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While I think my question is straight forward, I'm guessing the answer to it is anything but. Thanks in advance for any insight you may be able to offer, even if it's just a directional assist. Here's the question.

  • What is the impact on total revenue when eBay has 1 additional seller join its ecosystem with X dollars in product inventory? How does this differ in the short vs. long term?

Acknowledgements, thoughts, and considerations:

  • The type of product the seller carries, number of bidders (buyers), and their respective bidder budgets all certainly play a factor in calculating the additional sellers impact on revenue. Feel free to consider the question with the seller selling "average" product, constant bidder budgets, and number of bidders before and after the seller joins. In short, please feel free to simplify these (and any other) assumptions.
  • Seasonality should play a factor in the short term. If the seller were to join in December, the impact would be different than if that same seller with the same X dollars in product joins in May. In the long term, this shouldn't matter.
  • Playing with some supply and demand curves on paper tells me that the steepness/slope of the curves has a dramatic impact on the expected total revenue when multiplying P2 and Q2. The revenue could be incremental to the existing revenue, decrease it, or keep it flat depending on these slopes.

Again, any light you can shine on the above would be greatly appreciated. In case you're up for it, please find a final follow-up question below.

  • Say the X dollars in product inventory were 5% of the total pre-existing available eBay inventory. If we increase X to represent 10% of total pre-existing available eBay inventory, how would that change its impact on total revenue?
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  • $\begingroup$ The dim light I can tell is auction theory and mechanism design. You should look into these terms. faculty.ses.wsu.edu/Munoz/Teaching/Teaching_EconS503.html might be a good starting point. $\endgroup$ – Konstantinos Jun 2 '15 at 23:25
  • $\begingroup$ I guess the single most important criterion is whether the additional seller is selling substitutes or complements to the eBay inventory: is he crowding out demand from other sellers or not? $\endgroup$ – FooBar Jun 3 '15 at 18:49
  • $\begingroup$ Why do you want to centre your reasoning against total inventory value? Often, new sellers actually have items that were already avaible on ebay, varying prices, etc... $\endgroup$ – VicAche Jun 3 '15 at 19:05
  • $\begingroup$ Thanks all. A few answers: FooBar: Let's assume the seller is selling substitutes. VicAche: My intuition with product inventory is that the greater the aggregate supply is increased by the new seller, the further away the new supply curve sits - theoretically decreasing price for substituted goods and raising the quantity sold, impacting aggregate revenue. $\endgroup$ – Jeff Jun 3 '15 at 19:29
  • $\begingroup$ How does ebay generate revenue? Commision or fixed charge? This matters a lot as increased competition could drive down prices while maintaining volumes - decreasing revenue for a commision based system. $\endgroup$ – Stuart Allan Jun 3 '15 at 20:56
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eBay seems to think that additional sellers increase its profit (not just revenue), because it advertises the option to sell on its website and tries to recruit more sellers. That's the empirical answer.

Theoretically, eBay could refuse to list the additional seller's product and not charge the seller any fees, so by revealed preference, eBay cannot be worse off with an additional seller. If eBay was forced to list every seller who comes along, then the revealed preference reasoning would fail, so then eBay may or may not be better off with an extra seller.

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