I've only used Promoted Listings a few times, but let me get this straight. We already pay EBay to put our listings on here. But if someone else wants their listings to appear ahead of yours, they can pay a 5% Promoted Listing fee for the privilege. But if you pay a 10% Promoted Listing fee, your listing will appear even higher than theirs. But if you BOTH pay a 10% Promoted Listing fee, your listings will appear at about the same level (the same as if neither of you paid fees, only YOU ARE PAYING THE FEES and ebay gets the money.)
Isn't this just a massive Prisoner's Dilemma? Prisoner's Dilemma is basically a game theory problem where two prisoners receive a 1 year sentence if they choose not to betray each other. But they are incentivized to betray each other, because if you don't betray the other guy while they betray you then you get a huge 3 year sentence. If you both betray each other you get a 2 year sentence. It would clearly be best for both prisoners to not betray each other and get the 1 year sentence, but they won't because they don't want to be betrayed and get the 3 year sentence. So both "prisoners" end up choosing to pay 5% for Promoted Listings, even though it would be better for them both to choose 0%.
Obviously this is all very simplified, and not a perfect metaphor for a market with a lot of sellers. You are not directly competing with any one seller. But the core concept remains true - Promoted Listings is essentially a way for sellers to bid against each other on listing placement, and the more sellers are willing to bid, the more screwed everyone is by fees. Theoretically if there were sellers willing to pay 90% Promoted Listing fees, their listings would show up higher and sell faster, leaving EBay with a higher fee percentage and buyers not seeing the listings of non-promoted sellers.
The system creates an artificial problem (people not seeing your listings because other sellers are willing to pay more fees), and EBay provides the solution by letting you pay even more fees than them. The EBay CEO said that Promoted Listings has been a great source of profit. This is evidence that promoted listings is either increasing your fees, or making your listings not being seen. The Prisoner's Dilemma is a great way to see on a small level why Promoted Listings is designed to screw all sellers the more other sellers are willing to use it.
