Taobao vs. Ebay China: The Internet Oligopoly Market

EBay has paved the wave in this industry and being in a billion dollar industry making things happen to benefit consumers in many ways.[5]

Are price wars likely to occur in oligopolistic markets and how can firms help prevent them? Outline theories and provide examples to illustrate your arguments.

Dembosky, A. (2012). Ebay moves beyond its dotcom roots. Available:http://www.ft.com/cms/s/0/df3723ca-1773-11e2-8cbe-00144feabdc0.html#axzz2EbzDqb5Y. Last accessed 10th Dec 2012

Switching Cost: If there is anything that can go in favor of a new entrant is switching cost of the buyer. Only loyalty buyers typically have these days is to value. If a new entrant can offer better value, buyers can switch to the new entrant with no switching cost. Better value can only come from sacrificing profits which might deter new entrants as a low profit margin does not promises long term growth.

eBay first entered the Chinese market in 2002 by acquiring a 33% stake in its local counterpart, EachNet, followed by a full acquisition a year later in 2003. Critically assess eBay.s choice of market entry strategy for China (use Key Country Matrix), listing both the advantages and disadvantages of its acquisition strategy (use Drivers (YIP) -CAGE Matrix). 30%

Oligopoly is defined as a market structure in which there are a few major firms dominating the market in an industry. One of the defining factors is that each firm explicitly feeds off of the competitors' moves and their potential responses in regard to setting prices, launching new products, etc. Under this model there is a level of implied cooperation. The firms understand that it is in their own best interests to maintain a stable price. If one of the firms subsequently lowers their prices, their competitors will do the same and knock out any advantage the original firm was hoping to gain with lower prices. However, if they raise their prices, the competitors may not do the same and can keep their prices fixed which will allow them to gain more market share.

Read the case carefully and answer the following questions: 1.Till 2005, eBay EachNet was the leader in the Chinese e-commerce market, controlling more than half of it. But eBay EachNet soon lost its market leadership position to Taobao.com (Taobao). In this context, analyze the reasons that can be attributed to Taobao’s edge over eBay. 2.a. To enable people to trade with each other, Pierre Omidyar created a marketplace in September 1995 which was later called eBay. By mid 1997, eBay received one million page hits per

Its dominance in the Chinese online retailing market was achieved through Taobao(C2C), China’s version of eBay, and Tmall(B2C), another popular shopping destination where major international brands like Nike and Samsung have online Stores.

Anything which has price is competitive. Firms attempt to take away business from competitors by reducing prices and/or providing better service so as to gain their business. In the internet business it is no different. If the internet service provider charge per minute, by the hour, by the week or month than there will invariably be a decrease in usage as the prices go up. However, when there is a flat rate across the board regardless of usage more and more people will simply use the services.

2. Collusion is illegal in the United States, but is legal in many other parts of the world.

Antitrust investigation is of considerable importance because it is utilized in the establishments of mergers, partnerships, acquisitions and other business takeovers/partnerships which when completed might result to an antitrust violation. These laws serve to prohibit services designed to restrain trade and commercial progress such as a monopoly structured market. Monopoly structured market is when there is a single provided product with no close substitutions. As opposed, to a monopoly, a pure competition market is an aspect in which multiple companies offer identical or close to the same products, which will compete with price and quality, and in some case costumer service. Additionally in contrast, oligopoly is a market structure where there are a few firms producing all or most of the market supply of a particular good or service and whose decisions about the industry's output can affect competitors. Oligopolies firms tend to charge reasonably premium prices but they compete through advertising and other promotional means. Simultaneously, possessing an array of market structures safeguard the consumption of basic products and services as supplied by the business community to the rest of the human populace. “When P = MC, society cannot gain by producing 1 more or 1 less unit of the product. In contrast, a monopolist maximizes profit by producing the lower output level at which marginal revenue (rather than price) equals marginal cost. At this MR = MC point, price exceeds marginal cost, meaning that society would obtain more benefit than it would incur cost by producing extra units” (McConnell, Brue, and Flynn, 2012, p.375). Unlike most companies, Google has cornered its market and does not have to contemplate the high barriers to entry or costs. However, these

Changes that take place in business, affects changes that take place in the economy, and these changes explain the difference between horizontal, and vertical markets. Importantly, the correlation of change impacts the delivery, perception, and interpretation of markets, this leads to economic impact through competition. Depending on the intent of a company, a vertical market offers a more concentrated and differentiated market through exclusive services or trades, or market industry. More importantly, vertical markets provide a better to concert its efforts into a niche specialty, or small defined market. In theory, the tactics of the vertical market is to analyze and use the commercialization of the internet through portals, search engines,

The Alibaba group has thrived in the Chinese e-commerce sector from its inception in 1998. They currently account for over 70% of online shopping in China and delivered annual revenues of $636 million in the 12month period ending June 2009 (case p1-2). Alibaba’s successes are due to multiple factors that have allowed them to create corporate advantage, and thus establish market leadership in China (Case p1). The configuration and coordination of Alibaba’s

The reason behind Alibaba’s success is its ability to tap into markets that its competitors struggle with by providing special services that target strategic needs of the Chinese population and its potential trading partners. Alibaba’s services are specifically catered to small to medium sized businesses(Liquori, 2009), by being an easily accessible advertising platform that is also cheap to set up. These small businesses can be discovered by other companies who search Alibaba for specific products rather than by brands. Furthermore, the escrow services offered by Alibaba in which its competitors are unable to provide, differentiates itself from the rest in

Alibaba is the largest leading e-commerce companies of B2B online retailer in China and it is giving a trading platform that associates worldwide purchasers to huge number of small medium enterprises to conduct business in their network. The market operate by Alibaba