Returns to Scale in Electronics Industry
Among Internet-based companies, eBay is a great example of the most powerful network effect. As more people list items for sale on eBay, the site attracts more buyers. The more buyers who bid on an item, the greater its value to the seller. This, in return, attracts more sellers. As the early leader in creating an auction community, eBay built a network unmatchable by others. uBid, the second internet auction site, could not match with eBay’s number of users. This is because eBay primarily auctions used products which means that its customers will be both – sellers and buyers. uBid, on the other hand, auctions new branded products from a small base of dedicated sellers, which means that the more customer-bidders there are joining the network, the higher the realized price will be on the network. This benefits the small population of sellers, but harms the disproportionately larger community of buyers.
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