Since the mid-1990s, individuals have been using online auction sites such as eBay, uBid, and Yahoo! to sell off old clothes, collectibles, and other used items that they find when cleaning out closets and attics. During the early 2000s, manufacturers and retailers discovered that online auction sites were useful for selling unsold inventories of items such as digital cameras, lawnmowers, and laptop computers. Sharper Image, Sears, and Hewlett-Packard are among the companies that regularly sell off inventories of outdated products in online auctions.

In 2002, companies with names like “ReturnBuy” and “Connection to eBay” began buying large quantities of outdated models of various items from manufacturers and selling them at higher prices in online auctions. The high profits they earned signaled more firms to enter this market. With the increase in the supplies of “like new,” yet outdated items for sale in online auctions, prices began to fall. Then the profits earned by firms such as “ReturnBuy” and “Connection to eBay” declined. By 2004, these and a few other firms had exited the market. Why would you guess that it is not unusual for a big burst of entrants into a market to be followed by the eventual exit from the market by several of those firms?