Virtues Of The eBay Economy

CandA · Site Admin Joined: 08 Mar 2008 Posts: 22

For proof of the effectiveness of the free market, one need look no further than to the example provided by online auction giant eBay.

The fundamental principles of the eBay market have allowed the site to prosper and individuals to reap the benefits. An economic system that adheres to these principles and learns from eBay's successes would earn its adopters a valuable position in the global economy and the geopolitical sphere. And these key principles are...

Freedom of Participation: eBay places no limits on who may or may not engage in the auction market. Anyone with an internet connection (who may be considered citizens of eBay) can participate regardless of race, gender, income or nationality. Freedom of participation means freedom of opportunity. The poor buy from the rich, the rich buy from the poor; everyone has equal opportunity to succeed or fail on a level playing field. Which leads us to the next principle...

Minimal Regulation: Rules on eBay are limited to one purpose. Protect users from dishonest and unfair practices. With such a minor level of involvement by eBay (the central government of this particular market), costs to users are kept at low and reasonable levels, leaving sellers free to conduct business without the burden of having to provide any significant amount of their income to the regulatory practices of the governing body. Consider the costs of increased regulation:

Were eBay to impose, for instance, a tariff on all goods bought from, say, China, costs to outside buyers would be increased as they must now pay a fee to eBay to make the transaction. That is unless Chinese sellers lowered their prices enough to cover that increase in cost. Of course, the tariff income collected would not be going to the Chinese sellers, so they may be able to maintain the same volume of goods sold, but whether they lower prices or not, the tariff would result in lower revenue to China. Lower revenue in China would mean a decrease in the number of Chinese bidders (read: lower demand, lower revenue) in the rest of the eBay community. This is the best possible outcome. If the Chinese sellers aren't so kind as to lower their prices, we will be much worse off. Eliminating the low-cost advantage of the Chinese sellers would raise the bar of price competition to a new level. The resulting increase in prices would leave the eBay community faced with higher costs to satisfy their wants and needs, the response to which will be widespread price raising throughout the market in order to cover these costs. And what is the term used to define a general increase in prices? Inflation. Inflation means everybody's dollar now has less purchasing power in the marketplace, not to mention a drop in the value of everyone's investments, savings and paychecks. One way to keep prices down and avoid inflation...
No Barriers to Entry: Affording everyone the opportunity to sell on eBay makes competition for buyers keen, which will inevitably result in lower prices and increased efficiency in the market. This can be explained quite easily with a simple illustration:

Imagine a buyer looking to sell a vintage 1969 Gibson Les Paul electric guitar. After a quick search he finds that no one else has a '69 Les Paul up for bid, and so he decides to start the bidding at $5,000. Now imagine a second seller with an identical guitar--same condition, same shipping estimate, same everything. After a quick search he finds the first guitar and sees that the starting bid is $5,000. Where would you expect him to start the bidding for his guitar? If he wants bids, he'll start the bidding at a lower price, after all, that is his only edge. As more and more sellers enter this particular market, the trend will continue and prices will drop lower and lower. Buyers will be able to satisfy this particular want and will do so at the lowest possible price, freeing up money to be spent elsewhere. In this way, the buying power of every individual is increased and as they use that power to satisfy more wants and needs, the sellers that can offer the best products at the lowest prices will see profits climb higher and higher. The availability of these quality products at widely affordable prices will undeniably lead to a higher standard of living for every eBay community member.

It is as a result of strict adherence to these key principles that eBay is a flourishing marketplace and excellent model of the success achieved through limited interference in the free-market. Excessive controls and regulation is a sure way to limit economic prosperity and cause more harm to the global economy than the benefits of the intended results are worth.