A long while ago Yahoo tried to compete with eBay offering YahooAuctions. Their heart wasn't in it, and they killed it off. The potential there was huge and because there is no competition, eBay has enjoyed enormous profits at the expense of anyone trying to sell stuff. The commission they take off every sale is huge. Yahoo could shave the commissions down just a bit and still make a healthy profit.
Oh, and it would be trivial for Yahoo to make a craigslist competitor. I wish they would. Heck, with flickr, they've already got the photo hosting set up. Users would be attracted by improved interface and excellent mobile buying and selling app. At present, Craigslist doesn't care about either of these things and deserves to be knocked off its laurels.