The Economics of eBay

Aaron Schiff notes, quite rightly, that eBay uses anticompetitive tactics in order to retain its market share:

One of the things that probably makes it hard to compete with eBay is that eBay ‘owns’ the reputations of its users. If you want to switch to an alternative site, you have to start from scratch with a blank reputation. As various studies have shown, having a good reputation is beneficial to some extent, at least for sellers. However, eBay has resisted attempts to let people either export their reputations to alternative auction sites, or use third-party reputation systems to manage their reputation on eBay (see here, for example).

This raises an interesting question: in the case of eBay in particular, would more competition be good or bad for consumers?

Generally, of course, competition is a good thing from a consumer point of view. And if eBay had more of it, maybe its customer service would be better, or its website would be easier to use, or its fees would be lower.

On the other hand, consumers benefit enormously from eBay’s status as the online auction site. Sellers all go there because that’s where all the buyers are, and vice versa, which means much more liquidity and a much higher probability of a successful sale or finding what you’re looking for.

I have no idea how one would even begin to start measuring such trade-offs. But it’s rare enough just to find such a high-profile situation where increased competition isn’t obviously good for consumers.

This entry was posted in economics. Bookmark the permalink.