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Ebay: Value Creation and Contracting issues

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EBay is the world's largest online auction. In late 1999, the service listed over 2,000 categories of items from sports memorabilia to automobiles. In total, eBay hosted more than 2.5 million auctions a day. Sellers pay a few dollars to eBay to list their items. They provide a description of the item, photographs, the minimum acceptable bid, accepted forms of paymnent, and other relevant information. Bidders submit electronic bids over the Internet. After the auction closes (auction usually last several days), the high bidder receives an e-mail/ The high bidder must contact the seller within 3 business days to claim item as well as arrange for payment and delivery of the item. eBay provides other support services.

The Feedback Forum is a place where eBay users leave comments about each other's buying and selling experiences. If you're a bidder, you can check the seller's Feedback Profile easily before you place a bid to learn about the other person's experience with previous buyer's. If you're a seller, you can do the same with your bidders.

Every eBay users is covered by insurance at no additional charge under the terms of eBay's program. If a buer pays for an item and never receives it (or receives the item, but it was less then expected), eBay rimburses the buyer up to $200, less a @25 deductible.

SafeHarbor, eBay's safety staff, investigates alleged misuses at eBay such as fraud, trading offenses, and illegally listed items. Potential resolutions include things like banning a person from future trading on eBay.

Buyers and sellers can use an escrow service in transactions involving expensive items. eBay's escrow partner, j-Escrow, holds a buyer's payment and sends it to the seller only after the buyer has inspected the merchandise and gives approval. Sellers have the same opportunity to inspect and approve a returned item before the buyer gets a refund.

1. How does eBay crate value?

2. What potential contracting problems exist on eBay?

3. How does eBay address these problems?

4. What are the contracting costs at eBay?

5. eBay claims that it has only a small problem with fraud and misuse of the system. Does this imply that it is overinvesting in addressing potential contracting problems? Underinvesting? Explain.

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1) Ebay creates value by bringing together buyers and sellers. In another words, Ebay has created a virtual or online market place in an organized and safe way where people can buy and sell wide variety of goods. Thus, Ebay has provided a kind of platform for all those people who hate to go out in the physical marketplace and love to shop in the convenience of their living rooms. Ebay ensures that all transactions are carried out in a fair way and offers reasonable safety for both, the buyer as well as the seller.

2) Potential contracting ...

Solution Summary

Ebay creates value by bringing together buyers and sellers.

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Your sister has come up with what she thinks is a brilliant idea for a home-based business - a website which helps lonely people find their perfect match by comparing different singles website services.

Your sister has come up with what she thinks is a brilliant idea for a home-based business - a website which helps lonely people find their perfect match by comparing different singles website services. She intends to link to some of the top dating sites, several alternative ones, and a few regional ones. While she explains her idea to you, you stop her in mid-sentence and say, "Whoa there, remember Bidder's Edge?" She has no idea what you're talking about, so you give her the following article.

Trampling through the Websites-When is "Linking" an Illegal Trespass?
LEAD STORY-DATELINE: The Recorder, 5/26/00.

"Linking" is a common practice on the Internet. One Web page often establishes a "link" to another web page or web site. This practice normally benefits the linked web site, as it increases the number of individuals that might access and use the site. Bidder's Edge, Inc. was a company that helped consumers comparison-shop for the lowest price on auction web sites by posting auction items on its web site. Bidder's Edge used an automated process to search various auction sites for items to post for customers' use. eBay was one of the auction sites searched by Bidders' Edge, and Bidder's Edge sought to negotiate terms for performing its automated searches of eBay. Negotiations failed, and eBay prohibited access to its servers. To circumvent this prohibition, Bidder's Edge used proxy servers (not directly linked to Bidder's Edge) to continue its automated searches. When eBay discovered this, eBay filed suit and sought a preliminary injunction to prevent Bidder's Edge's continued automated searches and use of eBay's site. eBay claimed it would be irreparably harmed, pending a trial in the year 2001, if Bidder's Edge was allowed to continue its activities. The alleged harm included reduced system performance, system unavailability, or data loss.

eBay filed suit based on several causes of action; one was that Bidder's Edge was guilty of trespass to personal property. Under California law, in order to prevail in a suit for trespass based on accessing a computer system, the injured party must show the defendant intentionally and without authorization interfered with the plaintiff's possessory interest in the computer system, and that the defendant's unauthorized use approximately resulted in damage to plaintiff.

Bidder's Edge responded to the request for a preliminary injunction by arguing that it could not trespass because eBay's site is publicly accessible. So one portion of Bidder's argument was that there could not be a trespass, because there was no interference with a private property right. Bidder's Edge also argued that no irreparable harm would occur if the preliminary injunction was not granted, because its 80,000-100,000 hits per day represented a small fraction (approximately 1 ½ percent) of the hits to eBay's site. eBay admitted that these hits represented a relatively slight interference with eBay's servers. The district court rejected Bidder's arguments.

In eBay Inc. v. Bidder's Edge Inc., 99-21200, California Northern District Court Judge Ronald Whyte ruled that eBay was likely to prevail on the trespassing claim, and granted the preliminary injunction. In its opinion, the court found that eBay's servers were private property. eBay intended to give conditional and limited public access to those servers, and eBay did not intend that the public use its servers in the way contemplated by Bidder's Edge. The court noted that in eBay's use agreement, it specifically prohibited the type of automated access used by Bidder's Edge. Further, the court ruled that irreparable harm could occur should a number of companies engage in this automated access process.

After reading the article about eBay which you have sent her, your sister emails you with the several questions listed below. All of her questions indicate that she is trying to figure out how to design her Internet dating website so that it is legal and so that she does not get tangled up in a complicated lawsuit.

Write an email to your sister that addresses all of her concerns and the questions below and that helps her to decide the best course. Place your response in the drop box.

QUESTIONS:

What did Bidder's Edge do that was different than eBay's normal customers? Why does it matter to eBay?

Look in your text. What is the definition of traditional trespass to personal property?

Does the definition of trespass to personal property in your text differ from the California definition of trespass to computer services? How?

Submit your email to your instructor via the drop box.

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