Steve Woda's blog

What is a "Market for Lemons"?

I have had a number of eBay merchants write me about a post that I made earlier this week suggesting that eBay seems to be displaying the early signs of a Market for Lemons problem (Some would argue it is far beyond the beginning stages, but I will let you debate that with your comments below).

Without focusing on eBay or eCommerce in general, it has been requested that I illustrate a simple example of how a "Market for Lemons" develops.  Obviously, there is a lot of academic research on this subject (I posted a Wharton case study by Dr. Eric Clemons earlier this week, and you won't want to miss it since it discusses eBay's challenges in greater depth.), and almost everybody has heard the "Market for Lemons" term utilzed at some point.  Wikipedia provides a basic overview of the Market for Lemons economic concept, so I won't regurgitate what you can read elsewhere.

In short, the "The Market for Lemons: Quality Uncertainty and the Market Mechanism" is a paper written by George Akerlof in 1970 that describes what happens to markets that suffer from information asymmetry problems.  Ultimately, Dr. Akerlof won the Nobel Prize for Economics in 2001 (along with Michael Spence and Joseph Stiglitz) for his analysis of markets with information asymmetry.  While I was at Wharton, I was fascinated by the implications of this research on eCommerce marketplaces.

What's Wrong With eBay? It's Simple Economics

What's wrong with eBay?  Before I answer this question, you should download this Wharton case study by Dr. Eric Clemons of The Wharton School, University of Pennsylvania.  Dr. Clemons is one of the world's most renowned experts on information economics, and this case study is currently being taught at Wharton this semester.  It goes into great detail discussing eBay's current challenges, and I believe you will find it insightful.

Okay back to the question...  What's wrong with eBay?

How Do You Sell Profitably on eBay?

I have been writing quite a bit lately on eBay, and on the developing stories of lagging buyer demand and poor seller economics.  Every data point suggests that it is tougher to sell profitably on eBay these days, but it isn't impossible.  There are eBay sellers making a nice living on eBay, and in general terms, the key is to differentiate yourself, to sell products where there is limited competition, and to operate very efficiently.

eBay Sellers Leaving eBay to Sell Elsewhere

Yesterday, I mentioned some very interesting research that AuctionBytes recently completed with a survey of more than 1,000 eBay merchants.

The most interesting finding is that eBay sellers are leaving eBay's platform very quickly.  The chart below details where merchants are currently selling their product, and where they plan to sell product 6 months from now.  There is a massive 64% decrease in the number of sellers planning to sell on eBay 6 months from now versus today.

Google Planning Product Search for Holidays

The Professional eBay Sellers Alliance (PESA) held its semi-annual gather in San Francisco this past week.  The PESA Summit 2006 was a huge success with many of eBay's largest sellers in attendance in addition to many of the most important companies in ecommerce.  buySAFE has sponsored every PESA Summit since the group's inception in 2004. 

Although the group includes eBay in its name, most of these merchants are actually multi-channel retailers seeking to sell product whereever they can make reasonable profits.  These days, that actually means eBay sellers want to sell off eBay.  AuctionBytes has recently produced some very interesting research on the trend to move beyond eBay.  ChannelAdvisor's Scot Wingo covered eBay's challenges on his blog last week as well  I will be writing more about this trend over the coming days because it is obviously important for all of us in ecommerce.