Analyzing Managerial Decisions: Ebay.Com

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1. How often does eBay create value? eBay creates value by making it easier to sell “For Sale by Owner” items. It makes that world a little bit smaller by bringing together buyers and sellers of many different items to one place. According to our text, as of 2008 eBay operated in 39 countries with 276 million registered users worldwide (Brickley, Smith and Zimmerman, 2009, p.334). eBay also allows users to utilize PayPal, they highly encourage the use of PayPal because it provides free insurance of up to $2,000 (Brickley, Smith and Zimmerman, 2009, p.334). eBay also employees a feedback system that helps buyers and sellers see the ratings of other participants. Both of these features helps to put the buyer/seller at ease to going transactions through eBay. Which in turn leads to value for eBay. 2. What potential contracting problems exist on eBay? A potential contracting problem that exist for eBay would be an informational issue. The fact that the seller on eBay would have asymmetric information on the product that they are attempting to sell could be cause for problems especially if they are selling faulty items or if they are just straight lying about the items they are selling. Our text states that there are two general types of informational problems that arise from contracting, informational asymmetries before contract negotiation and informational asymmetries during the implementation of the contract (Brickley, Smith and Zimmerman, 2009, p. 324). 3. How does eBay address these problems? One way eBay addresses this problem is with The Feedback Forum. It is a place where buyers and sellers can go to leave ratings and comments on other eBay subscribers. The buyers/sellers scores are based on the number of positive and negative ratings they receive and buyers/sellers can review these ratings before deciding to do business with the

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