in price and make sure it has utility. Now that you have chosen an item, you need to select a reasonable selling, or “dump” price. When the product reaches that price, sell it at the medium grand exchange price. Reasonable dump prices are around 50%-100% for products under 10,000 coins, around 20%-30% for items between 10,000 and 500,000 coins, and between 5%-20% for items over 1,000,000 coins. The market activity of other people around you is unpredictable, so these dump prices will leave you with a safe zone for unexpected fluctuations. Number 4: Pick a reasonable dump price that will leave you some room for unexpected fluctuations. In the end, just know that no player can always accurately predict the crests and troughs of item prices. Number 5: Don’t fret if you didn’t make the maximum possible profit and don’t give up after one wrong prediction or mishap.

In Summary:

1. Buy low ,and sell high.
2.  Have Patience

1. Do not join a collaborative merchanting effort, because everyone is out to maximize his or her own profit.
2. Do not panic and immediately sell when the price of an item goes down; eventually, its price will rebound.
3. To merchant, pick only products that you know will increase in price and make sure it has utility.
4. Pick a reasonable dump price that will leave you some room for unexpected fluctuations.
5. Don’t fret if you didn’t make the maximum possible profit and don’t give up after one wrong prediction or mishap.