I don't use Ebay a lot and my experience with it in the last few weeks has been frustrating to say the least. I'd been trying to find a used high quality cyclocross bike frame for a good price and had made probably close to a dozen bids, only to find myself each time being outbid at the very last moment by someone who had not previously made any bids. In some cases, my max bid was way too low and I was hoping for a real bargain so I have no right to be frustrated by such a maneuver. But in many cases, I was quite surprised at how much was being paid for some of these bike frames. For example, I saw a used frame that was four years old from a good brand but which was in not so good shape sell for about $305 when the 2005 model brand new model cost only $370.
This got me thinking about the following question: do people have any sense of how much something is actually worth? Observe that answering this question requires two things: 1) knowing how to determine the worth of something and 2) determining whether people have a sense of that worth. Most people, I think, have the following notion of worth: something is worth whatever is lower: the cheapest price for which the thing they want to buy is available or the price they are willing to pay. In cases where it's easy to compare competing prices, I think the answer is yes, most people do have a pretty good sense of how much something is worth since they can compare the cheapest price they can find for what they want to buy across many different vendors and evaluate that vis a vis how much they are willing to spend. The fact that prices tend to cluster around a narrow range generally gives a good indication of the costs involved in building, distributing, and marketing something.
But where things get trickier is when the product is used and there is very little data on bid and ask prices. For example, try typing in "1999 used Gunnar Crosshair Frame" into Ebay and you will likely get 0 responses because it is very hard to find this frame used let alone for that year. The fact that a product is used makes its worth that much harder to determine when price data is hard to come by. Every product has its own price time decay behavior and a lot of knowledge is required to determine what the time decaying path of a product's worth should look like. So if you see a used niche product come on the market and you want to evaluate what your max bid should be, you're most likely not going to be comfortable that you have a good handle on how much such a frame is actually worth. Put differently, if someone gave you the frame and you had to price it at a fixed price, your sense of uncertainty would likely be quite high. Thus for markets where bid and ask data is hard to come by I think people's sense of worth is quite poor, doubly so for products that are used.
There are many businesses, not just the used, niche product business, where getting good information on prices is hard to come by. Any business, product or service where an average person with access to the Web can not figure out how much something is worth within a reasonable amount of time is a business you don't want to be transacting in unless you know what you're doing or you can afford to get ripped off.
But imagine if Ebay allowed you to search on how much any product that had ever
been sold on Ebay sold for. If someone was able to find a long history of prices for which something he wanted to buy or sell was sold for in the past that would dramatically decrease his sense of uncertainty. It seems to me decreased uncertainty would in turn increase volume of transactions since fewer people would be hesitant to make a bid or sell an item and instead would be more confident about the bids they were making. So the question is why doesn't Ebay make this data available? Is it for prosaic reasons, e.g. they don't want to spend the money on additional hardware, or is there a deeper motive? I for one would love to know.
