Since I wrote my original call for the regulation of eBay, I've occasionally looked back on it and wondered if I was too harsh. eBay has now helpfully assured me that they'll keep abusing their monopoly position given the opportunity. (Backup link.) As of next month, sellers can't accept payments by check or money order. It's cash-on-pickup or online only. Want, say, Google Checkout? "Google's and Amazon's products and services compete with eBay on a number of levels, so we are not going to allow them on eBay." That's a surprisingly honest statement that they're using their monopoly in running auction to leverage and advantage in the unrelated area of payment handling. eBay are scum. At this point my primary hope is that they screw up badly enough that they implode, creating a vacuum for real competition. Unfortunately their monopoly power is so great that the screw up would need to be mind-bogglingly large.

(Via Slashdot.)

It's time to regulate eBay.

I don't like it. I'm never happy when government needs to step into the free market. But the free market isn't the magical fairy that many think it is. Sometimes the free market fails, badly, and needs to be smacked around until it behaves. Monopolies are just such a failure. eBay is a monopoly, a natural monopoly at that. Worse, eBay is abusing their monopoly position.

Online auctions are a natural monopoly. As a seller, you want to sell your product to the largest number of buyers possible. More buyers means more potential bidders, more potential bidders means higher sales prices. And of course buyers will flock to the location where there are more sellers; you're more likely to find what you're looking for. It's a feedback loop, the network effect. The only places where eBay has competition are places where eBay has chosen to exit the market. Thus, there is competition in online gun sales, but not for most other areas.

Okay, so eBay is a natural monopoly. That doesn't mean they're abusing their position. but they are. First, the pricing. In a properly functioning free market, the cost for a good or service will be just a bit above the cost to provide the good or service. If the price is higher than that, someone else should step in as competition. Of course, if you have a monopoly, it's not feasible for someone else to step in. For eBay, this is obviously nonsense. Let's say I want to sell an old magazine. I list it for $1 minimum and it sells for $5. (This may sound silly, but I have in fact purchased an old magazine for $5.) eBay charges $0.68 for this. That doesn't offend me too much. I'm prepared to believe that it will cost eBay something aroud $0.68 to carry my listing. Okay, but now I've got a more expensive book, I list at $15 and sell at $25. Now eBay wants $2.53. What more did ebay do for that extra $1.85? Absolutely nothing. That's damn near free money. Some of real value, like a rare book, listed at $50 and sold at $100? eBay enjoys $7.69, overwhelmingly profit. Must be nice. A real life auction house can at least make some claim to charging a percentage; you're paying for security and authentication of the item. The auction house acts as an trusted escrow agent, ensuring that the buyer pays up and that what is being solid is what is delivered. eBay provides none of that. eBay views your $5 book and your $100 book the same; they give it same amount of effort, almost none. If something goes wrong, it's all your problem, eBay washes their hands.

This by itself seems deeply suspicious. But far more damning is their decision to force users to use an unrelated service, PayPal. In the UK, you must accept PayPal in some categories, and can only accept PayPal for video game consoles. In Australia, you must accept PayPal, period. Come June 17 in Australia, it's PayPal, cash on delivery, and nothing else. In the US, sellers are specifically forbidden from using competitor Google Checkout.

This is abuse of monopoly, nothing more. They've proven they can't play nice with their natural monopoly, so they deserve to be regulated.