When I played Everquest I did a very similar thing, except without the ship component. We found an obscure item that was not in any of the well-known databases, which is fairly difficult considering how far reaching they were.
Then we advertised a 'want to sell' considerably lower than the 'want to buy' we advertised in a different zone, both very high prices. Someone decided to make a quick arbitrage sell and found out I didn't want that item at all.
I'm sure some have learned the risks of arbitrage the hard way through these games, among other things.
I made a boatload of money on EverQuest (and WoW) with a similar arbitrage "scam."
In older versions of EQ there was a Bazaar zone where you could see the price of all the goods around.
For this scam I would find some item that is fairly rare for two reasons:
A) so most users don't know its true price, and
B) because rare items would be more likely to have a particular price spread: A couple items for sale for around their true price, and a couple items for sale for far above that. I don't know why there were always people trying to sell items for 10 or 20 times the item's actual value, but it was common.
I would buy up all instances of the item at its normal, lower price, so now the market looked like the item was legitimately valued at this much larger price. Then I would loudly try to sell it for multiples of what I bought it for. People would see that I'm trying to sell for ~half of what the rest of the market is selling it for, so it must be a good deal!
edit: I don't believe this was illegal according to Sony or Blizzard, and besides, how would they prove I was doing this maliciously?
That's not really arbitrage as much as it is cornering the market (since you can ignore the outlandishly-priced items as a part of the viable market volume) and using a price pin to manipulate player psychology. I frequently did it with my own auctions - post 10x of something, then post 1x at +30% cost, so people see "a deal" and grab it. It reliably works in MMOs and in real-life retail - people are manipulable.
It's basically what JC Penny does when they jack prices up and give you coupons - by pinning the price high, but giving you a lower price (which is what they actually want to sell at) by issuing coupons, they manage to twist consumer psychology in their favor, and get people to think that they're getting a deal on what's actually a market-price item.
The reason that people posted inflated (high-volume) items in WoW, by the way, is that once upon a time, addons kept moving averages of item costs, then suggested purchase/sale prices to players. Posting a bunch of outliers could move the average upwards (since you couldn't see sales prices, just posted prices). The outlandish prices on low-volume items are because people are bad at economics and value their item far above the market's value. These are usually people with very little gold who got a lucky drop; they price the item so high because they believe that it "cost" them many, many hours of gameplay, and likely misgauge that cost.
MMO economies are a great example of Econ 101 in action.
My theory on why there were always clusters of overvalued items is that people wouldn't know what to price items at all. They'd watch the item for a couple of days and drop it there, but before they had a clear idea they'd post it at a far higher price on the complete off-chance that someone would somehow buy it.
I eventually lost most of my EQ money by forgetting a 0 when I posted an item, so it all balanced out.
Well, people price things at the price they want to sell them for, not the price that people will buy them for. Many players fail to grasp the concept that an item's value is whatever someone will pay for it, and not a copper more.
Er, it's a big stretch to say that sort of thing works in the stock market.
When people are going to buy a certain stock, they don't usually look at the whole order book and say "oh, the highest ask is 200, so this best ask at 100 is really good". They look primarily at recent prices and the best ask and bid, and secondarily at the top 5 or so bids and asks. If you put an order that's double of the last price, it will be far away from those top 5. And it's very unlikely that your order is going to be matched any time soon even if the stock moves up (some exchanges actually suspend trading of a symbol before its price can rise by 100% in one day).
Theoretically, it could work for illiquid stocks, but even then it's not trivial to do since 1) people will still look at historical prices, 2) it's risky, since it costs money to setup and you have no guarantee anyone will fall into your trap; because the stock is illiquid, it might cost you money to undo the setup 3) it's considered illegal market manipulation in some (most?) places, and you can easily get caught.
I believe both you and parent are correct.
What about 1 off situations that remove the standard options for gauging value. The situations I have in mind are IPOs and one-off strange happenings. The particular instances I have in mind are the Facebook IPO and the situations where the markets wake up in the AM to a so-called new world. Situations such as when something big has happened. Companies hit by natural disaster, countries governments disintegrating or wars starting etc. These result in sudden big changes in company fortunes that are reflected in stock markets.
There is a common scam in EVE using buy orders that have a minimum quantity greater than what you're selling in your inflated contract deal so even when the mark buys your 4 cubes of refined ore for 1bil ISK, they can't sell it to your buy order because your minimum quantity is 5.
There is also a variant on it using the Margin Trading skill that lets you put up less money on a buy order than the total buy order is worth. So you can place a reasonable buy order with a minimum quantity that you are selling in your inflated contract and the buy order will never execute fully because you don't have enough money to purchase the item from the mark.
The latter is a bit more devious and harder to spot, although both are well known.
In most cases, the items they are using as the vehicle for the scam are 1. Large and hard to transport and 2. Used for only one or two purposes and thus are not commonly traded so the scammer get to set the market price.
It is not a scam in that it is arbitrage in name only, but it plays on people's greed to get them to purchase a rare item only to turn around and pull the rug out from underneath them and leave them holding this worthless item.
Personally, I am of the "buyer beware" mindset. More power to the scammers and thieves; they keep EVE interesting.
To expand: just because someone is doing something that entails risk, doesn't mean taking advantage of that is not a scam. In fact, it's the essence of most scams.
Silverstorm said, "Hardly sounds like a scam to me. Arbitrage is inherently risky."
I am having trouble interpreting that like you suggest.
My understanding is that the behavior that was originally called a scam was making it look like there was an opportunity for arbitrage that did not actually exist. That is not just someone bearing the usual risk of arbitrage (second trade happens to be unavailable), but specifically injecting yourself into that window by making sure their second trade will be unavailable by posting an offer you know can't fill.
I've always found arbitrage to be the best way to earn money in mmo's. I used to buy up all levels of cheap green items in the wow auction house, according to exact limits i came up with and stored in a spreadsheet. then i would disenchant them and sell the byproduct.
It was time consuming, but i made a lot of money and it took a long time before anyone else figured it out and joined in. the problem was it only took a few people on a server to skew the prices of the masses. but by then i had a lordship and manor in every city in the eastern kingdoms.
The definitive version of that which printed vast bucketloads of internet money was the JC Shuffle.
buy ore (direct from farmers aka botters) -> prospect ore -> craft green rings (I think? been a while) -> disenchant -> sell enchanting scrolls and cut rare gems left over from prospecting
In Guild Wars 2 I found some other interesting arbitrage opportunities - for example, Mystic Coins (available from monthly and daily tasks) had very predictable price cycles due to supply spikes on the first few days when it became possible to complete the monthly task.
The place where I enjoyed marketing the most was on Atlantica Online. I played several other MMOs, including that awesome EVE (which I'd still be playing having the time). Yet, I had more fun with the market on Atlantica Online (that was before they got bought by Nexon).
I would simply talk to people, make deal with them in chat, and work through different market medium to make more money. I started with only a few thousands and finished with almost 4 billions only from trading. I'd use people in the hurry buying from the real money market and trying to sell quickly. For instance, this one time someone said "Selling X quick, for cheap" or something along those lines. He actually wanted 180M for it but I convinced him that was the big price, and I got it from him at 120M. But then, literally 10 minutes later, I sold it for over 200M.
One other thing we would do is play with the amount 0 after the prices. Most of the big items where going at a few tens of billions, but the prices wouldn't be shorten. Therefore, it was easy to forget a 0 or two, or to add some. By keeping a close eye on the market, we'd get some people selling at 5M something worth 500M because they did a typo. The same happened the other way. When an item usually sold a 30K would ran out, we'd put a lot of it at 250K, which would appear to be lower than it's usual price because of the 25, yet it had an extra 0 which messed up things.
We used to train players who pissed us off. In everquest creatures had a tendency to switch who they were attacking pretty easily. So you just anger a bunch and dump them on the offending player. They call it "training" because you have a train of creatures chasing you.
Training generally wasn't punished because it happened a lot on accident.
Similar used to (and I assume still does) happen fairly often in FFXI as well, thanks to the Auction House system, where someone "corners" the market for a short period by buying up the entire stock and then placing them back, incrementally marking up the price. But by driving up the price, it'd attract more sellers and good ol' supply & demand would correct the price back down.
So why did they not think about this possibility in the first place? If they had some simple checks that made sure for instance that the standard deviation was not too high then this kind of problem should have been avoided, right?
Kudos to the players who exploited the loophole. I mean that's how a lot of individuals make money in real life.
Then we advertised a 'want to sell' considerably lower than the 'want to buy' we advertised in a different zone, both very high prices. Someone decided to make a quick arbitrage sell and found out I didn't want that item at all.
I'm sure some have learned the risks of arbitrage the hard way through these games, among other things.