The Infinite Loop Of Algorithmic Pricing On Amazon… Or How A Book On Flies Cost $23,698,655.93

from the do-they-have-a-kindle-version? dept

Glyn Moody points us to an amusing story by biologist Michael Eisen, about two Amazon book sellers who (it appears) each used algorithmic pricing to set their own prices on books off of what the other one was pricing it at, leading to an ever escalating price on this particular book about flies. It started with someone looking up a copy of the book The Making of a Fly on Amazon to order a copy for Eisen’s research lab at Berkeley and noticing the odd pricing on a couple of used books:

And while everyone at first assumed a typo or some other mistake, they soon discovered it was likely something else:

Amazingly, when I reloaded the page the next day, both priced had gone UP! Each was now nearly $2.8 million. And whereas previously the prices were $400,000 apart, they were now within $5,000 of each other. Now I was intrigued, and I started to follow the page incessantly. By the end of the day the higher priced copy had gone up again. This time to $3,536,675.57. And now a pattern was emerging.

On the day we discovered the million dollar prices, the copy offered by bordeebook was1.270589 times the price of the copy offered by profnath. And now the bordeebook copy was 1.270589 times profnath again. So clearly at least one of the sellers was setting their price algorithmically in response to changes in the other?s price. I continued to watch carefully and the full pattern emerged.

Once a day profnath set their price to be 0.9983 times bordeebook’s price. The prices would remain close for several hours, until bordeebook “noticed” profnath’s change and elevated their price to 1.270589 times profnath’s higher price. The pattern continued perfectly for the next week.

In other words, by basing the price on a specific multiple of each other’s price, they created something of an infinite loop of automated pricing. Of course, since it only seemed to check once a day, the loop didn’t spiral totally out of control (well, depending on your opinion of the value of a book on flies). Apparently, the escalation in price went on for another week and a half or so before someone finally noticed… but not before the book got all the way up to $23,698,655.93:

The book is apparently now available at a much cheaper “bargain” price, though you may want to pick up your copy for resale in the future if the “value” keeps appreciating.

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Comments on “The Infinite Loop Of Algorithmic Pricing On Amazon… Or How A Book On Flies Cost $23,698,655.93”

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42 Comments
Anonymous Coward says:

Re: The Real Question is:

I was thinking the same thing. It seems fishy, like maybe its the same company trying to drive up prices and their algorithm got out of control or wasn’t set to stop at a certain point.

Bordee has 128k lifetime sales 4k in the last month
Profnath has 8k life time sales 250 in the last month

It seems odd that bordee is even aware of profnath, let alone so adamant about making more money than them that they base an algorithm around them.

zegota (profile) says:

Re: The Real Question is:

It makes sense to me. Basically, they seem to be banking on the idea that someone would rather spend an extra $2 to buy from a seller with thousands of positive ratings rather than one with significantly fewer. Also, since the Amazon marketplace involves used items, they’re using the notion many consumers possess that “you get what you pay for,” and paying a higher price indicates that the item is of a higher quality.

Of course, they obviously didn’t think far enough ahead to realize that that extra $2 could turn into millions.

Anonymous Coward says:

Re: Re: The Real Question is:

“Basically, they seem to be banking on the idea that someone would rather spend an extra $2 to buy from a seller with thousands of positive ratings rather than one with significantly fewer.”

makes sense for the much bigger company, but why would the smaller company do it then. You would think the smaller company would want to be a little cheaper than the bigger company to give people incentive to use them instead of the seller with 100k+ positive reviews.

unless like you said they both hope people equate a higher cost with a better product.

I wonder if this is something with the pricing between these companies on many items or just this one weird case because like I said I am suprised bordee is even aware of pronath.

Maybe they both have an algorithm to drive up price if there is only 1 other seller for an item?

Anonymous Coward says:

Re: Re: Re: The Real Question is:

oh i misread pronath for 99% of the price of their competitor not .99% over their competitors price.

so 9.99 instead of 10$

and bordee was 1.2% over their price.

so pronath wanted to be the lowest price but still get as much as possible and bordee (as others have sugested) didnt own the book but would order from pronath and reship(otherwise you would get a pronath invoice and they cant quality check) to you keeping a small profit for doing nothing. Seems like a bad idea as I imagine this strategy could lose them money if its a cheap book, then again the program that does this might not kick in unless the book is over a certain price.

Cdaragorn (profile) says:

Re: Re: Re:2 The Real Question is:

That’s what’s so confusing about this, though. Bordee isn’t just 1.2% over, they went 27% over (1.27, not 1.012). If profnath charged 9.99, Bordee would be charging about 13.

I can only assume that they assumed Profnath would keep their price low, because any higher than that would start causing the price difference to skyrocket, as it did :).

Mike Masnick (profile) says:

Re: The Real Question is:

Why would anyone want their price to be the highest in the store? I guess it would put you at the top of the list by default.

The theory is that that seller has a very strong reputation, but doesn’t actually have the book. So it hopes that its reputation means people will pay the higher price… and then since it doesn’t have the book, it has to buy it from another vendor, and leave enough room for profit, so it algorithmically prices it slightly higher.

velox says:

Re: Re: The Real Question is:

“The theory is that that seller has a very strong reputation”

So now they’ve lowered the price dramatically, but after the reduction, Bordeebook still has a used copy listed for $976.98 (at least right now).
—>Meanwhile, over at Borders , you can pick up the book for $67.

Even after this hit the national news media, it seems these guys haven’t figured out that customers can price compare on the internet.

At least in the future these sellers may not have to wonder how they developed a strong reputation … as idiots.
Hint to Bordeebook: There’s this thing people call “shopping

Anonymous Coward says:

Re: Re:

That makes sense. A lot more than anything I had come up with.

Basically the seller is out of the book but offers it for 1.2% more than someone else who has it with plans to buy the book from them and reship to you?

Seems like this is something you wouldn’t want an algorithm to monitor because is the book is 3.99 your only looking a couple cents profit and you will probably lose that reshipping as you would have to express ship it to yourself or the customer to meet expected ship times.

But still a pretty reasonable guess as to what is going on.

Mike Masnick (profile) says:

Re: Re: The most expensive books

you missed this reasonably priced used copy of point counter point: http://www.amazon.com/POINT-COUNTER-Aldous-Huxley/dp/B002HL90BU/ref=sr_1_3?s=books&ie=UTF8&q id=1303768313&sr=1-3

well worth the 900 mil id say, as long as its gently used

Wow. I actually have a copy of that book on my bookshelf… I think I need to put that up on Amazon quickly. I’ll offer it for *half the price* of that other guy and be rich, rich, RICH!

Q?r Tharkasd?ttir (profile) says:

Noticed something similar...

?
… on Amazon (UK, DE, FR, etc.?? when I was still making my purchases there:?after their trashing of Wikileaks, I’ve pretty much moved to PriceMinister, which so far I find much more streamlined). Typically: a book from a European publisher, still in print and sold as new for, say, 20 euros, and offered as used by Amazon’s “affiliates” in Europe for, say, 8 euros, might be offered, also second-hand, by a US seller for 62.56 US$ or some other ridiculous sum. I used to think that some people didn’t quite understand the mechanisms of currency exchange, but apparently it might also be a question of algorithms on the loose.

Anonymous Coward says:

Another devious thought considering that the companies were indexing to each other. What if they were actually both the same entity, one branding itself as worth a slight premium becasue they have more ratings and better ratings, while the other brands itself as the lower price alternative. The the price spiral is a result of simple incompetence in defining the limits of where the dynamic pricing should go.

Jay says:

Look at it and don't buy it - it goes up. A lot.

Just try this: View an item. Put it in your cart. Delete it. Price goes up. Within MINUTES. All you need to do is wait for the retailer to go through its ‘bump cycle’ (up to 30 days sometimes – depends on demand) to get the price back down.
Doesn’t exactly inspire confidence, and if you’re not a moron, you can figure this shell game out pretty quickly.

George Harper says:

The Real Question is:

They set their price a little higher because they want to be able to appear to have a large selection when the reality is if anyone buys the book they will buy it from another source and reship it. Their price is set a % higher then the price of that source so they make a profit.

Oftimes their ratings are very high so they count on someone being willing to pay a dollar or two more for the ‘security’ of getting something from a highly rated seller.

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