Unlike in the marketplace, eBay provides a market space which is not constrained by time and distance. Through the internet technology buyers and sellers from all over the world meet virtually in order to trade their products with each other.
In order to ensure the safety and convenience of the participants in each auction that the company hosts, the company has also designed value-added features and services which adds to the value that the customer receives. Thus, aside from bringing buyer and seller together, eBay also delivers safety to customers by ensuring convenient, fast, and safe online transactions.
Alongside the huge advantages of transacting online are the risks shouldered by the participants and challenges for eBay. The hesitance of individuals to trade their products and services through online portals, stems from the fact that unlike in the marketplace, that there is a huge information asymmetry in marketspace both on the credibility of the participants and the quality of the products which are traded. Thus, numerous contracting problems occur including shipped products which are unpaid, goods which do not meet the expectations of the buyer, joy bidders, and fraud. These contracting problems are typical in the nature of eBay's business. Since each of the participant in the market wants to maximize his utility by buying unique goods at the same time paying the least for the products which he thinks have higher value while the seller wants to get the best possible money from his commodities, both could have the intention of outdoing each other because of information asymmetry.
3. How does eBay address these problems
Aside from bringing buyers and sellers together, eBay also enhanced its portal with value-added services and features which eliminate fear and assures each participant of safe, reliable, and convenient transaction. As mentioned in the case, Feedback forum is available for everyone who would like to have a thorough understanding of the credibility of a participant. In order to ensure that buyers are getting their money's worth, each buyer or seller is also provided with "insurance." The company also established SafeHarbor to identify, investigate, and take corrective actions on fraud and other misuse of the company's services. eBay's partnership with i-Escrow provides security to payment made. All of these value added features enhances the value delivered to the company's services.
4. What are the contracting costs of eBay
The contracting problems identified above that eBay wants to eliminate pressures the business organization to shell out financial resources in order to provide solutions. As discussed in the previous paragraphs, eBay has been keen in identifying the contracting problems in its system and is committed in eliminating these in order to ensure the satisfaction of auction participants. However, in so doing, it also needs to make particular investments which require financial resources. All of these efforts stems from the company's aim of making trading safe and convenient to virtual buyers and sellers.
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