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Amazon Automatic Pricing Lists Book At $23M 147

Posted by samzenpus
from the I'm-gonna-need-a-price-check-on-4 dept.
leek writes "An Amazon.com pricing algorithm which lets sellers set prices based on other sellers' prices led to a positive feedback loop, causing the biology text The Making of A Fly to reach $23M. Biologist Micheal Eisen writes: 'What's fascinating about all this is both the seemingly endless possibilities for both chaos and mischief. It seems impossible that we stumbled onto the only example of this kind of upward pricing spiral. And as soon as it was clear what was going on here, I and the people I talked to about this couldn't help but start thinking about ways to exploit our ability to predict how others would price their books down to the 5th significant digit -- especially when they were clearly not paying careful attention to what their algorithms were doing.' The price of the book was reset but is currently back up to $976.98."

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Amazon Automatic Pricing Lists Book At $23M

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  • Call me when I can buy a Nintendo 3DS for fifty cents.

  • by dmomo (256005) on Tuesday April 26, 2011 @10:48AM (#35942134) Homepage

    Now that robots are setting prices, must they follow the same rules as people? I would think that, without any explicit agreement, using game theory type decision making alone, a pattern of "price fixing" could certainly emerge by virtue of different algorithms making their own optimizations.

    Is this okay?

    • Of course it's okay, just don't expect me to buy anything if I don't think it's worth it!

      Well, this story goes a small way towards explaining some of the ridiculous prices from some Amazon 3rd party sellers. I saw a textbook recently for hundreds of pounds and wondered wtf they were smoking when they set that price.

    • by nospam007 (722110) *

      "Now that robots are setting prices, must they follow the same rules as people?"

      No, they can even open stores on holidays, when no salesperson is there, as we learned recently.

    • I would think that the sellers bear any responsibility for what their automated programs do.

    • It's not fixing if each actor, basing his actions on his own motivations, performs actions that happen to be beneficial to other actors. I should think that the same rules should certainly still apply.

      Ignoring the fact that the algorithm here is broken, why would it matter if it's an algorithm or a person who decides how their product should be priced? In both cases, inputs of other prices of similar goods are used to set the price for yours.

    • by Waffle Iron (339739) on Tuesday April 26, 2011 @11:45AM (#35942868)

      Now that robots are setting prices, must they follow the same rules as people?

      No. Here are the rules for robot pricers:

      • 1. A robot must maximize profits, and may not through inaction allow profits to not be less than maximized.
      • 2. A robot must obey any orders given to it by human beings, except where such orders would conflict with the First Law.
      • 3. A robot must protect its own existence as long as such protection does not conflict with the First or Second Law.
      • by samjam (256347)

        I think you got the 2nd and 3rd laws the wrong way around.

        Classically of course, you are right, but not from a commercial perspective.

      • by ne0n (884282)
        "A robot must maximize profits, and may not through inaction allow profits to not be less than maximized" is self-contradictory.
        • I accidentally left an extra "not" in the rule while I was editing it. The logical conflict probably means that the robot is going go insane, take over the world's computer systems, and launch a global nuclear war. My bad.

      • by Alsee (515537)

        You goofed. there are four laws:
        1. A robot must maximize profits, and may not through inaction allow profits to be less than maximized.
        2. A robot must obey any orders given to it by human beings, except where such orders would conflict with the First Law.
        3. A robot must protect its own existence as long as such protection does not conflict with the First or Second Law.
        4. A robot may not injure a human being or, through inaction, allow a human being to come to harm, as long as

    • by Darinbob (1142669)

      This is too much like the artificial and broken economies in MMOs and their auction houses. No real bidding only buyout prices and everyone has their prices as high as they can. After all, $23 million may be too expensive for a newbie player, but all it takes is one twink to buy that book and the seller will feel it's all worth it. In an MMO this works because it costs you nothing to make the product and it costs nothing to keep relisting it over and over. In a real world store though you should feel in

  • by Anonymous Coward on Tuesday April 26, 2011 @10:51AM (#35942184)

    Way to embed your affiliate code in there. You're not making anything off my purchase of a $23M book.

    • by MMMDI (815272)
      It sets a cookie on your computer, so even if you don't buy that book (and why wouldn't you?!), you'll send them a few nickels next week when you buy a DVD... unless you click someone else's referral link in the meantime.
  • by jmac_the_man (1612215) on Tuesday April 26, 2011 @10:54AM (#35942212)
    This is a textbook? So are we sure it was a mistake?
    • by blair1q (305137)

      Seemed kind of low to me, too.

    • by archen (447353)

      On the bright side you might be able to sell it back for $10

    • by jonadab (583620)
      Yes, it was a mistake. The book was only supposed to cost $23 _thousand_, not $23 _million_.

      What really happened, I think, is that they mixed up the textbook cost with the tuition.
  • Do you think they might want to flag a price for human review if it hits a certain threshold? or advances a certain percentage?

    Goin out on a limb here, but I think 23 million is a bit pricey.
    • by jd (1658)

      I've seen books on Amazon before that were in the thousands of dollars - books that you can find at any used bookstore for 50 cents, we're not talking ultra-rare stuff here. So this isn't a new bug and they're bound to have had complaints many times before. I think this is the first time they've let the loop get this far though.

      • But thw latest "Harry Potter and my Overflowing Bank Account" is worth it, isn't it?

        • by jd (1658)

          Apparently to enough people that Amazon hasn't seen it as a bug. If people are willing to pay thousands for a pop paperback, it would be economic stupidity to fix the error. If the extreme prices had actually cost Amazon money (directly or indirectly), the bug would have been fixed long ago.An alternative explanation is that the bug has been random enough that fixing it would have merely added a few dollars chump-change to the sales - nowhere near enough to pay for the bugfix.

          Hmmm. I'm definitely getting th

      • by Obfuscant (592200)

        I've seen books on Amazon before that were in the thousands of dollars - books that you can find at any used bookstore for 50 cents, we're not talking ultra-rare stuff here. So this isn't a new bug and they're bound to have had complaints many times before. I think this is the first time they've let the loop get this far though.

        I've seen the same thing, but it was always in a context of a dozen different stores all selling the same used book. All but one would have a reasonable price. One, two, maybe five dollars. But one store would be above $1000. I could never figure it out, and the one time I sent email to the store asking why they were so high I didn't get an answer.

        I assumed it had something to do with a money laundering operation.

        • by jd (1658)

          If they continue to launder money at that rate, there'll be a world shortage of washing powder.

  • I've seen sites that answered their own question of, "Why pay $9.95? Our price: $8,478,902,736.92".

    Of course, whenever it is in the customer's favor, it's always a pricing error.

    • by Machtyn (759119)
      Either way it is a pricing error. It's just that in one direction, they will have more unit sales. The question is, do they lose more money by selling 0 units at the incorrectly priced $8.5b or when they sell 1000s of units at an undervalued price?
  • I knew I should have hit "But It Now" when it was still under a hundred!
  • by Rysc (136391) * <sorpigal@gmail.com> on Tuesday April 26, 2011 @10:58AM (#35942290) Homepage Journal

    I added Around the World in 80 Days to my cart one day and forgot about it. Later in the week I went back and saw a notice that the price of an item in my cart had changed. When I looked I found that the movie had gone from a modest ~20USD to over 800USD. I let it sit there and a few days later it changed again, this time to ~18USD. I bought it immediately before it could get worse again.

    • by Nidi62 (1525137)
      It's just like what department stores do. They raise their prices dramatically a day or 2 before a sale, that way they can drop them again and say 60% off when it's really only like 10-20% off if that.
    • by Chemisor (97276)

      Soon you'll need HFT algorithms to get a decent price on a book. There could already be a few banks out there fast-trading book futures.

    • I found a better price [gutenberg.org].
      sucker.
    • by B Nesson (1153483)
      I added Around the World in 80 Days to my cart one day and forgot about it. Later in the week, I went back and saw a notice that the price of an item in my cart had changed. When I looked, I found that the movie had gone froma modest ~800 USD to over 32,000USD. I let it sit there and a few days later, it changed again, this time to ~720USD. I bought it immediately before it could get worse again.
  • by Anonymous Coward

    I'm going to set up an options market for Amazon so that people can trade futures based on the expected price of a given book.

  • by VGPowerlord (621254) on Tuesday April 26, 2011 @11:02AM (#35942336) Homepage

    The summary apparently forgets to mention that the sellers in this case are not Amazon themselves, but third-party vendors using Amazon's used book sales thing.

    Note: The article does make this distinction, so it's just a bad summary.

    • Actually Amazon uses an automated script to change their prices to reflect changes in other sellers. They reset their own price and as you can see it is back up to over 900 dollars.

      • by daenris (892027)
        While I believe Amazon does use an automated price setting system, no copies of this particular book are being sold by Amazon directly, it's all third party sellers.
    • by TheLink (130905)
      It's just a "Slashbot Automatic Summary".
    • by Darinbob (1142669)

      I'm uncertain why one would have an algorithm that automatically made your price slightly higher than the competition.

  • This is unreal. Even though two or more companies are in "competition", no one is going to pay that much for this book.

    It seems like you could even exploit this.
    1. Offer not-so rare book.
    2. Watch prices go up.
    3. Have accomplice try to buy book for $23,000,000
    4. Raised the price of your book to several thousand.
    5. After they've paid for the book from you, have accomplice disappear.
    6. Profit
    • Re:Unreal (Score:4, Funny)

      by kevinNCSU (1531307) on Tuesday April 26, 2011 @11:54AM (#35942992)
      So just to be sure I'm reading this right, your plan is to find an 'accomplice' to 'buy' a book from you for 23 million dollars and then have them 'disappear'?
      • Almost.
        1. I offer a book almost nobody wants for a small amount.
        2. Two book sellers keep trying to upbid each other in the manner described in TFA
        3. My accomplice offers to buy the book from one of those sellers
        4. Before that seller can acquire the book from me, I raise the price
        5. The seller pays my price. (He may offer to buy it from the other seller, but that guy doesn't have the book either.
        6. Once one of them has paid my inflated price, my accomplice disappears
        7. Profit

        *Note: All the above (:-) for the humor impaired

      • by Megane (129182)
        Better not do this in any context where sales tax could be involved, especially from tax-hungry states like New York!
  • The price isn't so bad when you consider you are able to sell it back to them after

    Sell This Book Back for $2.34 Whether you buy it used on Amazon for $158.90 or somewhere else, you can sell it back to our Textbook Buyback Store at the current price of $2.34. Restrictions Apply

    Oh... wait...

    • by jonescb (1888008)

      I wish the book store at my college paid those rates! They wouldn't even buy back the one book I tried selling to them.

  • This is obvious. (Score:5, Insightful)

    by ModernGeek (601932) on Tuesday April 26, 2011 @11:25AM (#35942658) Homepage
    They mixed it up with the RIAA pricing algorithm.
  • Anyone notice that the buyback price seems to imply that the book is utterly worthless? I've had better returns on college textbooks (at the campus bookstore) and at used book sellers around town.

  • If you read the fine article, it seems that this price is based on an automatic price-fixing scheme. If they raise their prices, I can raise mine too etc. etc. until their books are astronomical in cost. In a good market, this would be the other way around where prices automatically go down until it gets to break-even prices as competitors race to get customers. But in a monopoly or duopoly market (as books, music, movies, cable, internet and other media often is) the prices go higher and higher in order to

    • by nedlohs (1335013)

      Except it isn't just that hald, if's also "if my competitior lowers their prices, I need to lower mine".

      When one half of the loop is setting there price to be *higher* than the competitor you have the potential for some strange feedback loops - it's a wierd pricing scheme (though it can make sense under a few models).

      One vendor has the usual approach approach that economics expects: undercut my competitors price by a small amount.

      But the other vendor has the strange: charge more than my competitor.

      And since

      • by eyrieowl (881195)

        which would also be a funny result...look at all these books that only cost 1 penny! The charge more competitor isn't really that strange...they're probably not maintaining any stock and need to go buy the book when ever they make a sale...so they have to charge more to provide room for buying the book elsewhere + some profit. Isn't going to get very many savvy shoppers who, say, price compare, but it could rope in some buyers who are in a hurry or aren't paying attention (of course, that's all assuming t

        • It could also be on the assumption that the competitor only has limited stock of each "used" book, combined with the preference to maximize profit per book rather than turnover. Mark my price a little higher than my competitor and once he has sold out, I will then become the cheapest and also know that my price is still "market rates" and thus I will make slightly more profit than my competitor.

        • by nedlohs (1335013)

          Cycling down you would expect to have a limit - "don't go under what I paid for the book + X%", but making an upper limit isn't so important.

          Yes I said their were a few models under which charging a bit over the competitors makes sense, but I wasn't going to bother describing any given the article already describes a few.

  • by trb (8509) on Tuesday April 26, 2011 @11:59AM (#35943058)
    here's a price history graph of the book http://camelcamelcamel.com/Making-Fly-Genetics-Animal-Design/product/0632030488 [camelcamelcamel.com]
  • From the summary:

    It seems impossible that we stumbled onto the only example of this kind of upward pricing spiral.

    While this is an extreme example, this kind of crap has been going on since (aided and abetted by Amazon and Alibris) the amateur commodity booksellers burst onto the web in the late 90's.

    Scrapers and ratings manipulators like 'bordeebook' are one of the multiple ways that the 'net has made the professional used and rare bookman nearly extinct.

  • This was not Amazon's pricing algorithm. This was the individual pricing algorithms of third-party robots selling on Amazon's marketplace, working together in a delightful feedback loop.
    • by blair1q (305137)

      But in order for this to happen, each one has to have "price X% higher than seller Y's price, with no maximum" as its algorithm.

      I'm not sure how that's supposed to be a profitable system.

      Anyone looking on Amazon is going to buy from X because their price is lower. Raising your price above someone else's means you lose the sale.

      So why are these people doing that to themselves?

      • by Jesus_666 (702802)
        Faulty assumptions, I'd guess. Going from the premises that the market will regulate itself well and that some people will pay a slightly higher price it's a viable strategy to sell your book a bit higher than the market average. Of course this goes down the drain when unchecked robots follow this strategy in large enough numbers to distort the average price. In that case the first premise no longer holds and the model spirals out of control.
      • But in order for this to happen, each one has to have "price X% higher than seller Y's price, with no maximum" as its algorithm.

        Not quite. There was actually a detailed analysis of this spiral. What happened there is that one bot indeed had it set to ~15% higher, but the other was actually set to offer it ~5% lower. The problem is that those two bots were the only sellers offering the book, and therefore they only saw each other - and as the +15% one raised its price, the -5% one also went up.

        Now why one bot offered it for +15%? It has a much higher seller rating with lots of positive reviews, so it's likely that it would pop up fir

      • by Carnildo (712617)

        You don't need both parties to be "price X% higher". Consider the rules:

        Joe: Price 5% higher than Bob.
        Bob: Price 2% lower than Joe.

        Any time you've got people pricing relative to each other with no limits or outside references, you can get a runaway price change.

      • > Anyone looking on Amazon is going to buy from X because their price is lower.

        Not necessarily, you are assuming that all offers are equivalent and are differentiated only by price.

        I have often passed-over the cheapest offer on Amazon because of;

        1. Condition of the item being sold;
        2. "Postage" policy ( our wee country is not part of the mainland );
        3. Seller feedback ratings;
        4. Poor grammar in an item description ( correlates with seller's attitude );
        5. Prosaic reasons, such as the higher-priced item bein

  • It's not the listing price but the sale price that matters. Making decisions on the list price makes no sense. Of course it is a one-sided feedback loop. [insert analogy on cars or housing market here.]
    • by blair1q (305137)

      If it's the sale price instead of the listing price, it would never get this far.

      Or did someone pay $22 million elsewhere?

  • I wouldn't pay more than a million for that book especially with that cheesy cover (worst photo-micrograph ever!). And before I forget, "I welcome our robotic price-fixing overlords..."
  • ...the book will be priced more by 20 percent.

    Even though the US and Canadian dollars achieved parity in December of last year and the US dollar is on the low end.

    http://www.x-rates.com/d/CAD/USD/hist2011.html [x-rates.com]

    Oh the days when I could go shopping in Canada when the Canadian dollar was 1/3 less (really, 33 percent - 400 bucks got me 600 CDN) than the US dollar.

    --
    BMO

  • How many slashdotters clicked the link not just to see a high selling price, but because the book actually sounds damned interesting?

  • Surely there must be examples of negative feedback loops as well then... where two sellers repeatedly set their prices lower than the other, causing an item to drop to a really low price. Someone go find those items! Group buy!
    • Well price goes down to a penny and they both cover their costs via the £2.75 postage and packaging. It does happen reasonably often with certain books.

  • Did you ever stop for a moment and think that maybe people are willing to pay a huge amount of money for some info and pictures of hot, hot fly on fly action? Worth every penny.
    • Did you ever stop for a moment and think that maybe people are willing to pay a huge amount of money for some info and pictures of hot, hot fly on fly action?

      Hello, McFly!!

  • Wonder how the buying robots (i.e. inventory replenishment, etc.) will react to the run-away pricing robots...in this fully automated loop!

  • In EverQuest, an MMORPG that predates WoW, people have been using third-party software to automate many things for years, including selling items in the Bazaar (marketplace.)

    Due to common errors in logic, it was fairly easy to spot, and somewhat easy to exploit, these scripts. The scripts would re-price their items based on other items for sale, either to lower the prices to just below the lowest price, or raise them when competing items were sold and theirs were the only items of that kind for sale.

    I know

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