The Stock Market, Amazon, and eBay: What do they have in common?

Getting to know the Stock Market

In "What You Should Know About The Stock Market",, showed how the Stock Market differs from the market systems of Amazon and eBay.

Store Model ( uses the "store model" where in a public asking price is displayed in the site showing to the public the price of a product.  The term "ask" refers to how much someone is willing to sell a product for.  In this case, Amazon is the seller therefore Amazon is offering an asking price.  Prospective buyers visit the site and see this price.  If the price is below the buyer's bid price, then they purchase the product.  If not, the buyer sets off to look for another seller.  (A bid price refers to how  much someone is willing to buy a product for.)

In this model, buyers have the advantage because they know the asking price and can pay less than what they originally thought of paying for the product.  However, if the public asking price is higher than their initial bids, they would then have to look for another store which can be time-consuming and inefficient.

eBay Model

In the eBay Model, the opposite is true.  Buyers offer a public bid and compete for the product.  Sellers keep their asking price a secret and hope that a buyer bids more than that asking price.

In this model, the Sellers have the advantage because they can get paid above their secret asking price.  Also, since the bids are public, the sellers can see the demand and adjust their prices as necessary.

The Stock Market model

Here comes the stock market.  The stock market is said to be very efficient due to the following reasons:
  • All prices are transparent.
  • Buyers present public bids (Buying price)
  • Sellers present public asks (Selling price)
  • There's only one location to look for a particular stock
  • Dealers and specialists help match orders.
For a certain stock, buyers input all their bids while sellers input all their asks.  If a match is found, meaning a bid and an ask price with the same value has been found, a transaction happens.  If the lowest asking price (selling price) is higher than the highest bid price (buying price), a standstill happens and no transaction is done. 

Ask and Bid prices are kept on a queue until orders are canceled.  Sellers who want to sell their stocks right away, in order to ensure a transaction, must place their asking price equal to that of the highest bid price.  On the other hand, buyers who want to buy stocks right away, must also place a bid price equal to that of the lowest asking price.  This is usually referred to as buying or selling at "market price."  Although a stock trader may opt for this anytime, some online stock trading systems do not support this feature.

Therefore, in the stock market, the Law of Supply and Demand is really at work and everything can be observed and seen online.  If there are a lot of buyers, the ask queue is used up and the stock price soars.  If there are a lot of sellers, the bid queue is used up and the stock price drops.

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