Brokerage Model

The Brokerage Model in e-commerce, in essence, mirrors the offline brokerage model where the broker acts as a third party connecting sellers and buyers to a transaction and charges fees for their services (Rappa, 2005). The advantage of e-commerce affords brokers the ability to connect buyers and sellers globally in contrast to the offline world where a broker may be restricted to a certain region within their local market. For example, in the offline world, a mortgage broker who connects people looking to purchase a house with financial institutions who sell Mortgages, may be restricted to their local area, hence creating a finite group of potential buyers. In contrast, as a result of the Internets inherant globalisation (Flew, 2008) an e-commerce mortgage broker has the potential to reach people located outside their local area, in other states and other countries, drastically increasing the number of potential buyers, their ability to connect more buyers with sellers, and thus make better profits. It is well documented that eBay is one of the most succssful Auction Brokers in e-commerce.

As suggested by Rappa, eBay, like most companies on the Web, employ a number of business models in order to make money (Rappa, 2005). While the dominant model they leverage is the Brokerage model, eBay also utilise the affiliate, advertising and community business models to sustain their presence in e-commerce.

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Within the Brokerage model there are a number of subset models. These are Marketplace exhange, Buy/Sell fulfillment, Demand Collection system, Auction Broker, Transaction Broker, Distributor, Search Agent and Virtual Marketplace (Rappa, 2005, pg2). eBay is an Auction Broker. An Auction Broker, defined by Rappa "conducts auctions for sellers (individuals or mechants). Broker charges the seller a listing fee and commission scaled with the value of the transacton. Auctions vary widely in terms of the offering and bidding rules" (Rappa, 2005, pg 2).

Under their brokerage model eBay makes its money from "listing, feature and final value fees that are collected when an item listed is sold" (Caban, 2007). In 2008, eBay introduced a fixed price format listings to compliment their existing auction-style format listings that drastically reduced costs for its members, encouraging more items to be listed for sale (ebayinc.com.au/news). In 2010, they introduced in the US market, following growth success in other international markets, further discounts to their pricing, offering free listing for auction-style listings with a start price of $0.99 for those sellers who list items occassionally and as low as $0.03 for its members that list items regularly (http://www.ebayinc.com/content/press_release/20100126006330).

According to their website http://www.ebay.com, eBay charges insertion fees and final value fees for both auction-style and fixed price listings. These are the basic costs of selling an item. In addition, they offer optional feature fees, referred to as "upgrades that boosts sales" that includes Reserve price fees, But it Now fees, Listing upgrade fees and Seller tools. The value of the insertion fees vary depending on the starting price or reserve price and poduct category. For example, insertion fees for auction-style format listings can range from $0.10 for a price of $0.01-%0.99 to $200 for a price of $200 or more. eBay's 2010 insertion fees are depicted in the table below. The final value fee is calculated at 9% of the total amount of the sale with a maximum charge of $250.00 ([http://pages.ebay.com/help/sell/fees.html]).

Insertion Fees for auction-style format listings
Starting or reserve price Insertion Fee
$0.01–$0.99 $0.10
$1.00–$9.99 $0.25
$10.00–$24.99 $0.50
$25.00–$49.99 $0.75
$50.00–$199.99 $1.00
$200.00 or more $2.00
Source: http://pages.ebay.com/help/sell/fees.html#if_auction

References:
Caban, J. (n.d.). Business Environment of EBay, Wal-Mart, & Best Buy - Associated Content. Business and Finance section of Associated Content. retrieved from http://www.associatedcontent.com/article/260660/business_environment_of_ebay_walmart.html?cat=55.
Flew, T. (2008). The Global Knowledge Economy. In New Media: An Introduction (3rd ed., pp.193-217). New York: Oxford retrived from http://edocs.library.curtin.edu.au/eres_display.cgi?url=dc60264108.pdf&copyright=1
Lillie, J. (2006). Immaterial Labour in the eBay Community: The Work of Consumption in the 'Network Society'. In Everyday eBay: Culture, Collecting, and Desire (pp. 91-105). New York: Routledge retrieved from http://edocs.library.curtin.edu.au/eres_display.cgi?url=dc60263175.pdf&copyright=1
Rappa, (2005) Buisness Models on the Web - Transcript, retrived from http://digitalenterprise.org/transcripts/business_models_tr.html
Rappa, (2005), Business Models on the Web, retrieved from http://digitalenterprise.org/models/models.html
www.ebay.com.au
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