Ebay How Does Ebay Create

eBay

How does eBay create value?

A eBay is essentially a virtual version of renting tables at a bazaar. The owner of the bazaar brings together sellers and buyers to the same place, and for the fee of a table, in an area where more buyers are likely to shop, the seller gains a wider audience. By renting property, in this case, demanding money for the privilege of selling on eBay, eBay generates a profit.

What potential contracting problems exist on eBay?

The potential for problems are many. First of all, sellers can simply refuse to ship merchandise and disappear after receiving a payment. Conversely, buyers can refuse to pay at all after receiving the merchandise or stop payment on their checks or cancel their credit cards. Sellers can also misrepresent their merchandise to generate a higher profit and more sellers, and buyers can return damaged merchandise and demand their money back, even though they are responsible for the damage.

How does eBay address these problems?

A eBay offers free insurance that could cover the costs of some smaller items, up to $200, with a $25 deductible, and an escrow service where payment is held upon receipt of the item. Sellers can claim the same right to inspect a returned item before returning payment. There is also a Feedback Forum, where users can give input about the reputation of sellers and buyers, so both buyers and sellers know whom to 'beware' of before participating in an auction. Also, fraudulent sellers and buyers can be banned.

What are the contracting costs at eBay?

A eBay must maintain the site and provide insurance and monitor complaints, feedback on the forums, and also the types of items that are sold.

A eBay claims that it has only a small problem with fraud and misuse of the system. Does this imply that it is over-investing in addressing potential contracting problems? Under-investing? Explain.