Ebay And Competition

[Geoff332]

Something I thought about a while ago, and have just had my mind kicked into gear for posting it here. I have posted several times about the notion of "perfect competition". Perfect competition is an economic concept that underpins Adam Smith's notion of a just society. The problem is very few markets are perfectly competitive. The main features of a perfectly competitive market are:
1. Large numbers of buyers and sellers -- with low barriers to entry and exit.
2. Complete information regarding the transaction available to all parties.
3. Complete substitutability between items.

The most common problem with real markets is 'market power' -- one party, usually the seller, when we are talking about consumer goods -- has far more power in the market than the other. A seller can set a price and if you can't or won't pay it, you can't get the item. In a properly competitive market, then another seller might offer it at a lower price; but in real markets, this is far less common (you might get an imperfect substitute -- such as a lower quality product).

eBay is a curious anomoly. Before they introduction of the 'buy it now' option, it was a genuine auction based market. You bid on a product what you could afford; the seller might set a minimum they could accept and let the bids shift the price. Anyone can place an item on eBay or bid for one (low barriers to entry). While the products are generally not completely substitutable, there is often several choices available to a buyer.

While it's not a perfectly competitive market, it is far closer than traditional markets in many respects. And it's enourmously popular. It's one of the most used websites in the world -- in eCommerce terms, only Amazon comes close, and I think eBay has well and truely passed them in terms of revenue turnover.

Is ebay going to change the way we buy and sell things?

[GreatWyrm of Babylon]

I hope so...

[castille]

The problem is that ebay is used primarily for used goods. I used to sell new goods on ebay as a part-time business during junior school, and most people were hesistant to pay much.


It also prevents efficient mass-selling of a single product (ie. you can only find three or four copies of the same product, and most are in different condition).


However, I agree that given proper moderation, ebay could be a good model for capitalism. Competition is absolutely fair, monopolies are hard to achieve, and entry/exit costs are minimal.