Case study of eBay
As an efficient and flexible sales channel, online auction businesses are becoming an internationally successful phenomenon. People can use auction sites as a market to conduct sales, to liquidate unwanted inventory, as well as to reaching markets that would otherwise be too expensive to reach. However, there are potential problems with feedback systems in the OAM, in other word, seller incentives to provide high quality products under the case of asymmetric information, for example buyers are not able to discern product quality prior to making their purchase decisions while sellers are aware of the quality of their product offerings, as a result dishonest or low-quality sellers will drive honest and high-quality sellers out of market.
Obviously, beside the transaction cost of determining the required good is available on the market, which has the lowest price, there are other transaction costs within the online auction business for both sellers and buyers. From seller’s perspective, their decision on the which auction service to use are depended on following factors: cost of listing an auction item and the chance that a product will be sold. In the case of eBay and Yahoo!Auction, eBay charges sellers both listing fee and a percentage commission of the item sold. Yahoo!Auction, on the other hand, offers free listing. However, Yahoo!Auction suffers from a much lower successful transaction probability than eBay. Thus, a seller should trade off between balance utility for lower cost against the utility for higher transaction probability, therefore, the time and effort of figuring out which online auction service to use is the transaction cost for sellers. From buyers’ perspective, if buyers get the unsatisfactory product, the buyer requests a refund from the seller and ships the product back to the seller. The original transaction fees may not be