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adage/news.cms?newsId=36528

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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  1. http://www.adage.com/news.cms?newsId=36528

  2. Group Ten Presents:http://www.adage.com/news.cms?newsId=36528 Emory Redd Abby Weaver George Chambers

  3. 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

  4. 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

  5. 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.

  6. 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

  7. 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.

  8. 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

  9. 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

  10. 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

  11. Human Capital Example Meg Whitman, CEO of eBay • Previously a Hasbro marketing director • This is Specific Human Capital

  12. Human Capital continued Meg Whitman, CEO of eBay • Economics degree from Princeton MBA from Harvard • These are examples of General Human Capital

  13. 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.

  14. 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

  15. 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

  16. 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

  17. Financial Markets Stock prices and demand curves • Shares of stock are scarce • The supply of eBay shares is fixed P s Q

  18. 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?

  19. 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

  20. As P increases, so does Q Directly proportional The Law of Supply P S Q

  21. The Law of Supply • The supply continues to increase • More and more sellers

  22. Ceteris Paribus Factors for Supply • Input Prices • Number of Sellers • Expectations of sellers • Prices of Alternative Goods • Technology

  23. 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

  24. As P increases, Q decreases Inversely proportional The Law of Demand P D Q

  25. The Law of Demand • With increasing reserve prices, the demand for eBay products decreases

  26. Ceteris Paribus Factors for Demand • Income • Number of consumers • Expectations of buyers • Prices of related goods • Tastes

  27. 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

  28. 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

  29. 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

  30. An increase in supply causes new equilibrium with higher prices Example of Equilibrium Change P S D1 D Q

  31. 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

  32. 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

  33. 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

  34. 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

  35. 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.

  36. Any Questions?

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