It's simple economics, on both the part of the buyer and the seller.
As all of us know, keeping a reef tank is expensive. Why do we act like the coral suppliers don't have to pay the same expenses? There's the cost of salt, dosing chemicals, water, filtration media, electricity, testing equipment, controllers, lighting, and everything else. On top of that, they also need to cover the physical needs of the facility - leasing/mortgage payments, insurance, taxes, utilities, shipping supplies and more. And on top of that, they need to make enough profit to cover all those expenses and pay themselves and all of their employees enough to live on. Is it greed if a coral supplier sells a frag for $100, or is it economic necessity?
Our coral suppliers don't have a monopoly on the market. In fact, every single hobbyist is a potential competitor. So if they were truly being greedy and taking far more profit than was necessary, other players would quickly jump into the market, undercut them by a few dollars, and be happy with their reasonable profit. The fact that we don't see this happening - that prices go up instead of down - tells me that it's not greed at play, but necessity.
Back-of-the-envelope math bears this out. Say I operate a small shop with two employees, plus myself. My rent is $4,000/mo. For simplicity's sake, I pay each employee $10/hour and they work full-time, so $1,600/mo each, or $3,200 total, plus an extra 15% in payroll taxes ($480). Before any other expenses, I'm at $7,680 in expenses before considering anything else. Again, to make things easy, let's just peg all those other expenses - not counting the cost of purchasing livestock from suppliers (either wholesalers or local hobbyists) - at $1,000 for salt, dosing, make-up water, media, electricity and everything else that I need to keep the place running. So before I can even take home a dollar to pay for my life, I have to bring in almost $9,000. 30 days in the month, so just to break even, my livestock profits need to be at least $300/day.
If I buy a coral for $5 and sell it for $10, I would need to sell 60 frags to break even. On the other hand, if I bring in a premium coral for $50 and sell it for $100, I'd only need to sell 6 frags. Obviously, it's harder to find a buyer for $100 frag than it is for a $10 frag, but I only need a few to make my money for the day. And as far as my costs go - it costs me just as much to maintain a $10 coral as it does to maintain a $100 coral, and it costs my employees the same amount of time to sell a $10 coral as it does to sell a $100 coral. Finally, there's nothing stopping me from stocking both the cheapie corals and the more expensive ones. So I can carry both, and then look at how my customers react. If the $10 corals languish while I can't keep the $100 corals in stock, then I'm getting out of the bargain coral business and targeting the high-end customer who's showing me he's interested in the way I care about most - by buying my stuff. If all I sell are $10 corals... well, then it might be time for me to close up shop, unless I sell a metric ton of them every single day.
And on the subject of frags vs. colonies - again, it's economics. If I can sell a full colony for $250, or frag it into eight pieces and net $400 from it, why should I leave $150 on the table? Furthermore, it's a lot easier to sell a $50 frag than a $250 colony. Even if it takes me some time to sell all 8 frags, I can begin reaping an immediate return on my investment. If I'm a shop owner, the only time I'd leave a colony intact is when I already have a buyer for it; at that point, it's just free money.
And by the way, there's nothing wrong with shops wanting to make a profit. That's literally the reason to run a shop. If owners can't support themselves off the profits from their shops, then they have to close up shop and go find some other way to make money. We all claim to love LFS, and yet there seem to be an awful lot of people in this thread who seem to want shop owners to deliberately make less money than they could. It's not greed. It's necessity. If you don't make it a policy to maximize your profit from your shop, you're probably not going to be a store owner for long.
On the buying side, it's what the market seems to have decided upon. I can only speak for myself here, but I've only purchased anything resembling a colony once. There are many reasons I choose to go this route:
1) I don't want to "buy" a complete look. If I just wanted the end result of a beautiful tank, I'd pay to have someone come and maintain my tank. I don't want that - working on and nurturing my tank is the reason I keep it. Corals are an integral part of that. I don't want to bring in a mature colony - I want to grow a mature colony.
2) Frags let me get a greater variety of different corals. If all of my corals were colonies 8"-12" across, I could only have a few corals in my tank. Getting frags, I can fill the tank with a greater variety and trim them back when they become too large.
3) It's more economical. Buying a colony, I can get 10 heads of the same coral for $250. Or I could get 6 completely different corals for the same price. Unless the colony is of a type that I'm just crazy about, I'm going for variety over size.
4) I like to support aquaculture with my dollars. I know that colonies can be aquacultured as well, so that's not what I'm talking about. Rather, if fragging is a viable business model, then more companies will spring up to fill that demand. So in choosing to buy frags, I'm telling businesses that this is something that they can do and make money doing. More companies provide a greater variety of choices, gives more opportunities for interesting new color morphs to appear and, after other market forces are corrected, drive down prices.
) and for us enviro conscious types, access to corals that weren't 'stolen' from nature.
