& eBay’s Asymmetric Information Problem.
We’ll actually tackle those topics in reverse order.
The older princess needed a new pair of headphones for her Zen Photo.
The Zen is a particularly sturdy little 20GB hard drive. It’s almost two years old and still going strong. In fact, it has survived a few pair of earphones: the original pair of Sennheiser CX300s that we bought with the Zen and an almost identical pair of Creatives that came with a Dell XPS laptop. (The ear buds that were included with the Zen were an insult to all that is decent and good in this world, but probably worthy of a few of her High School Musical tracks.)
Asymmetric Information and Market Failure: this time we wanted the Sennheiser CX-500 model for her, and for awhile we debated between buying the replacements on eBay versus an online store.
We finally settled for an online store because there was no price point on eBay that would ensure that they were genuine Sennheisers rather than counterfeits, and that’s eBay’s problem where sellers with inferior goods can pretend to be otherwise.
The prices at online stores varied from about $50 to $115 although nothing below $60 or so was in-stock.
The non-auction, “buy-it-now” prices on eBay ranged from about $15 to $115.
We like to save money, but the probability that we’d receive genuine Sennheisers for $15 seemed very small. Moreover, at that price, if they were genuine, the probability that they weren’t contraband or weren’t stolen seemed exceedingly small.
As we worked our way up the price range, we couldn’t convince ourselves that we’d actually receive genuine Sennheisers. $28? Doubtful. $38? Possible for a desperate seller, but it is not difficult to fake such desperation. $48? Starting to get near online store prices; so, it would seem like there was a better chance of authenticity, but if we were devious, we’d offer units at one store for $15 and for $50 per unit at another. At the $50 store, we’d denigrate the $15 ones. (In fact, that seems to have had occurred at point in the past.)
Using that or a similar rationale, we eliminated of all eBay’s offerings–even the ones advertised at Sennheiser’s MSRP.
We must admit that we didn’t actually read through every single listing; so it is possible that there is a seller who could have credibly signaled the authenticity of their merchandise to us, but we didn’t find them in allotted time. Moreover, we weren’t clever enough to design a screening device to separate the authentic from the not.
So, for headphones and similar goods, it would seem that eBay’s electronic market may fail others as it did fail us.
Of course, we’ve bought a variety of goods (and types of goods) on eBay, but those have been either from large sellers with non-eBay reputations to protect or small sellers with specialized, non-brand-name offerings, and with eBay reputations to protect. So, reputation would seem to be crucial. (We haven’t searched, but it is quite possible that someone has commented on this phenomenon before, and we’ll try to have more to say about it in the coming days, as we think about the effects of cost structure and profit margin.)
Our Counterfeiting Prediction: even in good times, counterfeit goods from the Far East are a large problem for certain firms, and Sennheiser’s problems with headphones are a good example of that.
We suspect that many counterfeit units are made in the same factories–though not necessarily to the same standards or with the same quality materials–as authentic goods.
With the seeming inevitability of difficult economic times in the US, which pretty much means a reduction in consumer demand, we’d expect that many consumer product firms will order less from their Far East factories. So, we could easily imagine worse economic conditions in countries like China compared to the US.
With substantial excess capacity due to that reduced demand for authentic goods, will the factory owners be able to avoid the temptation of counterfeiting?
We think it is a rhetorical question with an obvious answer.
Unfortunately, in difficult economic times, we could also easily imagine an increased demand for such inferior goods.
