It is eBay’s own fault

Following on from my post yesterday based solely on the ACCC media release, I have now had a chance to read the ACCC’s determination. The ACCC is fairly agnostic on markets and notes that it disagrees with a key assumption of eBay’s that I will explain shortly. Ironically, it is the ACCC who is assessing that consumers have greater sovereignty in this domain.

But what got me is eBay’s submission. On the market it operates, it submitted that:

due to the complexities of the two-sided markets in which eBay and PayPal operate, it is not possible to form a definitive view of the likely markets in which eBay and PayPal respectively operate.

What? They don’t know their market? How could this be? So let me help: eBay provides a service matching buyers and sellers. Others do this, for instance, Trading Post, newspapers, the YellowPages and Google. To name but a few. Now if you restrict attention to matching services on-line, it looks like eBay has a lion’s share of this market (at least when you exclude cars and houses). And because of network effects, it has got an almost unassailable market position there.

So what about PayPal? eBay appears to argue that it competes in the market for online payment services and that it has no power there. Well, normally if this is the case, when someone requires use of a particular payment instrument, they lose a ton of their customers. But in this case, eBay are betting that by requiring PayPal this will not happen. Indeed, the whole issue of fraud protection is an argument that their transaction volume would increase. So they have power there to some extent.

Now what happens when there is such an exclusivity arrangement? Well, eBay need to show some benefit. They claim that sellers nominate the payment instrument and so choose the one with the lowest costs to them. But apparently, eBay claims they are stupid and choosing the wrong ones (p.19 of the ACCC report, paraphrased). So a seller stuffs up, a buyer is irritated and never uses eBay again.

But herein lies eBay’s problem: the solution to this issue is surely not to ban other payment instruments. Instead, they need to internalise the supposed externality by dropping the fees for using PayPal (so sellers will optimally choose it) and at the same time, if they want (as they can get away with it), increasing the fees for selling on eBay. You don’t need to ban other payment instruments to redress the supposed failure of cognitive or other processes.

So the upshot of this all is that, while I think that the ACCC’s rhetoric in its press release yesterday was misplaced given the powers they do actually have, eBay’s case to the ACCC is, at best, underdone and, at worst, simply woeful. I cannot see any public benefit that could not have been achieved by simply making PayPal a more attractive option for eBay sellers. Great move eBay: effectively call your customers stupid and restrict their choice and then be surprised when they are upset.

5 thoughts on “It is eBay’s own fault”

  1. I think it is amazing that ebay is forcing its users no consumer choice on payment method. It should be up to the consumer to decide what payment method they accept or if they are willing to pay that way.

    The security side is the only side I see as an improvement from ebay’s perspective, however that is already present. So why are users going to be forced into using Paypal.

    Extra revenue for ebay?

    Rgs
    Roy
    http://www.auctionzone.com.au

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  2. Joshua,

    You write “… the whole issue of fraud protection is an argument that their transaction volume would increase. So they have power there to some extent.”

    PayPal is not immune to fraud. Eventually PayPal re-paid my $3000 but there was no way they would explain how the fraudster got around their system.
    Regards
    Gordon Alderson

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  3. Most of this boils down to the fact that eBay’s PayPal unit makes an additional 2%-10% out of the Sellers Total Profit (on top of eBay’s Profit).

    This eBay/PayPal Profit Calculator will show you this much more clearly.

    http://pheebay.com/1/?eBayALTERNATIVESPheeCalculator

    Australians Payment-wise are much more independent than their American/British/Canadian counterparts. About half of eBay AU Ozzies do not like or use PayPal. By forcing PayPal on the rest of the eBayers who refuse or don’t use PayPal, this equates to a ton of Pure Profit to the American eBay Inc. Per Year. If Australia caves in and allow USA eBay Inc. to monopolize their PayPal unit to handle payments in effect only, it will allow eBay to try the same in other Countries.

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  4. And PayPal only makes eBay safer for buyers by making it less safe for sellers – PayPal is quick to take money back and freeze seller accounts, which can cripple a seller’s business.

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