From the following, we’ll try to unravel the economic mystery behind the giant e-commerce maketplace.
Consumer and Producer Surplus
These are very basic economic terms that ring true all throughout the world market, and for eBay, they are as applicable as ever. Consumer surplus is the difference between the total amount that consumers are willing and able to pay for a good or service (this is how the demand curve is formed). Essentially, consumers and buyers on eBay have a predetermined price in mind that they are willing to pay for a certain item. They place a bid or select the ‘Buy It Now’ option if the actual sale price is less than or equal to their desired price. The surplus comes if the price the buyer actually paid is less than the predetermined price they originally desired before the transaction. Whether you are aware of this phenomenon is a different conversation, but no one ever pays for something at a price they do not want or cannot afford, alluding to the notion that all consumers are rational.
On the contrary, producer surplus is the difference between what producers (eBay sellers) are willing and able to supply a good for and the price they actually receive (this is what shapes the supply curve). As a seller, I certainly wanted to turn a profit, so the price I set was based on the retail price I, myself paid for the good, the research, and the fees that were incurred after each transaction. From these criterion, I set a price that aligned with consumer preference and producer preference. Surplus occured if the item sold went for more than had originally been intended, which is always a good sign!
The change in technology is also a cornerstone of economics. New developments in technology generally lead to increased production levels, which generates more transactions and cash flow. For example, Henry Ford’s implementation of the assembly line allowed for an increase in sheer volume of automobiles manufactured. At first, our eBay business was antiquated: we went to the post office to buy postages, which meant standing in long lines; we did not have an up to date inventory list; and our funds for purchasing goods were not liquidable, as my brother and I often debated over who would buy what. Not only does this create a messy operation, but its also not efficient. To fix this, to alter the technology and processes used, we implemented an organized inventory via Excel that calculated the fees we would incur after each transaction, the profit margins, and the quantity of goods remaining. Moreover, we began to use eBay’s automated shipping service. This saved us countless trips to the post office and it made the postages much cheaper. Lastly, and one of the most significant changes in technology, was our utilization of PayPal’s debit card. Instead of using our own bank accounts to purchase goods, we used PayPal, which was tied to our eBay account, to buy the shoes, Starbucks mugs, etc. This made the quick trips to stores much easier and it made our funds more liquidable.
For any enterprise, an increase in technology is vital. Technology is what enables production to increase and its what fuels the increasing demand in our society.