Assignment:
CASE STUDY
EBAY.COM
eBay is the world?s largest online auction. In late 1999, the service listed over 2,000 categories of items from sports memorabilia to automobiles. In total, eBay hosted more than 2.5 million auctions a day. Sellers pay a few dollars to eBay to list their items.
They provide a description of the item, photographs, the minimum acceptable bid, accepted forms of payment, and other relevant information. Bidders submit electronic bids over the Internet. After the auction closes (auctions usually last several days), the high bidder receives an e-mail. The high bidder must contact the seller within 3 business days to claim the item as well as arrange for payment and delivery of the item. eBay provides other support services.
The Feedback Forum is a place where eBay users leave comments about each other?s buying and selling experiences. If you?re a bidder, you can check the seller?s Feedback Profile easily before you place a bid to learn about the other person?s experience with previous buyers. If you?re a seller, you can do the same with your bidders.Every eBay user is covered by insurance at no additional charge under the terms of eBay?s program. If a buyer pays for an item and never receives it (or receives the item, but it was less than expected), eBay reimburses the buyer up to $200, less a $25 deductible.
Safe Harbor, eBay?s safety staff, investigates alleged misuses at eBay such as fraud, trading offenses, and illegally listed items. Potential resolutions include things like banning a person from future trading on eBay.
Buyers and sellers can use an escrow service in transactions involving expensive items. eBay?s escrow partner, i-Escrow, holds a buyer?s payment and sends it to the seller only after the buyer has inspected the merchandise and gives approval. Sellers have the same opportunity to inspect and approve a returned item before the buyer gets a refund
Question 1
Questions from eBay Case Study, page 275. Select the answer that BEST responds to the question using the material from our text.
1. How does eBay create (consumer borne) value?
a.eBay creates consumer borne value by allowing its customers, the sellers, to use asymmetric information to deceive buyers.
b.eBay does not create consumer borne value because customers are doing their own trading.
c.eBay creates consumer borne value for its customers through lowering their transactions costs associated with trading.
d.eBay creates consumer borne value by earning a high profit for its stockholders.
e.Sellers using eBay create consumer borne value through misrepresentation that enables them to receive higher winning bids on their merchandise.
Question 2
Which of the following is NOT a potential contracting problem that may exist on eBay?
a.The Feedback Forum allows buyers and sellers to make comments about each other.
b.The seller may deliver a product that does not meet the expectations of the buyer based on the item's description.
c.The seller may have asymmetric information about the product be sold.
d.The winning bidder may fail to complete the contract by not paying for the item.
e.There may be misrepresentation on the part of the buyer about the quality of the product being sold.
Question 3
Which of the following answers is NOT a way that eBay addresses contracting problems that may arise among its customers.
a.Feedback Forum reduces precontractual information problems; reputational concerns provide an incentive for participants to behave with integrity.
b.Insurance covers the cost to the buyer from the non delivery of items valued up to $200 reduces costs.
c.Safe Harbor provides an incentive for buyers and sellers to not act fraudulently if they want to continue using eBay to abide by its rules.
d.Escrow services reduce asymmetric information and allow buyers to inspect and return a defective item prior to the transacton being completed.
e.eBay reduces agency problems monitoring of its employees and managers to prevent them from shirking their responsibilities.
Question 4
What are the costs borne by eBay to reduce the contracting costs described in Question 3? Select the answer that BEST describes these costs.
a.The costs borne by eBay include the explicit costs of maintaining the programs described in Question 3 PLUS the implicit costs associated with any lost business from potential customers who don't use eBay because of their concerns about possible contracting problems.
b.The cost to eBay of advertising to let people know that it is trying to minimize contracting problems.
c.The fees customers pay to list their items on eBay.
d.The costs borne by eBay ONLY include the explicit costs of maintaining the programs described in Question 3, such as Feedback Forum and SafeHarbor.
e.The implicit cost of time spent by users of eBay to list items, bid on them, and complete the transaction.
Question 5
eBay claims that it has only a small problem with fraud and misuse of the system. Does this imply that it is overinvesting in addressing potential contracting problems? Underinvesting? Explain.
a.eBay is spending too much or over investing in reducing contracting problems because it doesn't have any significant competition and people will use it even if there are contracting problems.
b.eBay's efforts to reduce contracting problems is an example of over investing because asymmetric information will always exist no matter what the company does.
c.eBay efforts are not sufficient and it is under investing; all contracting problems must be eliminated in order for eBay to maintain its reputation as a safe place to do business.
d.eBay is under investing in its efforts to reduce contracting problems because other online bidding companies have been able to take away some of eBay's market share.
e.The optimal level of investment occurs where the marginal revenue from reducing contracting problems (such as from additional customers using eBay) is equal the marginal cost of the additional investment. This information was not provided in the case study and therefore it is not possible to tell if eBay is over or under investing