A couple years ago, I finally made the switch and moved from a big desktop computer to a shiny new MacBook Pro. Apple sold a powerful model with a 17″ screen so I thought “Great, almost the size of my old screen, fast, great battery life, what’s not to love?” After a couple dozen trips taken over the next year, love faded: 6.6 pounds felt like 36.6 pounds. So I decided to sell it on eBay and boom, it sold for more than 80% of the purchase price. Other pieces of electronics have sold for similar prices. Most electronics, even if returned within 30 days, have a 15% restocking fee, so how can eBay perform so well?
Since I am very familiar with microphones, here’s an example of a “commodity” microphone, the Shure SM57. Rockers for the past few decades have relied on this model consistently and Shure, true to their name, has made sure that it always sells for $99 new so it is a good example. So what are people willing to buy this for on eBay? One lucky seller (me) got $81.
This made me think about macroeconomics. I had a wonderful economics professor while doing my MBA who is an entrepreneur at heart, but was slumming it for awhile between startups as a professor. We definitely lucked out with her. During one session, she gave a great lecture on transaction costs using eBay as an example. It turns out that transaction costs are one of the factors that can have a huge impact on entrepreneurial projects, marketing, sales channels, and major strategic decisions. More to come in the next post.