Question

Part 2 Econonm ge ANALYZING MANAGERIAL DECISIONS: eBay.com the "Red shooting star." eBay has created a se of policies to guard against "feedback ulation" and feedback abuse."p eBay operates the world's largest online auction. In early 2008, eBay operated in 39 counties with 276 million registered users worldwide. The total value f all successfully closed items in 2007 was $59 bil lion with an average of $2.039 worth of goods trad- ing on the site every second. Sellers pay a small fee to eBay to list their items. They provide a description of the item. photographs, the minimum acceptable bid, accepted forms of payment, and other relevarnt information. Items can be sold at a fixed price or through an auction. In an auction. bidders submit electronic bids over the Internet. After the auction eBay users are encouraged t tions through PayPal. PayPal provides free insurance of up to $2,000 on some items to protect buyers in cases where they do not re ceive the item or it was less than expect Participants sign user agreements that specif the trading rules and expectations, eBay safety staff investigates alleged mis eBay such as fraud, trading offenses, and gally listed items. Potential resolutions include such things as banning a person from future trading on eBay . closes (auctions usually last several days), the high bidder receives an e-mail. The high bidder must con tact the seller within three business days to claim the item and arrange payment and delivery. eBay pro- vides other support services I. How does eBay create value? The Feedback Forum is a place where eBay 2. What potential contracting problems exist on users leave comments about each other's buy ing and selling experiences. If you are a bid.3. How does eBay address these problems? der, you can check the seller's Feedback Pro- 4. What are the contracting costs at eBay? file easily before you place a bid to learn 5. eBay claims that it has only a small problem about the other buyers' experience. If you're a seller, you can do the same thing to check out buyers. Each participant is given a Feedback Score based on the number of positive and negative ratings that they have received. Par ticipants with sufficient positive ratings are "To obtain more deta flagged by colored stars. The highest rating i eBay? with fraud and misuse of the system. Does this imply that it is overinvesting in addressing potential contracting problems? Underinvest ing? Explain obtain more detailed information, go to www.ebay.com

Answer 1

1. As of 2008, eBay operated in 39 countries with 276 million registered users worldwide, hence eBay creates value by bringing together buyers and sellers of different items to one place and it reduces transaction costs for its buyers and sellers in the trading transactions.

2. The potential contracting problems exist on eBay would be when the seller is selling faulty/damage items or when the seller fails to meet the buyers expectations regarding product description, the misuse of eBay by trading banned items and the informational asymmetries between the parties.

3. eBay addresses this problems with 'The Feedback Forum'. It is a place where buyers and sellers leave comments about each other's trading experiences. Each participant is given a feedback score based on the number of positive and negative ratings they have received. Another way to address these problems is by providing buyers with a Money Back Guarantee policy which covers virtually every item sold.

4. Contracting costs include at eBay are enforcement costs, information costs, insurance costs, marketing/advertising costs, accounting costs, monitoring costs and out-of-pocket costs etc.