Yesterday, eBay reported its Q3 2010 earnings.

The good news for investors: PayPal is going strong, with net revenue up 23% year-over-year. The bad news for investors: auction revenue has all but stalled, increasing just three percent year-over-year.

The latter is not just bad news for eBay investors, it’s bad news for sellers, some of whom may already be feeling the pinch.

On Monday, a letter from Ina Steiner, who has been selling on eBay for ten years, was published on AuctionBytes. It read in part:

I have been on eBay for over 10 years and the sales have dropped to an all time low. I was wondering if your readers, who are sellers on eBay have dropped this low also.

My sales are down 80% on eBay from the same period last year October 9th, through October 16th. This is really and truly a sign that eBay has a major problem with traffic on the site and their policy changes have created this problem.

While some responding to Steiner’s letter stated that their eBay sales were up, more than a few indicated that they had seen declines similar in nature to Steiner.

Obviously, there are a number of reasons why an individual seller’s sales might go up or down, even considerably. But coupled with eBay’s Q3 results, stories like Steiner’s seem to provide some evidence that eBay’s auction business is stalling out.

Many would blame this on eBay’s fee increases. And they do have a point. In February, one blogger explained succinctly the implications of eBay’s 2010 Spring Seller Update:

Expect to see fewer people using auction style listings since there is no way to cover the increase in selling fees. More fixed price (immediate purchase) listings will be used and prices will be raised moderately to cover the increased final value fees. New users who don’t notice the hidden final value fees will be shocked when they are billed $35.00 for selling their Playstation 3 (or whatever), have to pay $25.00 in shipping, and another $9.00 in PayPal fees. Suddenly that $300 they got from their sale has dropped down to around $225.

Of course, auctions made eBay what it is (or more appropriately, what it once was). Fixed price listings simply aren’t as appealing. But more important is this fact: eBay’s increase of final value fees is a tax. Taxes go up, sellers increase their prices as a result, and in turn sales go down. This isn’t rocket science.

If eBay’s Q3 results are any indication, eBay may be pushing the limits of what the market can bear. Obviously, companies can’t grow rapidly forever, but if eBay is serious about growing its top line again, it would be wise to consider that it has to decrease ‘taxes.’

Correction: Ina Steiner is the editor of Auction Bytes, not the eBay seller who wrote the letter published in Auction Bytes. At the request of the author of the letter, Auction Bytes published the letter anonymously. 

Photo credit: liewcf via Flickr.