Merching IS allowed in RS. You are allowed to flip/invest which are ways of merching. The way of merching you are talking about is what isn't allowed and it's called price manipulation.
The way price manipulation and merch clans worked made the owners profit while most of the members made a loss. It was a scam. In order for the owners to make a profit, somebody had take a loss with price manipulation.
Basically the owners stockpiled an item over a period of time. This made the price go up and supply go down. After they bought almost all of it or ran out of money, they announced it to the clan. The clan then starts buying the item and larger clans i.e. Smokin Mils actually managed to buy all of the G.E. supply of some items. People wanting the item start paying crazy prices and the price goes up and up and up. The buy offers of the players of RS and clan members also keep adding up. This allows the clan owners to sell all their stockpiled goods for top price. They bought the item at the lowest price possible and sold the item at the highest price possible. Now they announce to the clan that it's time to dump. The ones who dump first make some GP, but the ones still buying get stuck with an item nobody wants anymore. This huge supply makes the price go down to the price the owners paid to stockpile it and most of the time even lower resulting in a huge loss for the clan members.
Price manipulation clans were advertised as an amazing way to double your money in a week but it was really just a way for the smart to use the ignorant for their own profit. The members would either be blinded by the promise of wealth and/or be too stupid to ask themselves, "Why am I paying 10,000 GP for this useless Ball of Wool???"
Price manipulation clans used common items sometimes, but half the time they would use random useless items like Amulet of Accuracy, or useless talismans or Charcoal or other uncommon items they could fool people into putting high buy offers in for.