Data-mining tools used on Wall Street to trade commodities at blazing-fast speeds are helping sellers on Amazon squeeze out a few cents’ more in profit, according to the Financial Times.
Victor Rosenman of Feedvisor, which offers the tools to Amazon sellers, told the newspaper: “We took a lot of inspiration from the stock market.”
By crunching data from across Amazon (and, presumably, other online retailers), sellers can generate product prices that undercut the competition. Depending on the inputs and algorithms involved, however, there’s also the chance of pricing malfunctions. If multiple sellers continually readjust their respective prices for the same product, for example, the price could dive to almost zero—a disaster for any merchant trying to make a buck—or skyrocket into absurdity.
The most oft-quoted example of the latter—by the Financial Times and others—is Peter Lawrence’s “The Making of a Fly,” a text on developmental biology that, thanks to hot algorithmic action, ended up costing as much as $2,198,177.95 (plus a few bucks for shipping) on Amazon back in April 2011.
One working theory, espoused in a blog post around that time by Michael Eisen, is that secondary sellers who didn’t actually own “The Making of a Fly” were offering it for sale at a price a few dollars higher than list: “If someone actually orders the book, they have to get it—so they have to set their price significantly higher—say 1.27059 times higher—than the price they’d have to pay to get the book elsewhere.”
With their algorithms lacking some sort of sane upper limit, however, the sellers’ book prices began their spiral into the stratosphere. “All it took were two sellers adjusting their prices in response to each other by factors whose products were greater than 1,” Eisen wrote. “And while it might have been more difficult to deconstruct, one can easily see how even more bizarre things could happen when more than two sellers are in the game.”
When used books from secondary sellers appear on Amazon for a multiple of the cover price—especially when the same book retails new for a much saner amount—it could be indicative of an algorithm at work.
High-speed algorithms have already been blamed for bizarre prices on Wall Street, including the May 2010 “Flash Crash.” That doesn’t necessarily mean those same tools, deployed in the service of pricing goods on Amazon, will cause a widespread implosion in prices; but it could lead to the occasional weirdness, such as a novel selling for much more (or much less) than anyone would reasonably pay for it.
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