Question
I have long pushed the view that Ebay has changed important market forces by combining retail fixed price sales with the auction principles that it was built on. Most importantly, it has changed the nature of the market from demand lifting the price of goods to an appropriate level for this specific market, to the fixed price seller that can sell the cheapest actually lowering the prices to their level.
This view has been disputed by many here who say that this is market forces properly at work. If Ebay were not an auction site, this would probably be so, but the factors that have undermined the market have interfered with the aspects that make auction work successfully. I have had difficulty at articulating the nature of these forces to those here who are not fully familiar with the nature of auction and exactly how it determines market values. Auction has been used to set commodity prices for centuries, but it is neither a retail price nor is it ever used successfully (legitimately) in conjunction with retailing.
I have realised that there is a business model that is well known here that can be used to highlight the differences and how they have affected Ebay in particular. Most people here are familiar with the business structure of One Cent CD's and most of my comments are designed to reflect the general nature of that business structure, not that actual business.
One Cent CD's is a business that is able to viably sell CD's for a cent, on the basis that the shipping fee does cover the costs involved, provided that the bulk purchase of the items sold has brought the cost of the goods down sufficiently. Competitive bidding then adds to the profitiability of the sales. This business structure is reliant on auction demand to set the actual price level for goods. A person may bid one cent or one dollar on a particular CD every time it is listed, and never actually buy it. Thus their demand creates an underpin for the price and other bidders push it up to the price that bidders are willing to pay at the time of that listing. Last year, I allowed $5.50 for a particular CD (plus international shipping) and bid on several listings for this CD, with it always selling for between about $6.50 and $8.50. Just because One Cent CD's *could* viably sell the CD for One Cent, did not mean that their pricing controlled the market. In actual fact, the demand for the item controlled the price. If the market got saturated, it would have firstly come down to the level where I would have purchased, and then probably come down lower, until new blood hit the market and pushed the price back up.
Auction works in this way. It is not a method of attaining retail value for goods, although competition can sometrimes push prices beyond retail for various reasons. In loose terms auction is usually considered to be about wholesale, as resellers will generally take goods to the level that they can buy and resell, but many times auction can also fall well below wholesale. In any case, demand determines the level of values in an auction only venue, and there are obvious reasons why auctions do not include retail goods, which change the nature of pricing, and cap with a maximum price, instead of the minimum price which is offered by either a minimum bid or reserve price. (Ludicrously, the Ebay SYI form now encourages people to list the original price of goods in the auction listing - this will also have the effect of capping the price for many buyers)
Now look at how Ebay has corrupted these principles. Let's say that a person goes to a court steps auction or a close out and buys bulk quantities of the CD I had previously bid on, and can now viably sell it at $3.00. If they list auctions at $3.00 they will achieve sales of the $6.50 to $8.50 until the market is saturated and drops. If they list fixed price sales $3.00 every bidder then either buys their copy for $3.00, or bids less than $3.00 on the auctions with the one cent starting price. The entire nature of the auction has been corrupted, as there is now a capped maximum price instead of only a capped minimum price (even at a one cent start for auctions, there is a defined minumum price but no defined maximum price).
One important aspect to this, is that both selling methods are being carried out on a single site. Yes, even if retail and auction were seperated, one could still shop around and find the $3.00 item for sale, and many people would shop retail as opposed to auction, but the market forces should be kept seperate. I was told here early this year that buyers are now savvy and check out the retail book sites before scouring Ebay. Some do, but many do not. Even now I can still sometimes get better prices than Advanced Book Exchange on books in lesser condition, because there are buyers who only look at Ebay (online at least) to find what they are looking for. If the same books were in Ebay stores or Buy It Now at those retail prices, the market would have effectively been capped, and the prices achieved would have been substantially lower.
The structure used by One Cent CD's is proof that if auction alone is used, the person who can sell the cheapest does not determine the price and influence the entire market. Auction values are solely determined by demand (if an item is priced too high, then there will not be sufficient demand to allow it to sell, if it is priced too low competition will force the price up to an appropriate level).
By it's nature, Ebay can not sustain retail prices, but when fixed price selling was introduced to Ebay, it did mean that if a person was able to liquidate items substantially below the ruling market price, they were actually able to lower and control the price on Ebay. This corruption has brought down prices on Ebay in many areas, and will continue to do so. This factor undermines the entire nature and value of auctions on that site.
Kevin
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Very well said Kevin, as usual. What I can't understand is why it would not be in ebay's best interest to split into 2 sites and maintain control of both. Keep the fixed price mega mall and instead of killing the collectibles market-maximize profit by encouraging it to grow in its own corner removed from the other.
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We have settled on this selling model for multiple sales of the same item descriptions:
List reserve-price auctions starting very low in relation to the reserve price, which is set somewhat less than our desired retil price.
These ads also serve as "pointers" to our Ebay store listings which are fixed price at our desired retail level.
Buyers have the option of bidding on the reserve price item until it settles at a presumed auction-market price level or they can click on the link & buy it immediately through our store listing.
Observations: By far the majority of buyers are opting to buy immediately at the fixed retail store price. Some do place bids and some final bid levels are less than the reserve price, some are more, some are higher than the store retail price ('cause competitive buying is fun/obsessive?) and some buyers look at the stor retail price and bid on the reserve item at exactly that price (makes no sense to me, but they do it).
Enough people buy the reserve listed stuff at high enough final prices to make these listing worthwhile as "advertising" for the Ebay store items.
By far the majority of our sales are through the store listings, where our listing costs are much, much smaller.
I agree on the market forces description given above - This is our way of "riding both tides" at Ebay.
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Additional forces affecting the Ebay market:
The high number of sellers willing to sell at below adequate retail pricing. It's real hard to maintain a basically retail business when you compete with sellers who have no need or are not knowing what pricing is really needed to maintain a business for the long run.
Also, Ebay's higher and higher costs of selling are depressing the market. Many sellers compensate by adding hidden handling charges that can be much higher than reasonable. Ebay allows handling charges not exceeding the reasonable cost of packing and shipping and such charges must be disclosed in the listing terms, but many sellers regularly violate this policy with hidden charges. Ebay's shipping calculator makes this easier by not disclosing the handling charge component and one has to look real hard for the links to be able to "blow in" a seller charging usurious handling charges.
Our solution to the high Ebay market costs situation is to charge a handling charge to cover part of the Ebay costs, to disclose same and disclose why we are charging it, and to also sell at our own website at the same pricing as at Ebay, but without any handling charge there. We tell our buyers when they complete their Ebay purchase that they can buy these same items at lower cost at our website in the future. This works well for us.
Ebay has become too expensive to be our primary marketplace for the future, but it does make a good source of future website customers.
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It should be noted that there are two different types of items, with very different dynamics: Those with a known value, and those with a perceived value.
CD's such as those by Dixie Chicks, or whoever, have an easily known value that can be determined by simply checking their prices on the Walmart site.
Those and other items with basically known retail prices have final prices relatively independent of their initial prices, and only dependent on the discount from retail that buyers are hoping to achieve. This is why Jay and Marie's model works so well for THEM.
This is totally opposite from the antiques and collectibles market, including vintage books. Though many of these items have 'book values' the typical buyer rarely bothers to look those up. The 'value' of a Georgian sterling silver serving set is simply what prices it has commanded on eBay for the last two weeks. And it is THAT price they are hoping to get a 'bargain' on. And that is irregardless of even if the price was well below melt value.
Penny listings are a sheer disaster in these categories. The PERCEIVED VALUE is automatically cheapened and degraded by such a technique. The rare McCoy Cookie Jar that sells for a penny or a dollar runs the risk of ruining the perceived value of all others of that type. The reason is simple. Unless the buyers are diehard collectors with extensive knowledge of McCoy, (or any other type of item) the typical buyer has no real idea on how much it SHOULD be worth. There is no MSRP to compare against. And so prices plummet in a downward spiral.
There is of course the unusual situation where an item that is not rare in the real world may suddenly become rare on eBay, and with situations where bidders simply find an item desirable enough to fight over it. In that case the perceived value of an item may be many times that of retail. I see that all the time with early editions of many books whose authors were taught at the grade school level, such as Mark Twain. Not really rare, but newbie collectors THINK they are....
It is of course a mistake to combine auction and retail on the same site, and for the reasons cited above.
But a worse mistake has occurred with Alibris with its 'Pricing Service' which compares prices against Amazon, another retail book venue. Amazon is a site with an enormous amount of attic cleaners and flea market people who simply have no idea whatever about the book market. It has been flooded with tens of thousands of penny sellers who hope to make maybe 75 cents off shipping charges per book. Thus a $5 book on Alibris when compared to similar offerings on Amazon, is stated to have a 'value' of maybe 50 cents. Even though Alibris has a minimum price of $2.95. Needless to say, the damage to the book market by simplifying the comparison of two fixed price venues is significant.
In fairness to Amazon sellers, most of those penny books are not even worth the end price fo $3.50 the customer pays, since shipping MUST be factored in. But they wreck the prices of decent and even scarce books frequent enough to be a nuisance.
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G'day Snakey,
I am not recommending that anybody should use penny listings on Ebay, or any other auction venue. I am using that particular example to point out that in a true auction situation the person that can sell the cheapest does not pull the market down or control the market, because in an auction only situation demand determines the actual market value.
Given the broad nature of the market that Ebay accesses, the Walmart price of a CD does not necessarily have a bearing either. The CD I was chasing may have been on the Walmart site for $4.00, I would not know. I DO know that it was not available in any of the record shops here, and was no longer available where I went in Melbourne. I did not look anywhere else on-line, just bid on Ebay when international shipping was quoted (so that I knew the total). If other people are like me, then it is the desirability or personal value of the CD which will determine it's value at auction on Ebay (it is this same reason why I sometimes get more than ABE for books), but a search finding fixed price listings at a lower price *would* change that perception of value to any bidders and affect the market adversely.
Cheers, Kevin
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I agree with a lot of what you say Kevin but I'll weigh in with my past experience.
When EBAY was all auctions and something was popular and common, what would happen is that someone would pick a price they could make a profit on that item and list it 15 times (which I think was the limit EBAY would allow). Sometimes they would have several IDs listing the item 15 times each.
The other option was Dutch Auctions with 100 pieces of each item. Those were listed on a regular basis as well.
So what EBAY would see was an absolute flood of "auction" listings that operated, essentially, like fixed price listing. The biggest inconvenience was that the person could not just BIN but had to wait the 3 days for the auction to end to get their item.
So, IMHO, EBAY figured the easiest way around the flooding of auciton listings was to have BIN and the Fixed price auctions. It hastened the turn around of the product that was moving the quickest.
Now does this screw up the economics of the entire site? Yes it does. But it's my bet that EBAY made more money this way than if they had left it the old way.
It totally screws things up for the one of a kind - rare kind of auction seller. But it opened the way for the steady stream of supply sellers. Of course, the success of EBAY brought those people in droves, which depressed prices to unprofitable levels and now we are where we are.
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my personal opinion is that if an item is being sold at fixed or BIN pricing then the pricing of the item on the fixed or buy it now should be high enough to make most buyers use the auction format
in my case i do this
when i list my dvd's mostly the auction starts around 1.50/dvd in bulk lots with a buy it now of 4 dollars/dvd
this allows for a significant difference in pricing and lets people determine what they are willing to pay
both of these prices allow me a decent profit with the BIN price generally being aimed at those who really are after stock rather then personal supply and i find that for the most part i get acceptable results tho i still seem to be priced a bit higher then most others in my category
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No one has tried to answer my question of why ebay doesn't want to have 2 sites and maximize their gain????
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G'day Cariad,
My estimate is that Ebay does not understand the dynamics of the market that they control, and whilst many of Ebay's policy decisions already dilute the market place and remove competitive bidding, they probably think that splitting the market in two (retail and auction), they would be adversely diluting the marketplace.
Kind Regards, Kevin