Saturday, August 10, 2013

Diversifying eBay Accounts

I was shopping on eBay last week to buy a wrist brace (so I don't destroy my arm with repetitive clicking) and found a seller specializing in wrist braces. Yesterday, I went to buy a pack of aircraft cable key rings, and found a Hong Kong seller who retails nothing else. When I went to buy a case for my iPod headphones, there was a vendor who sold those exclusively as well.

There are plenty of all-purpose eBay sellers, but I'm noticing more and more with narrow specializations. What is the economic justification for this?

One possibility is vertical integration: the producer is a monopolist, and takes over the retail side as well. Given the low cost of online selling and the broad reach of eBay, this is believable for some small product producers, but it's hard for me to imagine this is the majority of cases. After all, there are hundreds of sellers of aircraft cable key rings, specialized or otherwise.

(This leads to an interesting tangent: why are some goods cheaper on Amazon than eBay, or vice-versa? I've found that compact, name-brand products on Amazon are often a better deal, while eBay is excellent for small and inexpensive items. I suspect this is because eBay benefits more from "informal outsourcing" i.e. Chinese sellers, while Amazon's stricter seller policy makes this impossible. But I digress.)

I think the more likely cause for specialized eBay accounts is to diversify away risk. Selling more volume on eBay has a benefit (more good reviews give a better reputation, and can move the seller closer to the top of listings) but also a cost, because even a few bad reviews can taint a seller's profile and hurt their business. Bad reviews are also somewhat hard to predict, especially if you're selling from overseas -- e.g. if some American doesn't understand that shipping from China can take a few weeks, they might leave bad feedback for uncontrollable reasons. And, bad feedback can beget more bad feedback; it's easier to trash a seller for an issue when you see others doing the same thing. With multiple accounts, if a certain product gets a lot of negative replies, it needn't taint all the others.

So why don't more sellers diversify, and why do we see general-purpose eBay sellers with many different products (I'm thinking of giants like 1SaleADay). Partly to develop a name brand, and signal that they are investing in higher customer service. Most eBay sellers give excellent service because the terms of use heavily favor buyers in disputes. In fact, the worst seller customer service I've seen was delivered by yours truly -- I tend to be a jerk and not accept returns. Bigger sellers, especially ones trying to make a name for themselves, can't afford that in the same way an anonymous, amateur seller like me can.

When I buy from a specialized eBay seller with lots of good reviews I still expect to be treated well and get the product I ordered, and it's often at a better price. However, implicit in that good price is a slightly higher margin of risk. When I'm buying 10 keychains for $3.99 that risk is not very troubling, but if I were shopping for a new laptop it might be. This helps to explain why there are relatively less specialized sellers for high-end goods, but low-price goods are often sold by single-purpose eBay accounts.

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