Associated Incidents
Two booksellers using Amazon's algorithmic pricing to ensure they were generating marginally more revenue than their main competitor ended up pushing the price of a book on evolutionary biology – Peter Lawrence's The Making of a Fly – to $23,698,655.93.
The book, which was published in 1992, is out of print but is commonly used as a reference text by fly experts. A post doc student working in Michael Eisen's lab at UC Berkeley first discovered the pricing glitch when looking to buy a copy. As documented on Eisen's blog, it was discovered that Amazon had 17 copies for sale – 15 used from $35.54 and two new from $1,730,045.91 (one from seller profnath at that price and a second from bordeebook at $2,198,177.95).
This was assumed to be a mistake, but when Eisen returned to the page the next day, he noticed the price had gone up, with both copies on offer for around $2.8 million. By the end of the day, profnath had raised its price again to $3,536,674.57. He worked out that once a day, profnath set its price to be 0.9983 times the price of the copy offered by bordeebook (keen to undercut its competitor), meanwhile the prices of bordeebook were rising at 1.270589 times the price offered by profnath.
Amazon vendors use algorithmic pricing to ensure that they can automatically change their product prices based on a competitor, for example. So it is clear why profnath would be keen to continually undercut the pricing of its competitor, but less clear why bordeebook would keep its prices more expensive. One reason might be that it has very good feedback and would bank on the fact that people are prepared to pay a bit more for a trusted seller. Eisen speculates that it is because the retailer doesn't actually have the book in its possession, but would have to source it as soon as someone had requested to buy it.
The price of the book peaked on 18 April at $23,698,655.93 (plus $3.99 shipping), before profnath saw sense and dropped its price to $106.23.
The comical automated price war goes to show how retailers need to put pricing parameters in place when employing these sorts of algorithms.