Investors are pouring capital into MercadoLibre (NASDAQ: MELI), and the windfall could have critical implications for other ecommerce players in the Brazil, the company’s biggest market.

With its stock at an all-time high and a $22bn market cap, MercadoLibre said last night it’s raising $2 billion in fresh capital.

Of the total, $750 million will come from PayPal, which is making a strategic investment in the Latin American company founded by Marcos Galperin and Stelleo Tolda.

MELI said will raise another $1bn in the market and could increase the offer by $150m depending on demand.  Goldman Sachs, JP Morgan and Morgan Stanley are joint bookrunners.

In addition, Dragoneer Investment Group — a San Francisco firm that counts David Bonderman, the founder of TPG, among its investors — will buy $100 million in a special series of perpetual preferred shares convertible into voting shares. Dragoneer is better known for its investments in Airbnb and Spotify, among other tech companies.

But the most important question is how the proceeds will be used.  In principle, a capital-raising exercise like this can be reactive or aggressive in nature.

“MELI’s goal may be to repeat here what Alibaba did to eBay in China, where eBay was huge until it got decimated,” one source in São Paulo told Brazil Journal.

By now, the story of how a thin and short man named Jack Ma kicked eBay out of China has become ecommerce lore.

Ma first raised money from Softbank ($100 million) and later Yahoo ($1 billion for 40% of the company), at a time when Alibaba didn’t even generate cash.

Once the cash was in, Ma started burning it.  He offered free shipping on Taobao — Alibaba’s B2C-focused platform — and went on a full frontal attack against eBay.  Ma even  promised that free shipping would continue for three years.

Then led by Meg Whitman, eBay’s executives viewed that behavior as unsustainable — and did nothing. “Free is not a business model,” the company famously proclaimed. That motto is now part of case studies in business schools around the world, but it’s Alibaba that owns China. (To date, not even Amazon has penetrated Ma’s Great Wall.)

By 2006, Taobao already had a bigger market share than eBay in China, and it was ‘game over’ for the Americans.  eBay shut down its website in China later that year, just three years after setting foot in the country. (Ma’s epic triumph was documented in the film “Crocodile in the Yangtze,” available on YouTube.)

Sources in Brazil’s ecommerce industry think that MELI may be raising a war chest to become more aggressive, taking a page from Ma’s playbook.

These days, even the grass on the Stanford campus knows that ecommerce tends to be a duopoly around the world. (MercadoLibre’s average ticket is R$ 120, and its customers make eight purchases a year.  At competitor B2W, for example, the average ticket is R$1,000, as the company’s legacy is to sell higher-ticket items such as fridges and TV sets, but its consumers buy only 1.3 times/year on average.)

“MELI is already firing on all cylinders, so what comes next could be the final blow,” says a source who knows both companies well. “If there is a price war, the biggest casualty could be B2W as they have 100% of their business online, while all other players own brick and mortar stores.” 

In the world of ecommerce, it is not the warrior who chooses the war, but the other way around. “If the enemy leaves a door open, you must rush in,” Sun Tzu — another Chinese man who wasn’t joking — taught us in ‘The Art of War.’ 

For Brazil’s marketplace players, the clearest ‘open door’ is free shipping. Last year offered a lesson in how the business responds (elastically) to shipping prices. Last July, MELI hardened its free shipping policy, which alienated part of the sellers.

“Shipping is the biggest offender of conversion in ecommerce,” says one source. “Bezos once said the best marketing investment he made was free shipping.”

Some investors bet that MELI is ready to repeat BABA.

Dynamo — one of Brazil’s most respected money managers — recently amassed a position in the stock and said last July that MELI was cheaper then than at its IPO. The stock has risen 30% since.