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eBay Inc. (EBAY) Message Board

  • c_skiadas c_skiadas Oct 29, 1998 7:22 AM Flag

    flawed analyst models - scalability of a

    Although I don't have the time or inclination to
    post a longwinded mathematical analysis and case
    studies to provide supporting empirical data, the
    following conclusions regarding the scalability of auction
    markets should dampen analysts' prospects for substantial
    further growth of EBAY:

    (1) excessive competition
    amongst SELLERS for commodity goods of less than the top
    quality or uniqueness
    (2) excessive competition
    amongst buyers for top quality or unique
    goods

    Result: price erosion for commodity goods causes
    commodity goods sellers to list on smaller auction markets
    with less competitive offerings, albeit a potentially
    smaller audience (however, there is little barrier to
    sellers shopping in a large number of auction markets -
    hence a fatal flaw in the EBAY valuation
    model).

    2nd Result: overvaluation of unique and top-end
    products reduces buyers desire to purchase such goods on
    that auction market, knowing that they will be paying
    the highest price the market will bear in view of the
    large competitive pool of buyers at that auction
    site.

    Overall result & takehome message: Auction markets such
    as EBAY reach an overall fundamental size limitation
    which is usually fairly small. Since the burden of a
    buyer scanning several auction markets (EBAY, First
    Auction, Yahoo, etc.) is small, the ultimate sizes reached
    by the individual auction markets will be limited.
    We wind up with a large number of fragmented auction
    markets simply by nature of the transactional forum. It
    is not possible to monopolize an auction market
    except for very high end and unique items (e.g.,
    Southeby's, Christies, etc. art auctioneers). All other
    auction markets are by nature fragmented and the Internet
    provides buyers a means of rapidly scanning at low cost a
    large number of these fragmented auction markets,
    making the maximum sustainable size of an EBAY-type
    auction market fairly small.

    Conclusion: the EBAY
    model does not scale well at all, and may already be
    above the equilibrium size of
    sustainability.

    Costis Skaidas
    Kellogg School of Business

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EBAY
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