Everybody knows that E-Bay was a great innovation. By reducing transactions costs, and enabling users to establish
reputations, it has enabled millions of people to buy and sell goods in small quantities and of lower value than would have been possible in traditional bricks and mortar stores.

But there is another important, and little understood, innovation in the E-Bay model: the second price auction. “Oh, the second price auction”, I hear you cry in unison, “WTF is that?”

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