ECO 111 Module 4 DB

Good Essays
• List the two assumptions that underlie the conclusion that free markets are efficient. Explain how these assumptions either do or do not apply to an industry of your choosing.

Free market economics concludes that the two assumptions that make free markets efficient include; 1.) perfect competition and 2.) that buyers and sellers are the only actors interested in the outcome of the market. eBay is an example that I consider being the closest thing to a “perfectly” competitive market, albeit internet based. A perfectly competitive market has many buyers and sellers, many similar products, thus many substitutes, and companies can enter the eBay marketplace fairly easily. If a seller/producer on eBay decides to raise its prices for a particular product, consumers have the advantage of being able to than purchase from another seller/producer within the same platform, for a better price. eBay has a few external competitors, Amazon and even Etsy. Really, it’s up to the personal taste of consumers, some maybe more drawn to Amazon or Etsy, depending on their specific personal needs, such as quality of customer service, shipping options, payment options, and product quality; etc.
Although eBay is very close to a perfectly competitive market, eBay is also known to host many auctions specifically for very rare items- in these types of transaction, usually; no competition would exist - but rather a monopoly. With continued advancements in technology, eBay can continue to propel itself more and more into the “perfect” competitive marketplace.
I believe that the market outcome of online e-commerce sites such as eBay only matters to the sellers and buyers as each is looking out for their best interest. Buyers want the best price, and also the most options for a product and sellers want to maximize their profits.
I believe that eBay is a very efficient market- lend by an equilibrium in supply and demand. Because it is a free market, it can self-adjust any surplus or



References: Alba, J., Lynch, B., Weitz, C., Janiszewski, R., Lutz, A., Sawyer, S. , & Wood. (1997) Interactive home shopping: Consumer, retailer, and manufacturer incentives to participate in electronic marketplace.‟ Journal of Marketing 61, 38-53. Mankiw, G. (2008). Principles of macroeconomics. (5th ed.).

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