Amazon Marketplace – Algorithmic Price Games

two ridiculous $176 prices and one $8 price

Remarkable Algorithmic Pricing on Amazon Marketplace

When we first started Asatte Press a few years ago, we dived enthusiastically into the task of writing and publishing our first book – a systematic guide for young men on how to host cocktail parties, dress for the occasion, manage the social niceties, and understand the nuances of different wines and liquors. It was a lot of fun to make. We had a big team of interns help us. They produced some really great graphic art. We produced a very nice looking product.

Then we encountered reality. There is absolutely no demand for this sort of book. The young men in question really do not want the information, thank you. They are defiantly proud of their “anti-establishment” reverse baseball caps. This was a classic case of a faulty business decision made on the basis of “gut feel” rather than solid data. Oh well. We are learning and getting better at doing careful data-driven market research before we spend time, effort, and money on things.

In the mean time, we have a large pile of these books. They are nice books and it seems a shame to simply take them to the recycling facility, so Tomoko is putting them up for sale cheap on her personal Amazon Seller account.

And that is where it gets interesting. As you can see from the figure, Tomoko is offering the book new for $7.99 while two sellers are offering it used for $176.95 – what is going on? This is a simple, but up-close-and-personal example of the algorithmic gaming that goes on in the Amazon Marketplace. The two offers shown are actually identical from two different IDs that are obviously the same dealer. Dealers like this one don’t actually have copies of any books. Instead, the run a sort of sucker game of algorithmic pricing in which they attempt to entice customers into naively paying a premium price for a book. In the event that someone actually orders one for $176.95, that dealer will scramble around trying to find a real copy somewhere (for $7.99) and ship it to the customer. Apparently, in some cases they apparently even ask the legitimate dealers to drop ship for them.

One problem with these schemes is that their algorithms seem to get tripped up by mathematical boundary conditions – like only one other seller of the book. I guess that the math that they use is expecting to have 100 other offers and so some sort of polynomial spline fit to pick a price. One there is only one legitimate price point, the math goes berserk and spits out a ridiculous number.

Amazon hates these guys and has been trying all kinds of things to weed them out. Recent measures have included pressuring all sellers to ship the same day and also trying to shorten the promised delivery time. Unfortunately, these sorts of measures tend to hurt the legitimate mom-and-pop dealers as well and Amazon usually ends up having to back off.

These phenomena are all part of the joy and fun of being in the publishing business currently.