FreeBay? When eBay Works Well

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Last week, my All
Hail eBay
article explored a theory that eBay is one of the
three worldwide phenomena that keeps prices relatively low in this
arguably inflationary environment we find ourselves in.

Those three phenomena are:

  1. China
  2. Wal-Mart (China’s outlet mall)
  3. eBay

I suggest that, other than government intervention which might
in the short term falsely keep prices in check, these Big Three
items impact the world’s prices today and put tremendous downward
pressure on prices we pay as consumers.

(For those who wrote to me saying China is not as free as it ought
to be and steals American jobs, I certainly agree with the first
half of your assertion. That doesn’t change China’s impact and we
must consider that worldwide impact as it affects our futures in
unimaginable ways for good and for bad.)

Today I want to look at how eBay offers all of us a nice market
experience — similar to a free market in so many ways.

Next week, I’ll visit the drawbacks of eBay that make eBay a very
nasty market indeed. That will be the longest article because eBay
has lots of problems. For free-market lovers (and what regular
reader isn’t?), eBay can be devastating from a market perspective.
I’ll let my cynicism run wild while I explore the bad things about

I’ll preview that final conclusion now, a week in advance — I love
eBay. If you don’t sell some things on eBay every once in a while,
you’re leaving money on the table. In spite of its problems eBay
has helped make us wealthier and eBay can do the same for you too.
But go into eBay with your eyes open or you’ll constantly experience


As I explained last week, I am no Economist so what I write will
be clear and understandable. (I might be inaccurate but I’ll be
understandable, unlike the Economists who fail on both counts.)

The Market Size

eBay is the "world’s largest garage sale." Unlike items
you might sell at your local garage sale, yard sale, or swap meet,
you’ll have potential buyers from every corner of the world scouring
through your goods. The massive population of buyers, and the relatively-low
price of shipping (depending on service and speed) removes most
geographical boundaries. The people looking at your stuff at the
local swap meet might number 100. The number can reach over a billion
for those looking at your eBay auctions.

Buyers complain that eBay’s size and globalization makes it impossible
to find a deal. I disagree. It makes it more of a challenge but
it doesn’t make it difficult.

If you’ve experienced frustration in losing to other bidders, you
need to locate items you want whose auctions end in the middle of
the night when others are sleeping. Also, look for misspellings
of words in titles (one of the best tools for this is Adam
Ginsberg’s Misspell Generator
due to its huge feature list and
low price). Most important, use a bid sniping service that will
drop into an auction and bid for you in the final seconds, bidding
up to whatever amount you approve in advance. Every veteran eBayer
has their favorite snipe service. I happen to think
is the best on the planet, not only because
gives you free snipes just for trying it but also because you don’t
pay if they don’t win for you, they’ve been in the business a heck
of a long time, and
doesn’t require a credit card number just for trying their service.

With the tools I suggested above, you can actually buy items on
eBay and turn around and resell them on eBay and make a profit.
Such arbitrage might not be as plentiful as it used to be but it’s
not as difficult as you might think.

My life currently revolves around selling. (It’s my wife who is
the buyer…) As a seller, I’d rather have a potential market of
billions than 100 at my yard sale. Generally, all things being equal
(I just had to say that), the more bidders I have the higher my
prices can be. It’s those darn competitors selling next to me on
eBay that makes things more difficult.

Price Is Everything

Are markets efficient? Efficient Market Theory suggests
that market participants know and act on all information related
to their market the moment that information is available.

One opposing theory is the Random Walk Theory that says
market prices are random and are not affected by factors such as
knowledge of prices, supply & demand, or past performance (historical

The Efficient Market Theory at first appears to be closer to the
truth, logically, than Random Walk Theory, but both have problems
and a lot of them. Most markets are somewhere between those two
extremes. (Oops, sorry for sounding like an Economist. I’ll try
to watch that.)

On eBay, I suggest that prices are extremely efficient because
price information is immediate and accurate. At any point in time,
you can find the lowest price for any item. Some "white noise"
exists that affects searches to keep this from being perfect but
knowledge of price is close to perfect at any given time on eBay.

This near-perfect price information forces constant downward pressure
on prices. If I’m selling something that others are selling, I know
that all buyers are privy to the fact that somebody else is selling
it lower than I am. So it behooves me to offer competitive pricing
every time I list an item.

That doesn’t always mean I must have the lowest price. My prices
can be higher:

  1. If I’m perceived to be a seller with a better track record than
    many others (I am).
  2. If my shipping costs are lower than others’.
  3. If I want to take a chance on getting a rushed buyer who doesn’t
    spend time looking elsewhere
  4. If I offer some kind of bonus.

Therefore, just like free markets, the low price does not always
win the sale. But it’s the availability of that price information
that generally requires sellers to keep prices low or offer benefits
that garner higher prices.

eBay’s Not All About Auctions

If you’re fairly new to the eBay concept, you might not know that
eBay is not just an auction site. I’ve heard — but I doubt the high
percentage — that as many as 40% of all eBay listings are fixed-price.
These are often called Buy It Now (BIN) auctions. They aren’t auctions
at all. I might list a DVD for $19.00 in a BIN format. Nobody bids.
Whoever comes up with $19 and clicks to buy my DVD "wins"
that DVD.

With BIN auctions (that aren’t really auctions), the stated price
is critical. You are tossing out a price you’ll take in the midst
of hundreds and possibly thousands of competitors. If that doesn’t
humble you up quickly, nothing will. Adam Smith’s invisible hand
works wonders on slapping me right out of the buyer’s corner if
I cannot beat my competitors on price or shipping or service of
some kind. I might still make a sale, but it will often be to an
eBay newcomer. I sell to new eBayers all the time, but there is
a slightly higher risk because their payment history is unknown
and the odds are such that I’ll have to deal with a non-payer slightly
more often than when dealing with buyer with better eBay track records.

eBay allows you to combine auctions into a hybrid format where
an item has a Buy It Now price and a starting bid amount. I might
offer a DVD for $19 in a Buy It Now as well as make it an auction
with a starting bid of one penny. If someone clicks to buy it for
$19, the auction ends. If, instead, someone bids one cent, the Buy
It Now price goes away and the auction stays active until the auction’s
time limit (typically exactly 7 days) expires and the high bidder
(or very smart sniper!)

History Often Repeats Itself

The eBay feedback system is loved and hated, often by the same
people. When an auction ends, no matter what format that sale takes
on (BIN, etc.), the buyer has 60 days to leave positive, neutral,
or negative feedback for the seller. The seller has 60 days to leave
positive, neutral, or negative feedback for the buyer.

The more feedback you get, the more eBay transactions you’ve been
involved with and the more buyers and sellers know about your eBay

As a seller, I generally leave feedback the moment a buyer pays
for an item. If it’s a newcomer to eBay, I might wait for a check
to clear and other extenuating circumstances might require a wait
before I leave feedback, but generally I leave it the moment the
proper amount is paid. This means I’m taking a chance. Because buyers
don’t often leave feedback until they receive an item. If I leave
positive feedback, the buyer can leave negative feedback just because
he’s a jerk. If he wants.

That doesn’t usually happen.

But hasn’t the buyer done 100% right the moment the payment clears?
And if I don’t do my job as a seller, for example if I send damaged
merchandise or if I didn’t describe the item accurately, I deserve
something for that misrepresentation. Now to be fair to the sellers,
most of whom want to treat their buyers very well and honestly (repeat
business builds empires), I hope that if a buyer finds any problem
with the transaction, that buyer tells me the problem and gives
me a chance to make it right before posting negative feedback on

I could go on about feedback, but it’s my goal here to present
the eBay feedback system in the light of a free — or not-so-free
— market. As you can see, again it’s like eBay’s near-perfect price
information. Other than a few dishonest or sloppy buyers and sellers,
a feedback rating comprised of the number of positive vs. negative
feedbacks, goes a long way to showing a potential bidder how happy
they will be with that transaction.

Before I bid on anything, I make sure the seller has been on eBay
a while and has a track record. Well, that’s not completely true.
One item I recently purchased with the sole goal of reselling immediately
upon receiving it (a Dan Kennedy marketing course) was from a brand
new seller with zero feedback. Hardly anybody showed an interest
in this item because the starting bid was $99 and the seller had
no track record. I knew the item could bring close to $500 so I
watched it. In the final second or two before the auction expired,
a sniping service (I’m sure it was
but it’s been a few months and may have been before I learned about‘s benefits
such as its especially strong privacy statements) bought it for
me. For $151.

I was taking a chance because a seller with zero feedback is risky
and deserves to get less for their auctions until they prove themselves.
(We’ve all had zero feedback at one time, it doesn’t take long to
build a more respectable rating.) But the auction’s wording had
a ring of truth to it. The seller obviously had been to that very
seminar and had gotten the tapes as a bonus to being an attendee.
Maybe the seller was a good liar but I didn’t think so.

Would I have been angry if I got beat out of that $151? Certainly.
But I went into it with my eyes open knowing the risk and return.
I knew what the item was worth and I knew the risk I was taking.
The seller shipped the seminar to me the moment he received my payment.
I resold it for more than double what I paid.

Near-perfect price and seller history information can be very profitable.

Winding Down

I could go much deeper into eBay’s free market elements. I’ve only
skimmed the surface. Many will write to me (and I want to hear from
you!) to tell me all kinds of ways that eBay mirrors a free market.
I know most of them but readers shouldn’t be exposed
to too much of my writing in one sitting or they’ll sprain their
brains. Understandably.

I have a feeling, however, that many of you will write and tell
me all the ways that eBay is bad. A lousy service. A horrible Expensive
Market as opposed to a Free Market. I welcome your comments the
most. I’ll agree with most of them I’m sure.

I said, the elements that keep eBay from being a real free market
makes it a nasty market. It’s more fun to write about those problems.
And I will in this series’ concluding article in a week or so. I’ll
once again preview my conclusion though — in spite of its problems,
I’m an avid eBay fan. I suppose it’s because of the huge amount
of money it makes me. 475,000 eBayers now make a full-time living
on eBay. I am close to becoming one of them. In spite of my success
as an author, eBay is a lot more fun and a lot less work.

If eBay isn’t a free market, and it’s not, the near-free market
aspects that I described above are enough by themselves to make
me a fan.

16, 2005

Perry [send him mail] might
be the earth’s most prolific computer book author with more than
75 titles but his passion is eBay. That’s because he’s so successful
there. If you’ve ever considered eBaying something, you’ll make
far more money when you read his newest book, eBay
eXtasy – The “Secret” to Why Buyers Will Happily Pay an EXTRA 99
(or More) for Each Item You Sell

Perry Archives

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