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Ilmu Ekonomi Analisis
Bisnis dan Strategi |
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1 (Satu) |
Ebay
: Towards A Perfectly Competitive Market
Joshua Chang, Charles
Sturt University, Australia
International Business & Economics
Research Journal – March 2010 Volume 9, Number 3
Analysis
The fore going features of eBay have been explained to increase the quantity and quality of information for consumer problem solving according to Evans and Wurster‟s (1999) theory of richness and reach in the economics of information. This increased problem solving capability of consumers enabled by features in eBay show that it is moving towards a perfectly competitive marketplace. Previous studies have suggested that the Internet marketplace is more efficient than the traditional marketplace (e.g. Alba et al, 1997; Bakos, 1997; Brynjolfsson & Smith, 1999). The continuous advancement of technology will inevitably improve such market efficiencies and drive toward a perfect Internet marketplace. This information is expected to be of importance to shoppers and merchants on eBay. For shoppers, understanding the features of eBay will provide more efficient shopping in terms of higher quality information and improved decision making under conditions of minimized bounded rationality.
It is important
for businesses that are used to operating in the conditions of monopolistic
competition associated with traditional market efficiencies to strategize for
the upcoming challenges of near perfect market conditions facilitated by hyper
efficient market platforms such as eBay. Marketing strategy formulation can be
improved based on an understanding of how eBay creates „near perfect‟ market
conditions with challenging conditions in the form of lowly dispersed and
market driven prices, wide consumer choice, and diminished advertising efforts.
This would have implications mainly in the areas of differentiation and
positioning strategies by sellers to mitigate the effects of near perfect
market conditions. Further research in this area is recommended to empirically
verify the significance of eBay‟s features in consumer problem solving
imperatives, which will provide a more complete explanation of how eBay
resembles a perfectly competitive market.
The theory that can be used from microeconomic aspects and business
aspects
Market With Asymmetric Information
Asymmetric
information is quite common. Frequently, a seller of a product knows more about
its quality than the buyer does. Worker usually know their own skills and
abilities better than employers. And business managers know more about their
firms’ costs, competitive positions, and investment opportunities than do the
firms’ owners.
Quality
Uncertainty And The Market For Lemons
Suppose you
bought a new car for $20,000, drove it 100 miles, and then decided you really
didn’t want it. There was nothing wrong with the car it performed beautifully
and met all your expectations. You simply felt that you could do just as well
without it and would be better off saving the money for other things. So you
decide to sell the car. How much should you expect to get for it? Probably not
more than $16,000 even though the car is brand new, has been driven only 100
miles, and has a warranty that is transferable to a new owner. And if you were
a prospective buyer, you probably wouldn’t pay much more than $16,000 yourself.
The Market for
Used Cars
Suppose two kinds of used cars are available—high-quality cars and low-quality cars. Also suppose that both sellers and buyers can tell which kind of car is which. There will then be two markets,
THE MARKET FOR USED CARS
When sellers of
products have better information about product quality than buyers, a “lemons
problem” may arise in which low-quality goods drive out high-qualitymgoods. In
(a) the demand curve for high-qualitymcars is DH. However, as buyers
lower their expectations about the average quality of cars on the market, their
perceived demand shifts to DM. Likewise, in (b) the perceived demand
curve for low-quality cars shifts from DL to DM. As a result, the
quantity of high-quality cars sold falls from 50,000 to 25,000, and the
quantity of low-\ quality cars sold increases from 50,000 to 75,000.
Eventually, only low quality cars are sold.
Implications of Asymmetric Information
Our used cars example shows how asymmetric information can result in market failure. In an ideal world of fully functioning markets, consumers would be able to choose between low-quality and high-quality cars. While some will choosemlow-quality cars because they cost less, others will prefer to pay more for highquality cars. Unfortunately, consumers cannot in fact easily determine the quality of a used car until after they purchase it. As a result, the price of used cars falls, and high-quality cars are driven out of the market.
Market failure arises, therefore, because there are owners of high-quality cars who value their cars less than potential buyers of high-quality cars. Both parties could enjoy gains from trade, but, unfortunately, buyers’ lack of information prevents this mutually beneficial trade from occurring.
ADVERSE SELECTION
Our used car
scenario is a simplified illustration of an important problem that affects many
markets the problem of adverse selection. Adverse selection arises when products of different qualities are
sold at a single price because buyers or sellers are not sufficiently informed
to determine the true quality at the time of purchase. As a result, too much of
the low quality product and too little of the high-quality product are sold in
the marketplace. Let’s look at some other examples of asymmetric information
and adverse selection. In doing so, we will also see how the government or
private firms might respond to the problem.
THE MARKET FOR INSURANCE
Why
do people over age 65 have difficulty buying medical insurance at almost any
price? Older people do have a much higher risk of serious illness, but why
doesn’t the price of insurance rise to reflect that higher risk? Again, the
reason is asymmetric information. People who buy insurance know much more about
their general health than any insurance company can hope to know, even if it
insists on a medical examination. As a result, adverse selection arises, much
as it does in the market for used cars. Because unhealthy people are more
likely to want insurance, the proportion of unhealthy people in the pool of
insured people increases. This forces the price of insurance to rise, so that
more healthy people, aware of their low risks, elect not to be insured. This
further increases the proportion of unhealthy people among the insured, thus
forcing the price of insurance up more. The process continues until most people
who want to buy insurance are unhealthy. At that point,
insurance
becomes very expensive, or in the extreme insurance companies stop selling the
insurance.
THE MARKET FOR CREDIT
By using a
credit card, many of us borrow money without providing any collateral. Most
credit cards allow the holder to run a debt of several thousand dollars, and
many people hold several credit cards. Credit card companies earn money by
charging interest on the debit balance. But how can a credit card company or
bank distinguish high-quality borrowers (who pay their debts) from low-quality
borrowers
(who don’t)?
Clearly, borrowers have better information—i.e., they know more about whether
they will pay than the lender does. Again, the lemons problem arises.
Low-quality borrowers are more likely than high quality borrowers to want
credit, which forces the interest rate up, which increases the number of
low-quality borrowers, which forces the interest rate up further, and so on.
In fact, credit
card companies and banks can, to some extent, use computerized credit
histories, which they often share with one another, to distinguish low quality
from high quality borrowers. Many people, however, think that computerized
credit histories invade their privacy. Should companies be allowed to keep
these credit histories and share them with other lenders? We can’t answer this
question for you, but we can point out that credit histories perform an
important function: They eliminate, or at least greatly reduce, the problem of
asymmetric information and adverse selection a problem that might otherwise
prevent credit markets from operating. Without these histories, even the
creditworthy would find it extremely costly to borrow money.
Market Signaling
We have seen that asymmetric information can sometimes lead to a lemons problem :
Because sellers know more about the quality of a good than buyers do, buyers may assume that quality is low, causing price to fall and only low quality goods to be sold. We also saw how government intervention (in the market for health insurance, for example) or the development of a reputation (in service industries, for example) can alleviate this problem. Now we will examine another important mechanism through which sellers and buyers deal with the problem of asymmetric information: market signaling. The concept of market signaling was first developed by Michael Spence, who showed that in some markets, sellers send buyers signals that convey information about a product’s quality.
Guarantees and
Warranties
We have stressed the role of signaling in labor markets, but it can also play an important role in many other markets in which there is asymmetric information. Consider the markets for such durable goods as televisions, stereos, cameras, and refrigerators. Many firms produce these items, but some brands are more dependable than others. If consumers could not tell which brands tend to be more dependable, the better brands could not be sold for higher prices. Firms that produce a higher-quality, more dependable product must therefore make consumers aware of this difference. But how can they do it in a convincing way? The answer is guarantees and warranties.
Guarantees and warranties effectively signal product quality because an extensive warranty is more costly for the producer of a low-quality item than for the producer of a high quality item. The low-quality item is more likely to require servicing under the warranty, for which the producer will have to pay. In their own self-interest, therefore, producers of low-quality items will not offer extensive warranties. Thus consumers can correctly view extensive warranties as signals of high quality and will pay more for products that offer them.
Moral Hazard
When one party is fully insured and cannot be accurately monitored by an insurance company with limited information, the insured party may take an action that increases the likelihood that an accident or an injury will occur. For example, if my home is fully insured against theft, I may be less diligent about locking doors when I leave, and I may choose not to install an alarm system. The possibility that an individual’s behavior may change because she has insurance is an example of a problem known as moral hazard.
The concept of
moral hazard applies not only to problems of insurance, but also to problems of
workers who perform below their capabilities when employers cannot monitor
their behavior (“job shirking”). In general, moral hazard occurs when a party whose actions are
unobserved affects the probability or magnitude of a payment. For example, if I
have complete medical insurance coverage, I may visit the doctor more often
than I would if my coverage were limited. If the insurance provider can monitor
its insurees’ behavior, it can charge higher fees for those who make more
claims. But if the company cannot monitor behavior, it may find its payments to
be larger than expected. Under conditions of moral hazard, insurance companies
may be forced to increase premiums for everyone or even to refuse to sell
insurance at all.
THE EFFECTS OF MORAL HAZARD
Moral hazard
alters the ability of markets to allocate resources efficiently. D gives
the demand for automobile driving. With no moral hazard, the marginal cost of
transportation MC is $1.50 per mile ; the driver drives 100 miles, which is the
efficient amount. With moral hazard, the driver perceives the cost per mile to
be MC = $1.00 and drives 140 miles.
The Principal Agent Problem
If monitoring
the productivity of workers were costless, the owners of a business
would ensure
that their managers and workers were working effectively. In most firms,
however, owners can’t monitor everything that employees doemployees are better
informed than owners. This information asymmetry creates a principal–agent problem.
Managerial Incentives In Integrated Firm
Information about
demand, cost, and other variables. We’ve also seen how owners can design reward
structures to encourage managers to make appropriate efforts. Now we focus our
attention on firms that are integrated—that consist of several divisions,
each with its own managers. Some firms are horizontally integrated : Several plants produce the same or
related products. Others are also vertically
integrated: Upstream divisions produce materials, parts, and components
that downstream divisions use to
produce final products. Integration creates organizational problems.
INCENTIVE DESIGN IN AN INTEGRATED FIRM
A bonus scheme
can be designed that gives a manager the incentive to estimate accurately the
size of the plant. If the manager reports a feasible capacity of 20,000 units per
year, equal to the actual capacity, then the bonus will be maximized (at
$6000).
Asymmetric Information in Labor Markets : Efficiency Wage Theory
When the labor market is competitive, all who wish to work will find jobs for wages equal to their marginal products. Yet most countries have substantial unemployment even though many people are aggressively seeking work. Many of the unemployed would presumably work for an even lower wage rate than that being received by employed people. Why don’t we see firms cutting wage rates, increasing employment levels, and thereby increasing profit? Can our models of competitive equilibrium explain persistent unemployment?
In this section, we show how the efficiency wage theory can explain the presence of unemployment and wage discrimination. We have thus far determined labor productivity according to workers’ abilities and firms’ investment in capital. Efficiency wage models recognize that labor productivity also depends on the wage rate. There are various explanations for this relationship. Economists have suggested that the productivity of workers in developing countries depends on the wage rate for nutritional reasons: Better paid workers can afford to buy more and better food and are therefore healthier and can work more productively.
UNEMPLOYMENT IN A SHIRKING MODEL
Unemployment can arise in otherwise competitive labor markets when employers cannot accurately monitor workers. Here, the “no shirking constraint” (NSC) gives the wage necessary to keep workers from shirking. The firm hires Le workers (at an efficiency wage we higher than the market-clearing wage w*), creating L* Le of unemployment.
Reference
Pindyck, S. Robert & Rubinfeld,
L. Daniel (2013). Microeconomics. Pearson
Education, Inc. New Jersey 07458.
Prentice Hall.
