eBay is an example of an online auction market (OAM). All OAM’s reduce transacti
ID: 1132849 • Letter: E
Question
eBay is an example of an online auction market (OAM). All OAM’s reduce transaction costs (TCs) by collecting buyers and sellers in a central location, thereby reducing search costs. eBay has refined the OAM experience in several ways go beyond the mere linking of buyers and sellers.
1. Provide a hypothetical example of an unregulated online auction market. How would it work?
2. What problems would your unregulated market have? How might these problems destroy value for both customers and sellers?
3. How does eBay meet the definition of a “firm” as a way/means of organizing economic activity? How does it differ from a pure market?
4. Does eBay suffer from the problems you outlined above? If not, how does eBay solve these problems?
Explanation / Answer
1. Example and how it works
Since hypothetical example has been asked I would like to take hypothetical OAM(i.e assumed , not really existing one) which is " online website for auction of pet animals"
When we see how it works , first the auction between seller and buyer takes place in online i.e in the website . All the information related to the particular pet animal is provided to buyer in the website like it's age , health condition, photos etc . Ones all the auction happened the finally decided buyer i.e highest bidder comes in contact with seller to collect the pet physically. All the transportation , it's charges are paid online .
2 . Problems of market
These problems definitely affects value of both seller and buyer , because seller would be satisfied to pay fully only when he outcome these problems . At the same time buyer would not be in comfortable zone to demand more money.
3.ebay met the definition of a “firm” as a way/means of organizing economic activity by following these tips:
Like these following many systematic procedures it attained 'firm'.
4. Same problems eBay also faced.
As I mentioned above eBay also faced similar problems if not exactly the same, like lack of trust . For this problem eBay took many procedures which increased their trust on eBay say returning payment when goods are damaged, providing complete information about transportation etc.
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