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http://www.adage.com/news.cms?newsId=36528. Group Ten Presents: http://www.adage.com/news.cms?newsId=36528. Emory Redd Abby Weaver George Chambers. eBay Outline: Group 10. Consumers Budget Lines : Weaver Law of Diminishing Marginal Utility: Weaver Advertising: Weaver

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group ten presents http www adage com news cms newsid 36528
Group Ten Presents:http://www.adage.com/news.cms?newsId=36528

Emory Redd Abby Weaver George Chambers

ebay outline group 10
eBay Outline: Group 10
  • Consumers Budget Lines : Weaver
  • Law of Diminishing Marginal Utility: Weaver
  • Advertising: Weaver
  • Opportunity Cost: Weaver
  • Monopoly: Redd
  • Human Capital: Redd
  • Financial Markets: Redd
  • Supply/Demand of eBay: Chambers
  • Marginal Revenue: Chambers
history of ebay

History of eBay

Founded in 1995 by Pierre Omidyar

Bills itself as “The world’s online market place”

“Our mission is to build an online marketplace that enables practically anyone to trade practically anything anywhere in the world”

1998: 300,000 users; and $200 million in gross merchandise sales

2002: 42,000,000 users; $9 billion gross merchandise sales

does ebay chan g e consumers budget lines

Does eBay change consumers budget lines?

A decrease in the price leads to either a rightward rotation of the budget line or causes the budget line to rotate upward, leaving the horizontal intercept unaffected.

When the price of a good changes,

the budget line rotates:

Both it's slope and one of its

intercepts will change.

utility and marginal utility
utility is the pleasure or satisfaction obtained from consuming goods and services.

Marginal utility is the change in utility an individual enjoys from consuming an additional unit of a good.

As consumption rises, so does total utility.

Marginal utility falls as consumption rises, indicating that each additional unit provides less additional utility than the previous unit did.

Utility and Marginal Utility
law of diminishing marginal utility
Law of Diminishing Marginal Utility
  • As consumption of a good or service increases, marginal utility decreases.

Survey Results: satisfaction and usage will increase as eBay becomes more popular.

slide8
To the Consumer:

* time spent searching for an item

* time spent waiting for the bid to end

* shipping costs

* mailing time

To eBay:

* eBay relocated to Delaware in April 1996 to avoid the high taxes that California was charging. All of the money spent moving could have been used better elsewhere.

Opportunity Cost

slide9
Amazon.com CEOJeff Bezos

Singing Dancing"Do It eBay" Guy

Advertising

  • In 1999, eBay paid AOL $79 million to promote its auction site
  • After which eBay reported $24.6 million in cash earnings
  • In 2002, sales and marketing expenses for eBay totaled $73.1 million, or 30% of net revenues.
  • The actor on the eBay commercial resembles Jeff Bezos, Amazon’s CEO
human capital
Human Capital

Employees have both General and Specific Human Capital

General Human Capital

Knowledge or training beneficial to many firms

Specific Human Capital

Knowledge or training beneficial to only one firm

human capital11
Human Capital

Example

Meg Whitman, CEO of eBay

  • Previously a Hasbro marketing director
  • This is Specific Human Capital
human capital12
Human Capital

continued

Meg Whitman, CEO of eBay

  • Economics degree from Princeton

MBA from Harvard

  • These are examples of General Human Capital
is ebay a monopoly
Is eBay a Monopoly?
  • eBay has a few direct competitors

-Yahoo Auctions

-Amazon.com

-Many specialized Auction sites

  • Cost of entry into the eBay’s market is low.
is ebay a monopoly14
Is eBay a Monopoly?
  • “We expect competition to intensify in the future as barriers to entry into these channels are relatively low, as current offline and new competitors can easily launch online sites at nominal costs using commercially available software”

- eBay 2002 annual report

is ebay a monopoly15
Is eBay a Monopoly?
  • eBay’s competes directly with anyone who offers shop-at-home service
  • eBay competes indirectly with any retailer of similar goods
is ebay a monopoly16
Is eBay a Monopoly?

Characteristics of eBay’s market:

  • A heterogeneous product
  • A downward sloping demand curve
  • A large number of participants
  • Easy entrance and exit

It’s a Monopolistic Competition

financial markets
Financial Markets

Stock prices and demand curves

  • Shares of stock are scarce
  • The supply of eBay shares is fixed

P

s

Q

financial markets18
Financial Markets
  • The demand shifts to the left or right

P s

d

Q

  • Closing price (4.14.03) : $87.74
  • 52-week range: $49.25 - $91.41
  • 5 Year range: $4.21 – $127.50
  • What causes the demand curve to shift?
financial markets19
Financial Markets

Causes of demand curve shift

  • Analyst Reports
  • Annual and Quarterly Reports
  • In practice, market price fluctuations are not traceable to any one thing
the law of supply21
The Law of Supply
  • The supply continues to increase
  • More and more sellers
ceteris paribus factors for supply
Ceteris Paribus Factors for Supply
  • Input Prices
  • Number of Sellers
  • Expectations of sellers
  • Prices of Alternative Goods
  • Technology
a shift of the supply curve
change in nonprice determinants

Shift to the right increases supply, shift to the left decreases supply

A Shift of the Supply Curve

P

S

S2

S1

Q

the law of demand25
The Law of Demand
  • With increasing reserve prices, the demand for eBay products decreases
ceteris paribus factors for demand
Ceteris Paribus Factors for Demand
  • Income
  • Number of consumers
  • Expectations of buyers
  • Prices of related goods
  • Tastes
a shift of the demand curve
Change in nonprice determinants

Shifts to the right increase demand, shifts to the left decrease demand

A Shift of the Demand Curve

D2

P

D

D1

Q

supply demand market
Together, supply and demand form a market with an equilibrium price

The market for eBay is imperfectly competitive

Supply + Demand = Market

S

P

E

D

Q

equilibrium
Equilibrium
  • Once equilibrium is established, it will remain there unless an external factor changes
  • When things change, they either effect supply or demand resulting in a new equilibrium
profit maximizing
What is the main goal for a firm like eBay?

To maximize profits

Two kinds of Profit

Accounting Profit

Total revenue minus accounting costs

Economic Profit

Total revenue minus all costs of production

Profit Maximizing
which profit is more important
Which Profit is More Important?
  • Understanding economic profit helps better understand the firm’s actions
    • If you understand economic profit, it is possible to understand why eBay uses price discrimination
what output level should ebay operate at
Where marginal cost equals marginal revenue

Where the MC and MR curves intersect

Operating at this level will maximize profits

What output level Should eBay Operate At?

DOLLARS

MC

2.7 Billion

MR

Output

price discrimination
Price Discrimination
  • eBay also uses price discrimination to maximize profits
    • eBay incurs the same costs for everything they post to be sold, but charge different rates to the sellers
conclusion
Conclusion

eBay has become the number one auction site. It has 5.6 million registered users and more than 12 million items for sale at any one time. In 1999, they moved $2.7 billion in merchandise revenue which nearly doubled Amazon’s $1.4 billion. eBay has been on its way up since they first started in 1995. It has successfully reached the top and continues to grow.

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