Economics of Auctions: eBay Provides Rich Data

Before eBay, economists had few ways to test their theories about auctions. They could recruit and test volunteers, but that often meant subjects already knew they were being watched. Some experiments in the mid-1990s involved digital auctions on primitive Internet message boards. But the pool of potential bidders was too small back then to draw any broad economic conclusions.

Now, thanks to eBay, economists can watch and document this 2-­millennium-old idea play out.

Behind the millions of online auctions like Ebay lies a virtual mini-economy flush with raw data. Harvesting this information has fed a new branch of economics, one that has proved again and again that shoppers act in unexpected ways.

Read more here of the Christian Science Monitor article "Why We Do What We Do on eBay: Economists Mine the Online Auction Site to Find Out Why Shoppers Act Irrationally."

From Wikipedia's entry on "Perfect Competition": eBay auctions can be often be seen as perfectly competitive. There are very low barriers to entry (anyone can sell a product, provided they have some knowledge of computers and the Internet), many sellers of common products and many potential buyers.

(HT: Ben Cunningham)