eBay's Position in the Industry

Because access to the online trade channel (i.e. Internet) is universal, and the physical assets required to setup an auctioning site are all commercially available, barriers to entry in the auctioning industry are minimal. What comes stronger into play is the network externalities effect, as was mentioned before.

Being in a market with huge network externalities makes it extremely difficult for a competitor to get a large share of the userbase, since most users tend to gravitate towards the service which already offers the most users (since it will presumable have the greatest number of offerings.) This tremendous switching cost has the effect of locking in customers to a single auction service provider — in this case eBay.

Given network externalities and the relative ease one company can mimick and duplicate another company's innovations online, the main tact rivals can deploy is to lower the price of their service, which is exactly what Amazon and Yahoo have done.

Currently eBay is extending to markets overseas; it is now operating in eight of the top ten countries by online market size outside of the United States. In Asia eBay is in 80% of its largest e-commerce markets. eBay is gaining users 50% faster in Europe than in the United States, and gross merchandise sales are growing 135% faster. The faster it grows, the more securely will it hold its top position in the auctioning service market.

In a very open market, where anyone can enter, the threat of substitute service is greater. An example of which, Half.com, was mentioned before. In fact, the management of eBay believes that fixed-priced trading as is done on Half.com has as much, or even more, potential than eBays core auctioning service.