In this example, what happens when a level 60 character goes to newbie town and buys all the swords and spikes the price to 1000 gold?
It only works if the game is sufficiently realistic, and they cannot hide the goods from the player base by simply logging out. If those swords have to be carried, transported, and stored somewhere, then that player has now made himself a game objective. Newbie swords are fast and easy to make out of readily available materials, so there's a lot of them in the world and it's difficult to remove them all from the game. If he wants to buy them all, he's got to have a way to transport them. A magical means of transporting them should itself have a cost and perhaps other limitations to make it unattractive. A physical means has its own issues, like now being a target for players and NPCs alike. Assembling a caravan takes time and effort and the criminal underworld will get wind of what you are up to and make plans accordingly.
As well, someone purchasing all the swords in the region is a noteworthy event. It could be a prelude to war! Where are these weapons going? The authorities are surely going to want to know.
It would be interesting and serve a certain market, but would it be a "fun game" for "enough people" to be profitable?
Well, people are paying to play EVE, so I guess the answer is yes.