Since eBay does at no point during the auctioning process take possession of either the item being sold or the buyer's payment for the item, user trust is a key issue for eBay. In the traditional model of trading forums the buyer and the seller usually exchange the item for the payment at the same time and place, meaning that trust does not play as big a role. For eBay to be able to convince users to participate, they must deal with the inevitable delay between the buyer buying the item and receiving it, which is not an issue in the tradition model.

To reduce this anonymity and uncertainty of dealing online, eBay introduced Feedback Forums. At the completion of a transaction, users are encouraged to submit compliments or criticism to the trading profile of the trading partner to the Feedback Forum. By looking at the trading partners history of trades, the user will be able to estimate more accurately the trustworthiness of the trading partner.

This is by no means a foolproof way to combat misuse, since users may be tempted to wait until their reputation is good enough that they can start to trade in expensive items before running away with the buyer's money. This argument may mean decreased scalability of eBay in terms of item price, at least for person-to-person auctions — more users may be tempted to use traditional modes to decrease their risk.


Since participating in the auction industry requires only a web presence, at first sight the threat of competition looms heavily over eBay. In fact, two online heavyweights have entered the market, Yahoo and Amazon. Amazon in partnership with the well known auctioneer Sotheby's.

These (and many other) competitors have not only longer operating histories, but larger customer base and greater brand recognition. So why does eBay currenly control more than 80% of the online auction market, with Yahoo and Amazon lagging far behind?

In my opinion, the answer lies in a combination of penny pinching and first mover advantage. eBay utilized their first mover advantage admirably, quickly and constantly building a community of buyers and sellers.

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Year-end registered users (000)
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The network effect is important in this market, since the number of buyers and sellers increases the value of the service for other buyers and sellers. If eBay remains price competitive with its competitors there is minimal incentive for the users to switch between auction sites, meaning it becomes more and more difficult for a competitor to displace eBay's trading community.

A different kind of threat is not a direct competitor but a service which can act as a substitute to auctioning, of which is a good example. designed a site which allows people to sell used books, music, movies and games at a fixed price. eBay dealt with that threat by buying the company and experimenting with adding their own fixed-price option to their auction listings.

Project for IEF248a
Spring 2001
Magnus Bjornsson