Microeconomics Case Study

Perfect Competition under eBay: A Fact or a Factoid?

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Abstract:
This case study has been primarily written to understand the concept and operation of perfect competition in a real world. This case study articulates a well orchestrated debate on the possibility of existence of perfect competition. eBay, founded by Pierre Omidyar, a software developer, in September 1995, is the online auction giant which flaunted its first mover advantage spectacularly. It is an American website headquartered in San Jose (California) and acts as the world's online marketplace facilitating large scale trade of varied items globally. Perfect competition is an ideal market structure rarely found in the real world, which is a receptacle of imperfect competition. However, many important features of perfect competition like large number of buyers and sellers, information symmetry, low barriers to entry and to some extent homogenous products manifest in eBay’s business. But whether eBay may truly be considered as a good example of a company operating in a perfectly competitive market awaits understanding of a few basic issues that would arise as the case comes under interesting discussion that it merits.

Pedagogical Objectives:

• To understand the various characteristics of a perfectly competitive market structure
• To understand the condition for equilibrium in a perfectly competitive market.

Keywords : Perfect Competition, Characteristics of Perfect Competition, Pure Competition, Firm and Industry, Price and Output Determination in Perfect Competition, Normal Profits, Super Normal Profits, AC=MC=MR=Price, Free entry and free exit, Price Taker, eBay, Auction Markets, Online Auction Market, Imperfect Competition, Market Structures, Managerial Economics, Microeconomics, Economics for Business, Business Economics, Economics for Managers, Paul Samuelson