Wednesday, May 21, 2008

Perfect Competition and Ebay Sellers

In my intro to economics class, I teach my students a standard economic theory. That usually when anyone can sell something, then in the long run profits for a business will go to zero. These situations are called perfect competition.

I have often thought about perfect competition and Ebay. I would guess most (at least 90%) of the stuff sold on Ebay is not made by the person selling it. Since anyone in the US can pretty much sell stuff on Ebay, if there are profits to be made more people will start selling things on Ebay. When more people start to sell, the price of the good sold will generally fall until profits are zero.

Daniel Gross at Slate has an article today about how Ebay claims that 1.3 million people a year make their living off of Ebay and most of these people are in the US. Like Daniel Gross, I’m skeptical of this figure, it looks like the actual figure is referring to people who make their fist or secondary income from Ebay. What percentage of those people actually earn enough to live on from Ebay is hard to pin down.

In graduate school, I sold coins on Ebay for my father in law. I think the amount I made was something like 10% of my graduate school stipend. Having sold about 50 items on Ebay and not having to get my own merchandise, my guess is have to find just the right niche or have some special ability to find stuff at garage sales to make a living at Ebay.

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