eBay's Big Business

There was an interesting article I found online discussing the business of eBay. Designed to cut out the middlemen (big businesses), its original goal was to create a place for people to buy and sell unused or unwanted items, with price determined by the consumers' willingness to pay. The idea of the auction allowed sellers to set their price and wait for desperate consumers to engage in a bidding war. While there has always been a buyitnow price, most sales were done through auction as profits tended to be higher. However, new statistics show that the outright sale of items is now more prevalent than auctions. While the website is still has the auction feature, this new wave of fixed-price sales represents the companies move toward any other online retailer. According to the article, more and more companies are using the site as a means of advertisement. I use eBay to purchase all of my school books and most of the time, the books are shipped new from an out-of-state company. Some suggest the this trend is a result of consumer's "buy it now" attitude. While auctions were new and popular years ago, consumers are less patient now. Auctions tend to drive up price and with an auction time of five days, it is impossible to know if you will even win the item you bid on. Furthermore, the site is becoming more and more risky as sellers motives and the actual condition of the product are unknown. And with the economic instability of today, the potential high cost of auctions is not optimal.
eBay protects the buyer but it also protects the seller. While a seller can hope that consumer demand drives the price up, they take a huge risk in selling an item below the cost. For example, if I sell a motorcycle on eBay and no one bids on the bike until the last minute, I run a huge risk of loss as the bike is probably sold way below cost. But, I can set a reserve price to hedge the risk. This reserve price is different than the minimum bid. I don't use eBay that often, so I was curious as to why a seller wouldn't just set the minimum bid equal to the reserve price. I would assume that the low auction price attracts more bidders (possibly some that may not have been extremely interested in the product but the low price attracted them), starting a bidding war, with hope that this bidding war will drive prices way up. Two people bidding on an item that was originally a low price, the auction drives price up, and the bidders have lost interest in the product and focus on the win. Although this might have a little to do with testosterone. Either way, if the auction price does not rise above the reserve price, the seller is not obligated to sell the item.