Auctions were supposed to be the new way to buy and sell everything. It didn’t turn out that way—just ask eBay.
In 1846, an Irish immigrant named Alexander Turney Stewart opened a store in New York City unlike any that Americans had seen before. Located downtown, on the east side of Broadway, what became known as the Marble Dry Goods Palace was a huge emporium that offered luxury and everyday items alike. Stewart’s innovations as a retailer were numerous: He introduced what are believed to have been the first in-store fashion shows in America. He lavishly appointed his interiors, in striking contrast to the merely functional look of shops up to that point. And he was the first in the nation to use the street-level plate-glass windows as a display for merchandise.
Then there was A. T. Stewart’s most important innovation: His products came with price tags. At that time, in most stores, prices were set by haggling. The result was a frustrating dance between customer and salesperson, who parried back and forth until they managed to arrive at (in the words of one retail historian) “a price which neither party to the transaction considered robbery.” Stewart saw that this experience left buyers feeling taken advantage of, and it encouraged salespeople to squeeze the most from every transaction rather than build long-term relationships with customers. So he marked each product with a fixed price.
Customers embraced the new “no haggling” policy, and the Marble Palace became an enormous success. Sixteen years after the store’s debut, Stewart opened an even bigger one, the Cast Iron Palace at Broadway and 10th Street, which occupied a full city block and at the time was reputedly the largest retail establishment in the world. Stewart’s success—and his idea—did not go unnoticed by other merchants, and soon a plethora of other large stores, from Gimbels to Macy’s to Wanamaker’s in Philadelphia, abandoned haggling and adopted fixed prices. Within a generation, the price tag became ubiquitous; by the late 19th century, fixed prices seemed inseparable from the retail experience.
Almost a century and a half after Stewart’s innovation, a man named Pierre Omidyar opened another store unlike any that Americans had seen before. eBay, in Omidyar’s vision, was to be the world’s biggest open market: a democratic agora where small sellers could compete with huge corporations, where shoppers of all kinds could find products they’d never dreamed of being able to buy. As with the Marble Palace, though, eBay’s greatest innovation was in pricing: It replaced fixed prices with auctions. In line with the site’s democratic ethos, there would be no corporate central planner assigning value to goods. Instead, prices would be determined organically, by the ever-changing flow of supply and demand.
Again customers responded, making eBay an enormous success. Other auction sites sprang up, but network effects—the more buyers eBay had, the more sellers it attracted, which in turn attracted more buyers, and so on—made the company difficult to beat. After the dotcom boom collapsed, eBay was one of the few companies to weather the storm, expanding its business briskly during the recession of 2001. The following year a business book declared it the most important company in ecommerce, anointing it as “the perfect store.”