Ebay has released its annual report disclosing a 22% plunge in profits, which feels almost like a 22% increase, given the devastating performance of other market participants, such as airlines, newspapers and the automotive sector.

However, I am surprised that Ebay reported a loss. Let me explain.

A case can be made that Ebay’s core auction service is an inferior good and, hence, its consumption should rise as the income falls. In particular,

  • lessening of the disposable income amplifies bargain-seeking behavior
  • new goods seize to be affordable; have to settle for second-hand
  • the need for supplemental income causes selling of possessions no longer required or affordable
  • layoffs spur so-called “forced entrepreneurship” and some of it occurs on Ebay

In other words, Ebay’s listing revenues should have jumped up, which didn’t happen. They shouldn’t blame the bad economy for this.