The Analysis of EBAY - Case Study Example

eBay creates value for buyers and sellers through its online portal where they bring their products and transact with other individuals. Unlike in the marketplace, eBay provides a market space that is not constrained by time and distance. Through internet technology, buyers and sellers from all over the world meet virtually in order to trade their products with each other. In order to ensure the safety and convenience of the participants in each auction that the company hosts, the company has also designed value-added features and services which adds to the value that the customer receives. Thus, aside from bringing buyers and sellers together, eBay also delivers safety to customers by ensuring convenient, fast, and safe online transactions.

Alongside the huge advantages of transacting online are the risks shouldered by the participants and challenges for eBay. The hesitance of individuals to trade their products and services through online portals stems from the fact that unlike in the marketplace, there is a huge information asymmetry in the market space both on the credibility of the participants and the quality of the products which are traded. Thus, numerous contracting problems occur including shipped products that are unpaid, goods that do not meet the expectations of the buyer, joy bidders, and fraud. These contracting problems are typical in the nature of eBay’s business. Since each of the participants in the market wants to maximize his utility by buying unique goods at the same time paying the least for the products which he thinks have higher value while the seller wants to get the best possible money from his commodities, both could have the intention of outdoing each other because of information asymmetry.

Aside from bringing buyers and sellers together, eBay also enhanced its portal with value-added services and features which eliminate fear and assure each participant of safe, reliable, and convenient transactions. As mentioned in the case, the Feedback forum is available for everyone who would like to have a thorough understanding of the credibility of a participant. In order to ensure that buyers are getting their money’s worth, each buyer or seller is also provided with “insurance.” The company also established SafeHarbor to identify, investigate, and take corrective actions on fraud and another misuse of the company’s services. eBay’s partnership with i-Escrow provides security to payments made. All of these value-added features enhance the value delivered to the company’s services.

The contracting problems identified above that eBay wants to eliminate pressures the business organization to shell out financial resources in order to provide solutions. As discussed in the previous paragraphs, eBay has been keen on identifying the contracting problems in its system and is committed to eliminating these in order to ensure the satisfaction of auction participants. However, in so doing, it also needs to make particular investments that require financial resources. All of these efforts stem from the company’s aim of making trading safe and convenient for virtual buyers and sellers.

In order to establish the safety of transactions, eBay needs to create an image of security and back this through collaborating with other industry participants. For example, the company has announced that only electronic payments will be accepted in order to counter problems of non-payment and damaged items. This requires the cost of collaboration with banks and credit card operators. The insurance paid in each “less successful” transaction also requires monetary expenses for eBay when these situations occur. The company’s tracking of fraud and deceptive emails also entails the cost of hiring workers to monitor each and every transaction in every portal. These contracting costs become major costs that the company incurs in order to ensure that its intended customer value will be delivered efficiently.

The reports showing that eBay only has a small problem with fraud and misuse of the system signals that the business organization still needs to address problems that are not presently solved by its control system. Because of the “small problems” which are still encountered by some of its customers, the company is hindered in delivering the value that it intends to. However, this does not necessarily mean that eBay is underinvesting. The company’s numerous solutions to solve contracting problems can be seen as enough however, eBay might not be so efficient in using these tools. Thus, it is recommended that the company delve further into what could be causing these problems. Is this misinformation in the case of participants? Is the portal user friendly enough? Are its partners working out their intended responsibilities? These questions should always be asked before making a decision.