Free Market Economics and eBay

imagesI have criticized critics of capitalism and market economics. Mostly, what they denounce is either a straw-man caricature, or else a very small part of a very large phenomenon. While of course there are problems, as with any aspect of human life, if you think about it the great bulk of what you spend money on you’re very glad to get. But what people like me defend is not simply “markets” but free markets. Competition is essential; with it, businesses keep each other in check, and consumers win. Without it, beware. (And too often regulation of markets impedes competition.)

It’s easy to see the behavioral difference competition makes. Take eBay. I buy a lot of stuff there; I even used it to buy an ISBN number! (What’s that? Look it up.) The eBay market is fiercely competitive, and my experience dealing with sellers has been overwhelmingly positive.

UnknownBut the company eBay itself is virtually a monopoly; akin to a “natural monopoly” (like your electric utility) where having multiple competitors wouldn’t really work. Once eBay established itself as “the” online auction site, where buyers find the most sellers and vice versa, no competing site could gain traction. And, with no real competitors, eBay’s customer service is unsurprisingly atrocious.

I recently returned a rare coin to Germany. Since registered mail each way takes several weeks, I didn’t know I had a problem until two months after my payment. I thought I was protected by eBay rules; but when I tried to open a “case,” by e-mail, I was told the window is only 45 days.

images-1Now the fun begins. I want to talk to somebody at eBay about this. Trying to phone gets nowhere; recordings tell you to click on “live help” on eBay’s website. Too bad there’s no such place to click. My further e-mails generate a comedy of repetitive non-responsive boiler-plate replies, with more instructions to use website features that don’t exist, as well as non-working telephone numbers to call. After continuing to complain about all this, I finally get a response in German. I reply (in German) images-2that I don’t speak German. No answer. I send a snail-mail complaint letter to eBay’s president. No answer.

(I have posted online most of the e-mail exchange; if you’ve got nothing better to do, click here).

This is what you get when there’s no competition. Will I stop using eBay? No; there’s alternative. And they know that.

Postal Service Poster Boy

Postal Service Poster Boy

Another case: U.S. Postal Service. Four big registered packages mailed the same day all stolen by a postal employee, they told me. Would they pay on the insurance? Nope. Claims denied: my dealer pricelist, customer orders, and invoices did not prove the value. Eventually, after going through hell with them, they paid. But be warned, absent unimpeachable documentation of value, postal “insurance” is basically a scam.

In contrast, I recently sold my lifelong collection of early Chinese coins, through an auction firm in Germany, Teutoburger Munzauktion. Why? I’d been favorably impressed by their operation. This is another ferociously competitive market. And Teutoburger provided outstanding customer service. Another case was the printing of my recent book, Angels and Pinheads, by 48HrBooks. Again, a highly competitive arena of business. And again, the customer service was outstanding, beyond what one might have expected.

This is why I am a free marketeer.

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22 Responses to “Free Market Economics and eBay”

  1. WhamaJama Says:

    The problem with markets is lax regulation. The markets described here (online auction; insurance; traditional auction) are far from absolutely perfect. Yet, it is clear the more concentrated the market, the less responsive it is to customers and the more expensive it is for users. Regulation is the prescription. Unfortunately, regulation in the United States has become so weakened and tainted since the administration of President Ronald Reagan (“…government is the problem.”), we have the worst of both worlds. Concentrated firms operating in imperfect markets without competent or effective oversight.

  2. rationaloptimist Says:

    . . . And the problem with regulation is that it is put in place by fallible people with all the defects of any human system. I am frankly getting tired of hearing that regulation is a panacea. It is not. In the real world, the tendency is for regulation to create more problems than it solves. See my past post:

  3. Joe Sermarini Says:

    Although I agree that free markets generally are good, I don’t think either of your examples support your premise. EBay is a monopoly the established itself within a free market. You have only proven that a completely free market does not always have the best result. We do need regulation to prevent monopoly. Second, the post office competes against the free market. You could send your packages by UPS or FEDEX but you don’t because they cost much more. Yes, the post office’s insurance is terrible, but I don’t think that provides much evidence of the value of free markets.

  4. rationaloptimist Says:

    Joe, thanks for your comment. “A completely free market does not always have the best result” — right, but when the result is monopoly, then it’s not a free market any more. The main thing that government regulation should seek to do, in my opinion, is to prevent such situations from developing, wherever possible; that is, government’s role should best be to keep free markets free. Yes, eBay established itself within what started out as a free market; and that does show one of the ways in which it’s possible for a free market to go awry. There is no such thing as a perfect economic system, and I certainly don’t claim that status for the system which I believe to be, nevertheless, the best.

  5. ebay Says:

    Inspiring story there. What occurred after?
    Good luck!

  6. rationaloptimist Says:

    What occurred after? Nothing. Story is complete. I lost the money. Neither eBay customer service, nor its CEO, ever responded further to my complaints.

  7. WhamaJama Says:

    The naïveté of progressive liberals on the left is only matched by that of the free-marketeers. Markets are not free and neither can pure collectives function correctly. Both deny the human qualities we all possess in lesser or greater measures: true needs and false desires, generosity and selfishness, virtue and vice. Markets need to be regulated to function effectively and to constrain the baser impulses of those who shape them. As a coin collector who values the beauty and precision of an empire’s coinage yet overlooks the strict regulation, usually through tax laws, that caused such coinage to be made for the purpose of satisfying debts to the state, you must realize that regulation can also bring forth beauty and order. Without some constraints on the markets you will see repeated endlessly the tragedies of Enron and MCI’s collapse, the greed of LIBOR price fixing, and the ongoing tragedies of Bhopal, India and West, Texas. True, regulation did not prevent some of these from happening, but it did prevent more of these from occurring and thus limited the damage overall.

    No, the same fairy dust that blinds a liberal into thinking that poverty can be cured, the sick healed, and equality enforced, similarly blinds free marketeers into thinking their beloved market will solve all problems and that they do not benefit from collectively built roads, sound currency, or a functioning criminal justice system.

  8. rationaloptimist Says:

    As I said, critics of market economics are largely attacking a straw man. As I must repeat over and over, nobody believes market participants should be unregulated. Just as there are laws against jaywalking, and murder, to regulate the behavior of individuals, and protect others against harm, similarly there must be laws against business behavior that causes harm.

  9. Gregory Kipp Says:

    I’m still mystified about the problem with the Post Office. Those 4 packages of coins were sold on credit. Businesses sell on credit all the time. Why isn’t the purchase order itself proof of value for insurance purposes?

    With regard to free market economics, I don’t know anyone, conservative or liberal, who doesn’t believe in free markets. The difference in opinion between the political parties is mostly regarding how much government control is necessary to alleviate adverse impacts of free markets (and there are plenty of them). Free market economics is important, but it’s not the answer to everything. The partisan distinction being drawn by many of our political leaders is nothing but a straw man designed to create controversy that can be used to win elections.

  10. John Says:

    If you used a credit card to purchase the eBay coin from Germany, can you use the “charge back” feature to get your money back via the credit card company?

  11. Jon Radel Says:

    0845 355 3229 works fine. I just called it and it is widely published as an eBay number. They probably gave up on you after your repeated claims that it was disconnected, while not being on the ball enough to realize that you might not realize that you had to dial 011 44 845 355 3229, given that you were dealing with UK eBay from the US.

  12. Dennis Taratus Says:

    I read your post and related links. Now that I have, I find my quibble is with the use of the term “regulation”. If we step back, regulation can come from three directions: the market, legislation, and policy-based rule making.

    I do not discount the market’s positive (and sometimes negative) self-regulatory ability. It is not, as you agree, sufficient but it is very powerful and often for the good.

    I agree that legislators can create nightmarish laws. Frenzied law-making in reaction to each and every societal ripple can be counter productive and often worse than the problem it was intended to cure. The deep problem with law is that it is ultimately black and white. You cannot not easily change them.

    This is why I prefer rule-making, or what I have inaptly referred to as regulation in this dialogue heretofore. Rules imposed and interpreted by enlightened regulators who have expertise in the field can be fine-tuned, routinely enforced, or re-written, re-interpreted, and less enforced.

    In my experience, the NYSPSC opened the entire telecommunications market to extensive competition in a ten-year period ending in 1989 by relying on a 1910 statute and implementing just a few new rules, and a few new policies. This action gave NY a tremendous first mover, comparative advantage over other states.

    Unfortunately, Congress tried to duplicate the feat in 1996 by revising its equivalent statute which was nearly as venerable. The new law was a monumental re-write encompassing dozens of pages and opening every state, including NY, to burdensome compliance work that frittered away our advantage without ultimately or materially changing anything for New York. We lost years and resources and our well deserved leadership.

    That lesson left me as skeptical of regulation via law-making as you appear. It also, however, underscored for me the value of front-line regulators who can use broad statutory authority to craft appropriate rules and policies. Policies can change as often as the agency wants, and hard rules just take a bit longer.

    The key, to my way of thinking, is competent regulators acting ethically under sound leadership. A lot to hope for, but easier than passing a law. Rules can be bent, policies can be reversed, but law is like cement. Use it only to build a strong foundation but let someone else build the house and maintain the structure.

    Thus, using the term “regulation” too broadly raises my hackles because I know of so many instances where with due deliberation and care regulation has saved lives and property. If we refine the focus more toward law-making, I am in complete agreement. However, I fear that others would casually look at the term and condemn regulators generally when they may not appreciate how effective they can be.

    And, this is my hot-button.

    When Ronald Reagan declared government is the problem, he condemned several generations to a disrespect of public servants that denied that sector access to many of the best and brightest. What child wants to grow up to be a regulator and a “problem”? The harvest of his imprudence are too many hacks running agencies and a dearth of talent on the public side. This becomes a self fulfilling prophecy. Regulation is bad, regulators get weaker, and bad regulation results. The repulsion accorded public service was only recently and modestly redressed by the regard felt for first responders post-9/11.

    When I grew up it I felt I had two equal choices: the public or private sector. Today, I am afraid young people do not consider those options as equal. And, the result impoverishes us all.

  13. frank S. Robinson Says:

    Thanks for taking the trouble to express fully your understanding. I (as you may know!) also spent a lot of years in the regulatory thing. Yes, I think the PSC did, on the whole, a pretty good job. I left, though, without feeling convinced that the world would be worse if the PSC did not exist.
    Sure, “competent regulators acting ethically under sound leadership” is an ideal. Unfortunately there is a real world in which regulators suffer all the human defects that afflict other economic actors. Especially where it’s legislators who set up the rules, as I think you recognize. I think Sarbanes-Oxley, for example, did more harm than good. Likewise Dodd-Frank. I try to base my views not on some ideal world, but on the actual world we live in.
    Businesses should be subject to the same kinds of laws that restrict the behavior of individuals — they should not be allowed to steal or murder, etc. Beyond that, with Dodd-Frankery and the like, I truly and sincerely believe that our society would, on balance, be better off if there were none of it.

  14. Lizzie Says:

    What a stuff of un-ambiguity and preserveness of valuable knowledge about unexpected emotions.

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  21. Cheryl Strayed: Wild | The Rational Optimist Says:

    […] less-than-terrific experience with enterprises that don’t really have to compete for my dollar (eBay and the Postal Service). That’s why I’m a believer in free market economics. Any government intervention should aim at […]

  22. Cole Says:

    Completely agree. Look at Microsoft, getting away with charging 100 bucks for windows. Microsoft’s windows is a fine example of why monopolies suck. I can get a used gtx 580 graphics card on eBay for 80 – 100 dollars. if I was to buy a new GTX 950, Which has equivalent processing power, it would be 150 dollars.

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