In defense of merchanting

Merchanting is the activity of buying items at a low price and selling them higher later. If done properly, the merchanter can make substantial amounts of profit. Given factors such as the non-production of items in the process and an apparent increase in price volatility, this kind of business is often stigmatised.

However, merchanting may serve a useful role in the economy. Such activity can actually help to keep prices more stable and, as a bonus, the merchanter will be rewarded for it.

Elastic supply and demand
Price elasticity is how much the quantity of an item in the market changes with a given change in price. The more elastic the price, the more quantity will change with a given price change. There are two types of elasticity:

Lemon Dungeoneers

In 1970, economist George Akerlof released a journal article about the used car market. In it, he drew the distinction between cherries (good cars) and lemons (faulty cars), and predicted how those selling cherries would be driven out of the market (and conversely how the proportion of lemons would increase).

There is often comment by World of Warcraft players how they would, at times, join a sub-par pickup group (PuG) and resultingly endure an excruciating dungeon run. The 'market' for dungeoneering 'labour' may well degenerate similarly, for the fellow dungeoneers likely do not know how skilled each other is.

The thing about asymmetric information
In the lemon market as described by Akerlof, it is asymmetric information that drives cherries out of the market. In such a market, the buyer does not know much about the quality of the seller's product so as to form a price. In the used car market example, the used car has many parts hidden away from view, so the buyer cannot completely know whether the car is free from defects. As a result, they make a best guess that the car is of 'average' quality and so will be willing to pay an 'average' price.