Issues And Challenges

eBay, a person-to-person trading community based on an efficient and online democratized market, has been the dominant player in the e-commerce and online auction industry mainly due to its unique business model and success. Over the life of eBay, they have encountered numerous obstacles and spent millions on tackling fraud, challenging political, cultural, legal and community criticism which they still face to this present time.

Political and culture difficulty

In today's era of globalisation, eBay as a multinational online company will need to expand and enter into other markets in order to maintain its competitive advantage and to stay as the world biggest online auctioneer company. However, this has not been proved easy for eBay.
When eBay pulled out of Japanese market due to Yahoo’s sizable lead in Japan, they acquired EachNet, a Chinese company in 2002 and entered into the Chinese market.

They appointed Western managers to lead its operations in China which has in effect caused a series of failure for eBay in China. Firstly, they did not recognise the Chinese markets and the local business environment. Secondly, they implemented Western strategies into the Asian market such as using its eBay global platform (standardised web interface) to its Chinese market. And thirdly, they did not fully understand the political aspects of the Chinese government who are very protective of its local companies and harsh on foreign investment.

The failure in China has given eBay a costly and valuable lesson when entering into new markets. They are now re-entering into the Chinese market by a joint venture with a local established E-commerce company TOM Online in China and in 2012 eBay has started setting up its establishments into the Russian markets.

Feedback system

One mechanism of eBay in battling fraud is its feedback system. This allows users to rate and leave a positive or negative feedback on the seller or buyer account. A dispute can also be filed with eBay if the feedback is unfair or false. The system allows other users to check and read the feedback left from previous users to determine if they are an honest and reliable user. This system proves to be effective as users can readily check their buyer feedback report and sale history immediately before they commit to make any purchase, vice versa for the sellers.

However, this system does have its weaknesses and drawbacks that users can manipulate to commit fraud. Such manipulations of the feedback system are;

  • Users account can be hacked and used to commit fraud using “Buy Now” option which allows users to purchase the item and transfer the money immediately.
  • New users are often unfamiliar with the system and are often targeted.
  • Small and large transactions (i.e a lesser valued item vs a more expensive item) carrying the same weight in the feedback summary. It is therefore easy for a dishonest user to initially build up a deceptive positive rating by buying or selling a number of very low valued items then subsequently switch to fraud.
  • Sellers can also attempt to boost their own feedback by buying their own items with alias accounts, and leaving positive feedback for their main selling account.

Shill Bidding or auction sniping

There are numerous tactics sellers and buyers employ to gain the upper hand in all auctioneer establishments and not just eBay alone. These tactics employed commonly used on eBay are shill bidding and auction sniping.

A buyer will sometimes attempt to use shill bidding to raise the price of a merchandise he is selling. The idea is that the shiller will bid increasingly high prices, in the hope that legitimate buyers will top the artificially high prices in an effort to win the goods for sale.

Auction sniping is best employed on online auction websites such as eBay. This technique allows users to place bids in a timely manner (normally in the last few seconds) to outbid the previous highest bidder and not giving them a chance to rebid as the time has run out. Sniping is not considered illegal but often is frowned upon off and criticised by the online community who thinks eBay has not been doing enough to combat the problem.

Legal Issues

As an e-commerce company based on the gift market economy, eBay cannot afford to regulate millions of users, with over 3.5 million new auctions every day, and 1.25 billion each year (Sullivan, 2004). Hence, since its inception eBay has stood by a hands-off approach to its auctions. Be it outright fraud, unfair bidding practices, or brand theft, eBay maintains that it simply providing a service, and it can't be asked to police the entire site, rather they see themselves as a marketplace and not a retailer. They do not own these products nor possess them, therefore cannot be responsible for the individuals action.

This marketplace “service provider” defence has served the auction site well in the landmark case of Hendrickson v eBay 2001 (Sullivan, 2004). However, Tiffany Inc. is challenging that legal paradigm, suggesting eBay has responsibility to actively police its site. After all, the firm is profiting from the frauds committed.

Tiffany’s case will not only be a high stake for eBay but also to other similar e-commerce businesses and its industry as a whole, as this will create a domino effect for firms to place similar legal lawsuits against eBay and other similar businesses if Tiffany prevails.

Fortunately for eBay, they have won the lawsuits but this does not necessary mean the end of eBay continually battling its illicit auctions of counterfeits or illegal items. And similarly, companies and individuals such as Prada, owners of artistic works, Gucci for instance are looking into taking eBay to court once more.

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