Ebay Case Study

Decent Essays
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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Another feature of eBay is that although they do several advertisements, consumers acquire this website mainly through word of mouth. They have low advertising expenses and high brand awareness mostly because consumers are satisfied with their experience on eBay and would like to share with others. Because of the strong word-of-mouth effect, eBay has now expanded globally and grows rapidly among foreign
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