MTG Financial Fundamentals: Cornering the Market of Magic: The Gathering

This article opens with a question: have you bought 10 or more of a single Magic: the Gathering card this past year? If so, that likely means you’ve speculated on the card. This speculative behavior has rapidly transformed the Magic singles market into an opportunistic boon. Up until two weeks ago, the only reason to own Amulet of Vigor was either because you had a fascination with energetic jewelry or because you had a soft spot in your heart for Warren Mahy’s art. Now, digging these trash-to-treasure rares out of your shoeboxes is becoming quite lucrative. But is this recent trend all roses and no thorns?

To the speculators, it is. After all, the more people that participate in the mad rush to purchase from online retailers, the more likely the values of the speculative cards will rise. The economics of the situation arises from the simplest supply & demand curve. As more speculators purchase all the Amulet of Vigors they can find, the fewer there will be available, thereby driving the price up. In a sense, this phenomenon is a parallel to a group of people attempting to corner a market. Don’t believe me? Consider the first sentence of the Wikipedia.org entry on “Cornering the market”:

“In finance, to corner the market is to purchase enough of a particular stock, commodity, or other asset to allow the price to be manipulated…”

By this definition, the commodities in question refer to the specific Magic cards that speculators are fervently purchasing. The definition above does not suggest that only one or two people can effectively corner the market. Rather, all it takes is a minority of the population to accrue a significant majority of the given commodity in order to influence the price. And even though the group of speculators is not operating cooperatively (as a business venture would imply), the different parties involved all still have one goal in mind: to sell at a higher price. Profit, after all, is the sole purpose to cornering the market. Is it not a perfect parallel?

Now that appropriate terminology has been applied to the practice of speculation of Magic cards, let’s read on in the Wikipedia.org article. In the third paragraph, we discover the answer to my previous question about whether speculation on Magic cards is a positive influence on the game:

“Although there have been many attempts to corner markets by massive purchases in everything from tin to cattle, to date very few of these attempts have ever succeeded; instead, most of these attempted corners have tended to break themselves spontaneously.”

The above quote describes a figurative sort of spontaneous combustion. These are not words of encouragement. It becomes very apparent that cornering the market will very likely lead to a collapse in price. In fact, the Wikipedia.org article goes on to say just that. Once it becomes broadly known that the market price of the item is inflated simply due to an attempt at cornering, people begin to rapidly unload their excess of that item, thereby bursting the bubble.

Now, I want to connect these concepts to Magic with a concrete example. Because it was so recent, I will continue to use Amulet of Vigor. Considering the fact that even though Amulet of Vigor was in a small set, we have to assume a massive quantity was printed and opened. My rationale is threefold: first, in the modern age of Magic, print runs have increased significantly as the game has risen in popularity. Second, Amulet of Vigor was not mythic. Third, Amulet of Vigor appeared in Worldwake, which was ultimately purchased in search of the highly coveted but ever elusive Jace, the Mind Sculptor. Therefore, the shear quantity of Amulet of Vigors must be sufficiently large. Even so, with the recent developments of Modern, speculators have purchased this card by the 10’s and even 100’s. While there are still ample Amulets to go around, their once scoffed at $0.10-$0.25 price tag is no more. Why is that?

It all ties back to speculators. They purchase these cards in excessive quantities and hold them. Their primary goal is to sell for profit; however they have a secondary goal as well. That is, to sell at a peak. To do so, they need to hold just long enough so that they sell during all the hype but NOT after other speculators begin to sell. To wait too long would spell doom to the speculator. In fact, it is this lack of cooperation between speculators that keeps the bubble from bursting completely much as it does in historical market cornering examples. The ongoing tension between speculators is enough to keep quantities of the market in check; everyone wants to sell at the peak price and not a moment sooner.

This brings me to my final point. Speculation can be lucrative, but it is also very risky. It adds a layer of excitement to the world of Magic, and this drives “buzz” for the game. This is a very good thing, in my opinion. But when the average Joe comes along and wants to buy two Amulet of Vigors for his 12-post modern deck and has to pay 10$ each because a dozen speculators purchased 100s of them the week before, that is where speculating can have its negative impact. There is a balance here that must be maintained; an unspoken understanding. It must be so, or else the bubble would have burst already, and the many Amulet of Vigors sitting in speculators’ binders would once again be worth pennies.

– Sigmund Ausfresser

@Sigfig8

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Posted on September 8, 2011, in Articles, MTG Financial Fundamentals. Bookmark the permalink. 2 Comments.

  1. Consider this, however: Average Joe wants to buy two Amulets. Speculators have driven the price to $10. In this scenario, what should Joe have done? Bought or kept his Amulets. He’s incentivized to maintain a broad (although not necessarily deep) collection. That seems good for the game.

  2. Sigmund Ausfresser

    An interesting perspective, but it doesn’t seem sustainable. Average Joe will inevitably tire of paying 10$ for cards that he sold at 10 cents to SCG a couple years prior. Perhaps the moral here is don’t sell bulk rares because it’s better to have the bulk in case something like this happens. Of course, if NO ONE sold bulk rares this wouldn’t work since then no rares would be bulk. But that’s an unlikely scenario.

    Thanks for posting the comment. I appreciate the insights.

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