Algorithmic pricing loop sends book prices into orbit

Say two Amazon merchants start using an algorithm to reprice their books based upon the prices set by rivals. Fine. Now say that two merchants pick one another's prices and a recursive repricing loop begins. What happens next? Perhaps you assume that the automatic price war would send prices spiraling rapidly down. In the case of Peter Lawrence's The Making of a Fly, you would be mistaken. [Michael Eisen via Hacker News]

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kjulig

This is a book that’s available new for $264.53. But why buy a new book if you can buy used for $956.98 to $21,974,051.78? In this example seven vendors are involved…

Seems like this happens all the time.
- archmagetrexasaurus
  
  LOL. Three of those listings are bordeebooks, (all priced high, but one of which is the lowest used price, for some reason)! Whatever their strategy is, they’ve got something that’s gone quite wrong.
  
  Maybe the low price bordeebooks listing indicates they actually have a copy?
  - kjulig
    
    Yeah, just after posting I realized this is only between three vendors, two of which list multiple copies.
    
    Also, if you’re interested in “Colon and Rectal Surgery”, bordeebooks is your vendor of choice.
Deidzoeb

I’m worried about the intersection of two recursive loops. What if a mourner in Syria goes to a protester’s funeral with a device in her pocket that automatically reprices books based on a rival’s price, and this mourner gets shot and killed by troops who interpret the funeral as a protest, then there are more funerals for the mourners who were killed, with more devices repricing books algorithmically, more funerals, more mourners/protesters shot, more books repriced?
chgoliz

That is brilliant.

Who’s minding the store, huh?
kromelizard

This kind of thing happens constantly on items with a limited number of sellers. The reason why it goes up in this case is one of the sellers is employing a strategy to avoid getting into an algorithmic price war down to their price floor, so they base their price on the lowest price, but above it, which that article has wrongly esteemed an unsuccessful strategy. It works quite well on most books as buyers do reliably use criteria other than price. Some factor geography to get the book faster, other weigh feedback ratings. This kind of loop happens all the time on Amazon, it just usually results in lowest price algorithms fighting it out down to a penny.
Rob Knop

I dunno — $23 million doesn’t seem too terribly out of line with other textbook prices nowadays.
YarbroughFair

YEP, same “kinda” thing happened to me, but not as exact. I wanted to purchased Rubbermaids cool new mopping system. The price was great but the “savings” statement threw me off until I scrolled down to Product Ads from External Websites. The mop on Amazon was a little over $38.64 (out of stock) and free shipping. The listed price from the external seller was well over $300.00 and a few others over $100.00. I followed three of the links and, yes, they were the same mop but sold by professional Janitorial or Building Maintainer Supply warehouses and their prices were the same as listed on Amazon.

Question: Are these grossly overinflated prices calculated into MY savings?
CoquiELF

I’d noticed this weird outlier prices for books on Amazon, but I hadn’t thought much beyond, “Someone’s being dumb.” Now I know that they’ve just programmed computers to be dumb for them.
Rob Beschizza

The craziest thing about it is how crude the algorithms must be to allow this.

Say you have a book worth $100 and you put it on amazon for sale. You notice a rival seller automatically discounts his copy to $99.95 as soon as you do so. So what do you do? You price your book temporarily for $2, buy his one when it goes to $1.95, and now you have two books you can sell for $100. Even if there are minimums set for each book in the algorithm, you could create a counter-algorithm to force it down to the minimum and then auto-buy it?
- Max
  
  More to the point, say you want that book. Post one for sale for 2 units of currency, wait for the other seller to come down to nearer your level and then buy his. Making sure you remove yours from sale a few minutes before you buy! Otherwise he’s going to try and buy yours to sell back to you.
  Just hope noone buys yours. Make sure you have bad feedback. Maybe sell yourself something and feedback “took ages and was described as new but in poor condition, had to phone to complain” etc.
  
  This sort of thing is what I think got the economy in it’s current state. It was all going swimmingly until someone said “I’d actually like both copies of the book” and neither book existed and the money he was trying to use to buy it was based on the book price.
  - turn_self_off
    
    That reads like gaming the whuffie system…
    
    But then again i often game the exchange rates and such compared to getting the same item locally…
  - YarbroughFair
    
    @Max:
    
    “Maybe sell yourself something and feedback “took ages and was described as new but in poor condition, had to phone to complain” etc. This sort of thing is what I think got the economy in it’s current state.”
    
    Posted and updated on BB: Decoremyeyes.com Borker realized his negative feedbacks created more hits and placed him on top of Google search results. Problem was, he purposefully incited and invited conflict without resolution. He`was finally arrested. There still is no way that Google can separate the famous from the infamous.
    
    Great Read:
    http://www.boingboing.net/2010/11/27/improving-your-sites.html
  - DMStone
    
    I have seen this in the wild. An online reseller I knew, who was new to the game, was putting online scarce DVD box sets. He repeatedly was listing them for close to a hundred dollars and selling them for less then ten. One person had recognized his algorithm and was listing fake items then purchasing them when the price automatically adjusted.
    
    There was an article in Vice Magazine years ago about making money selling books online. There suggestion was to list books on classier book collector websites like abe.com with a quaint handle like “Ye Olde Bookshop” and a high price, then purchasing the book on Amazon which generally runs cheaper and just have it ship to the buyers address. This works really well for books that people think have “collector value” but really are ubiquitous. The book they suggested to start with was Madonna’s Sex book.
cratermoon

While reading this, ponder whether or not you believe the automated trading programs in use on major securities exchanges are really employing algorithms much smarter than this, or if they are, what sort of bugs are in them.

Remember the “Flash Crash” of May 6, 2010? http://techcrunch.com/2010/05/06/stock-market-crash-web/
- YarbroughFair
  
  @Crater: No disrespect intended:
  
  Wouldn’t that be called “speculating”?
crnk

Wow! I’m always amused at pricing theory after buying airline tickets for years and then reading William Poundstone’s book on it. This is just too awesome.
Aleknevicus

I suspect the algorithms in place allow for minimum prices (i.e. don’t sell for less than $x), but not a maximum.

(And if they don’t, they very quickly will once people exploit the loophole…)
- cratermoon
  
  You suspect wrong, Aleknvicus: shares of some prominent companies like Procter & Gamble and Accenture traded at low as a penny or as high as $100,000 http://en.wikipedia.org/wiki/2010_Flash_Crash#SEC.2FCFTC_Report_on_May_6.2C_2010
- turn_self_off
  
  As the idea of the securities bots are to get in between a buyer and a seller and shave some profit from the difference between the two, don’t think so.
entheo

This explains why bordeebooks is selling a copy of Karl Schroeder’s Sun of Suns for $9,669.10,
http://www.amazon.com/gp/offer-listing/0765354535/ref=dp_olp_new?ie=UTF8&qid=1303621017&sr=8-2&condition=new
I always wondered about that, because when I tried to buy it last year, they were selling it for $12,000.
I don’t think Ive seen any of Cary’s books reach into the many 1000′s yet.
jere7my

You can watch the story unfold on CamelCamelCamel:

http://camelcamelcamel.com/Making-Fly-Genetics-Animal-Design/product/0632030488
Anonymous

bordeebook’s strategy seems clear to me. They don’t have the book, but do have a great feedback rating and a large customer base. They search for items from other sellers that they think their customers may want, they find one in stock at profnath. Auto-lister-script-thingie prices it 1.270589 times higher then profnath. If bordeebook makes a sale they buy a copy, from profnath, then resell it.

Guaranteed profit margin, guaranteed readily available stock of desirable books, and no inventory costs.

Low risk, in that if they don’t make the sale they haven’t lost anything.
Jeremy A

I bought a “Like New” copy of Asterios Polyp on Amazon for $0.17 the other day. Supposedly it shipped yesterday. Looking forward to opening that box.
Anonymous

If the article is right, then the only remaining seller is the arbitrageur. If the arbitrageur doesn’t have the book, and no one else has a new copy, they have a problem. Also, it’s back up a little to nearly $1000.

Arbitrage: yr doin it rong.
Gemma

I just spotted some version of this happening on ebay.

Michelle Styles’ novel Taken by the Viking is offered as a Buy it Now for Â£841.72 from an established seller, or for Â£841.71 from a very new seller.

To give you an idea of its non-scarcity, there are currently twenty-five copies of this novel available on abebooks for under a pound each (before postage).
Slowermo

Is this why the movie Rhinestone is going for 50 bucks?