Ebay Case Study Essay

654 Words Feb 28th, 2015 3 Pages
EBay and the Existence of Firms

As a global online auction market, eBay provides people a new way to do online shopping, not only by purchasing a product at a certain price, but also by the unique auction format. Through auction procedure, sellers can earn more than the base price in their mind and buyers can bid the price up to the most they can afford.

By setting up a convenient platform to gather sellers and buyers together, eBay reduces lots of searching costs as other websites expend. However, there are still two major problems which can lead to transaction costs for an unregulated online auction market: Adverse selection and moral hazard. Adverse selection occurs when information asymmetries appear before both sides
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In addition to this feedback system, eBay also refines online auction market by developing their own payment system. They collaborate with Wells Fargo Bank to create online bill payment service. and then acquire PayPal at 2002 to solidify the strong base of the company. Both the bank and PayPal can provide guarantee to consumers’ money and make people feel safer when buying products. When paying through PayPal, Paypal will hold the money temporarily after buyer receiving the product and then they send money to the seller. Moreover, eBay lists all their rules and policies on their website, people can easily find the consequences after violating their policy for both parties. When a dispute occurs, eBay will intervene and resolve the problem by holding the payment until both parties reach an agreement.

EBay has a large, loyal customer base which ensures their quantity of products. Compare to other websites such as Amazon, eBay provides more various products for sale, range from cars, furnitures to toys and candies. Buyers can find everything they want through this website and don’t need to go to different markets for different needs. On the other hand, eBay gives each individual and every small business a chance to sell things and build their own reputation. Also, eBay works with Microsoft’s to make it possible for consumers

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