Citizen Journalism Bites Into Amazon's Attempts At Dynamic Pricing

from the keeping-up-with-the-market dept

In economics classes, at some point, you learn about the idea that dynamic pricing could be very efficient. If you could charge each person at the price point where they most valued the good (assuming that it was above the cost for the good), you could maximize your profit. People who valued a good very highly could be charged a lot more, while those who would still buy it, but only at a small premium could also be sold the product. That way you maximize both the number of sales and the profit. Sounds great, if you can pull it off. However, it makes one very big assumption: that the information flow is asymmetric. Only the seller knows the prices and the buyers don’t compare. Because, if buyers can compare, or see the fact that sellers are changing prices based on how desperate you are, they get pissed off — and having angry buyers isn’t good for business. This was clearly seen way back in 2000 when Amazon started experimenting with dynamic pricing. Depending on who you were, it would offer somewhat different prices on certain goods. The economic geek in me thought that was a cool idea (and an opportunity to try to do some arbitrage), but the consumer in me thought it was bad — and many consumers agreed with that side. The anger over the plan forced Amazon to apologize and shelve it.

So, it’s interesting to see a new story suggesting that Amazon may be fiddling with its prices again, even to the point of potentially putting small increases on books that people put in their shopping carts to think about, but don’t actually purchase. However, where this gets really interesting is in a separate discussion of that original article that wonders if a bunch of people could team up with the data they all have from Amazon associate fees to determine if this is actually happening, and if so, how it works. What this shows is the flipside of the original point on dynamic pricing. Since it really only works when you have asymmetric information, what happens when that information flow is broken down by new tools, data and communications systems? In other words, the very concept of “citizen journalism” can actually impact the economics of a market by gathering and spreading information flow beyond what would normally be available.

Meanwhile, in an entirely separate story, it seems that these same “users” are outing another secret Amazon policy. Slate has an article about Amazon’s secret price guarantee, where they’ll match the lower price if the site happens to drop the price of something you bought within 30 days of purchase. The company doesn’t officially state that policy anywhere, but Slate found out about it from a user in Amazon’s forums, who discusses the policy. Again, this would appear to mess with Amazon’s attempt to keep the information flow asymmetric, preventing them from being too aggressive in dynamic pricing.

Rate this comment as insightful
Rate this comment as funny
You have rated this comment as insightful
You have rated this comment as funny
Flag this comment as abusive/trolling/spam
You have flagged this comment
The first word has already been claimed
The last word has already been claimed
Insightful Lightbulb icon Funny Laughing icon Abusive/trolling/spam Flag icon Insightful badge Lightbulb icon Funny badge Laughing icon Comments icon

Comments on “Citizen Journalism Bites Into Amazon's Attempts At Dynamic Pricing”

Subscribe: RSS Leave a comment
John Frost (user link) says:

30 day policy

I think the ‘price guarantee’ is just a side effect of Amazon’s 30 day return policy. On most items, if you have an unopened package Amazon will accept a return for 30 days. To prevent having to pay for return shipping on customers who just want the new lower price, Amazon finds it cheaper to offer the ‘price guarantee’. Nordstroms and a few others do the same thing. If your item has the original tag you can always bring it back and get the lower price. Not only is it good customer service, it’s good business sense (as long as you offer returns, that is)

Rick says:

Dell has been doing this for years.

They get you signed up with a ‘deal’ then market to you with inflated prices on their site once you’re ‘logged in’ for future purchases.

I often find much better Dell deals on the web that are hidded on their site. If I go there I get my ‘preferred customer’ pricing which is actually worse than their ‘deals.’

Stu says:

The problem trying to fight companies that screw you over with deceptive deals is that so many of them do it that there’s no “honest” place to go.

At a certain point it becomes too much trouble and you bend over and take it – so to speak.

They count on it becoming so commonplace that it it’s considered normal business practice – and they are winning this war.

ADayrhna says:

The great thing about amazon’s 30 day thing is that its 100% automatic. You just have to know where to go on amazon’s site, and you click on a previous order, click on the item that dropped, and they process it automatically. You get an email back in a few hours usually saying you got refunded.

There’s a site linked earlier called refundplease which is really great. You put in the item you bought, the price, and your email, and they email you back if the price drops in 30 days. Since amazon likes to tweak the price, sometimes adjusting it hourly, you can jump on the price reduction when they lower it a bit.

I’ve done a number of items from the refundplease thing and I’ve never gotten any spam (first used it almost a year ago).

Add Your Comment

Your email address will not be published.

Have a Techdirt Account? Sign in now. Want one? Register here

Comment Options:

Make this the or (get credits or sign in to see balance) what's this?

What's this?

Techdirt community members with Techdirt Credits can spotlight a comment as either the "First Word" or "Last Word" on a particular comment thread. Credits can be purchased at the Techdirt Insider Shop »