Competition takes effort
It takes time and sometimes money to effectively compete with someone. Generally, auction house PvP consists of making the other guy lose money or profits while trying to get your own profits as high as possible. It's a trade-off. If you flood the market with low-priced goods, you can increase the overall demand, which may outweigh the lower profit margins -- but there's going to be a much higher time cost, as you have to craft all these extra goods. If, instead of heavy undercutting, you elect to stalk your competitor and ensure you undercut by a small amount as often as possible, increasing the likeliness that you'll get a sale, you're playing a game of chicken that will end up with one person winning the larger slice of pie at the expense of their time. If both players play this game, the more time they spend canceling and relisting, the less they will both make per hour.
When you have the harsh reality of competition glaring at you through your auction UI, you have to make a decision. Do you compete or move on? My answer depends on who I'm fighting.
Fight or flight?
If I'm going up against a new entrant to the market, I might come out of the gates strong, using every dirty trick I can think of to convince them that the market is not worth the trouble. My reasoning is that while nature abhors a vacuum and another person will eventually show up, it takes time for the hydra to spawn another head. So long as the extra-easy profits I make while I'm between serious competitors is more than I spend fighting (in terms of gold lost per hour of fighting, as well as just flat-out lost), it's worth it. It's hard to calculate accurately, so if it seems really close, I make my call based on how much I've been itching to throw my weight around.
Often, however, I concede that the time I would spend fighting off a new entrant is not worth the opportunity cost of all the other markets I never seem to have time to get involved in. Agility is as huge an advantage in the in-game economy as in the real-world economy. I'll turn around on a dime, leave a landmine or two if I can think of anything, keep all my production capacity in place, and go work on something else more profitable. I'll check back in once in a while to see whether it's worth making a comeback. This is almost as much fun as trying to push someone's nose back in, as it forces me to do more research and gives me a nice change in what can become a pretty simple (and boring) routine.
There is one type of person who doesn't get either of these treatments: my long-term competitor. If there's someone else in the market who hasn't gotten aggressive with me and posts just as frequently as I do so that I haven't noticed spikes of unsold product, I'll tend to enter into a completely different mode. This is where we probably never talk yet have the in-game version of a non-aggression treaty in place.
Typically, this type of competitor is content to live with the easiest of profits and relies on addons like Auction Profit Master to post once or twice a day, often without even bothering to see who his competition is. This means that aside from setting up the prices in the addon and creating the production chain, there's basically no extra work involved. The profits per hour can be extremely nice when it takes 3 minutes to repost per day and 5 minutes of crafting a week. If we both do this, we'll split the market based on how much product we're willing to make and how we configure our addons.
Put that pitchfork down!
Everything changes when one of the mega-blogs posts a gold-making method that gets popular. All of a sudden, your sleepy little corner of the auction house has 15 new spittin' mad monopolists, each with more time than the last. There's a finite amount of potential profit in a market, and every person you add to it will reduce your share of it, as well as potentially reduce the overall size by undercutting down to cost and mass producing to try and drive you out.
I'd say I'm sorry, but I'm not. I write about the markets I am involved in, and I go through the same fight you do every time one of my posts is on the main page. There's no magic solution to this; you simply have to be agile and tenacious. Swap to another market until the hype dies down.
If you are really creative, you'll be able to find ways to profit from these influxes. Every market is based on a transformation, and if you can provide one part of that, you can at least get your licks in before you head off into the sunset. So if you see the front page of a mega-blog is all about the money you can make by, for example, smelting old world ore, and you happen to have a bunch of ore stockpiled, post it all on the AH for triple what it was worth in bars and see how much of it you can sell while you're off making bags or something.
Maximize your profits with more advice from Gold Capped, plus the author's Call to Auction podcast. Do you have questions about selling, reselling and building your financial empire on the auction house? Basil is taking your questions at firstname.lastname@example.org.