The market for classified ads displays many characteristics of what economists would call a natural monopoly.
All things being equal, there's a number of benefits to online buyers and sellers from having a single, dominant marketplace. Basically, if you're selling, you want to be where the most buyers are and if you're buying, you want to be where the most sellers are.
The same thinking applies to the market for online auctions and even job postings. Who wants to list a valuable item on an auction site with only a trickle of traffic? It won't reach its full potential value without LOTS of buyers seeing it. Likewise, who wants to post jobs on a site with no job seekers? Who would post their resume on a site with no employers? So a majority of us gravitate towards eBay and sites like Monster/CareerBuilder.
But, since Craigslist is as much real world as virtual, their success ultimately comes from dominating city by city. Hence, they've expanded quickly, leveraged their positive brand name, and relied on revenues from a sliver of their site to fund free postings everywhere else. For a new start-up, it's hard to compete with free!
Make sense?
