THE first item sold on eBay, an online marketplace, was a broken laser pointer, which was snapped up for $14.83 in September 1995. By 2002 eBay had hosted nearly $15 billion of transactions and had more registered users than Britain had people. Yet the fad for online auctions faded almost as quickly as it appeared. Only 20% of sales on eBay, which turns 20 on September 3rd, now involve auctions.
At eBay’s inception, users could sell things only by auction. This was tremendously exciting for economists, who love the things for their ability to magic prices out of thin air and to allocate goods efficiently by determining who values them most highly. The main obstacle to holding auctions is the cost of bringing together enough interested buyers and sellers. But eBay made connecting buyers and sellers cheap. Without it, that broken laser pointer may well have languished unsold.
EBay also benefited from a first-mover advantage. Buyers want to go where there are lots of competing sellers, and sellers will flock to wherever they can find the most eager customers. The size of eBay’s network was its own, self-perpetuating...
from The Economist: Finance and economics http://ift.tt/1MQlOGW
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