[mmorris]

>> "marketplace enormity doesn't increase the pleasure of the buyer"

You're asking why it's a negative for eBay and Craigslist that they aren't small (i.e., that they have a lot of listings), but I think the quote you took from the article is saying the inverse - that it's not necessarily a negative for Etsy and Threadless that they are small. In fact, I think Jason does recognize that being bigger is an advantage:

>> "Clearly the value of a marketplace increases as it grows — both as a business and to the buyers and sellers."

As to your second paragraph, I agree it comes down to you meeting the needs of your niche in some way that is better than the way the big boys are doing it (that is, of course, if you are competing directly with them). There is nothing, in principle, stopping them from replicating whatever you do to create an advantage. And you certainly won't win just because you have a smaller market. But there are a lot of products (like the t-shirts on Threadless) where relative obscurity increases the value of the product. There will always be consumers who shy away from the mainstream offerings, in some cases because the offerings are mainstream.