Well,

In truth there are multiple reasons for this phenomena. First, as you correctly stated, there is a saturation of super gear, and seemingly the infusion of new players is continually dwindling. With more players in the mature stage of the game, and less players in the beginning of the product lifecycle, there is more and more Great UV gear up for grabs, and its being sold to a smaller and smaller population base.

But as much as anything, the decline in merchanting is spurred on by OOO's ever continuing war on player to player economy. The updates read like a roadmap of economic destruction. There has been an incremental shift of gameplay, always with a reasonable explanation on its surface, designed towards the erosion of player to player economy. (many of these if you view at the macro level, become completely contradictory to one another).

**B*inding, took away the infancy of merchanting (didn't want people to be able to buy their way to endgame)

***Unbinding (contradicts above. just as easy as ever, but a heck of a lot more expensive)

***HoH took away the market for recipes.

***Supply Depot crippled the ability to make a profit off selling 5* gear (didn't kill, but certainly crippled). Also, now OOO has directly set it up to where its now even easier to buy your way to endgame, specifically if you don't do it from another player. --still, we had the after market for UVs, since u don't get those from supply depot.

***Featured Auctions--all these items were supposed to be in lockboxes...if they really were, players could find them, and sell them. Instead, millions of lockboxes were opened, and virtually none of these items ever came to be. Then OOO creates featured auctions, cutting out any player to player interaction in this market.

***UV locking. Triple OOO was able to skim the market off the top. Taking as many crowns as possible from those willing to double and triple roll (since you could never lock a UV). In affect, this was predatory pricing. Milk the top for as much as you can, then once thats done....TADA! You can now lock UVs. Nevermind all the money essentially (retroactively) wasted on double and triple rolling, rather than getting one max UV and locking it. They already had those players crowns, time to discard them and their investments and go after a fatter market.

***UV tickets. And now UV tickets are being flooded into the market at every turn, further depleting the value of UV'd gear.

***Promo Items being rehashed in the Featured Auction House. So then, players got wise and started merchanting promo items, investing in them, and selling them later. But even that has been undercut, as these rare promo items are now being resold, and with little cool down, on the featured auction house as well.

There are other examples, i'm sure, as i've just spit-balled these off the top of my head. But the long and short of it is, OOO is attempting to make the self-sustained merchant knight nearly impossible. What they desire is that the only way to sustainably play is to run clockworks. You earn that 120 ce for every 100 ce you spend (or whatever the math is on it). Why? Because you'll never get rich stocking shelves. You'll never get rich running clockworks, thus you'll HAVE TO spend money to truly get ahead (or get a super rare and wondrous accessory/weapon). There were too many intelligent merchants that were able build up vast amounts of wealth in game, without ever lifting a finger to punch in their CC numbers.

But the truth is, they have erred badly. The merchant class did for them the exact thing they are attempting to do for themselves. The merchant class, by amassing great amounts of wealth) was effectively siphoning it up from the bottom. Every CE/crown they accrued was one created by someones CC. (and no the merchant class is not evil and should not be vilified, as they were not ripping people off. Every trade made was one that the both parties were happy with, and made the game more rewarding and enjoyable for both parties. They were a conduit of fun and enjoyment, and served a vital function to the economy of the game.)

So as Merchants sold great items to people at prices that made them smile, they also created a crown/ce vacuum. That same vacuum OOO now tries to create by washing away the economy for all of us. That vacuum created by the merchant class was filled in the same way, someone somewhere opened up their wallets. And did so happily. I'd argue it was a richer experience for both, as the paying player was darn sure having fun with his new toy(s). But under triple O's new non-economy, i thin its a sadder existence, since you are paying to avoid disenjoyment (the grind) rather paying to gain enjoyment.

And finally, it drives the whole game to a place that is more anxious and tedious. With no player to player economy, the game is stagnant; the economy is stagnant. It is not a mere coincidence that CE prices hover at a rate of 2-3000 more crowns per hundred than they used too. In a player to player driven economy, the crown flow was great. The movement of crowns, CE, and gear from one to the next was constant. It was a flourishing economy. The low price of CE, if you look at it over the history of Spiral Knights, is directly related to how active and flourishing the game is. The high price of CE is directly related to how stagnate the game is.

Take the release of Danger Missions for example (or introduction of new gear) seemingly, both of these would make more CE needed by all, thus everyone would WTB, and CE would sky-rocket. But really, those things breathe fresh air into the game, and cause the turnover of goods, ce, and crowns as people gear up, and just generally become more active. This increased life in the game and increased commodity trading is almost always rewarded with lowering ce, or at the very worst stabilizing CE.

tl;dr
OOO is shaving away any player driven economy as quickly as it can. As soon as it sniffs out an opportunity that players are using to make wealth (particularly high levels of wealth) They snuff it out. The slow death of this economy contributes to the ever rising cost of CE.

just an ex-merchants opinion.

Most definitely. I can't remember when I last saw a Spiral Knights advertisement, but that in itself says its own. In fact, the times I did see and recall them the most was during the preview event!

If I was in charge of marketing here, I would spend all my marketing dollars on YouTube adds. The lions share would be spent for adds before people could watch a YouTube video in other MMO's--specifically free ones. Next, I'd have adds that had to be watched before video reviews (for major game websites, namely ign and the like.) Finally, with what was left i would have my adds run before random video game youtubes, and maybe some more popular anime/cutesie type stuff.

I'd do it all through YouTube, as then I could focus my demographic to both gamers who are after MMO's, but as well as to the gamers who are looking for mindless ways to spend time. That's a large part of what drew me to it.

Holy crap the official website for Hong Kong is way cooler!

And yeah... more ads would be cool. But not the forced ones at the start of a youtube video. I hats those.

Everyone does. Just like everyone hates commercials on TV. But that would be their most effective avenue, I believe. The marketing director for OOO should be worried about what gets the most eyeballs of their target demographic per dollar spent, not what YouTube watchers find annoying.

The idea is to go out and find people who might like your game and be willing to try it, people who otherwise would never have known it existed.