Citizen Journalism Bites Into Amazon's Attempts At Dynamic Pricing

from the keeping-up-with-the-market dept

In economics classes, at some point, you learn about the idea that dynamic pricing could be very efficient. If you could charge each person at the price point where they most valued the good (assuming that it was above the cost for the good), you could maximize your profit. People who valued a good very highly could be charged a lot more, while those who would still buy it, but only at a small premium could also be sold the product. That way you maximize both the number of sales and the profit. Sounds great, if you can pull it off. However, it makes one very big assumption: that the information flow is asymmetric. Only the seller knows the prices and the buyers don't compare. Because, if buyers can compare, or see the fact that sellers are changing prices based on how desperate you are, they get pissed off -- and having angry buyers isn't good for business. This was clearly seen way back in 2000 when Amazon started experimenting with dynamic pricing. Depending on who you were, it would offer somewhat different prices on certain goods. The economic geek in me thought that was a cool idea (and an opportunity to try to do some arbitrage), but the consumer in me thought it was bad -- and many consumers agreed with that side. The anger over the plan forced Amazon to apologize and shelve it.

So, it's interesting to see a new story suggesting that Amazon may be fiddling with its prices again, even to the point of potentially putting small increases on books that people put in their shopping carts to think about, but don't actually purchase. However, where this gets really interesting is in a separate discussion of that original article that wonders if a bunch of people could team up with the data they all have from Amazon associate fees to determine if this is actually happening, and if so, how it works. What this shows is the flipside of the original point on dynamic pricing. Since it really only works when you have asymmetric information, what happens when that information flow is broken down by new tools, data and communications systems? In other words, the very concept of "citizen journalism" can actually impact the economics of a market by gathering and spreading information flow beyond what would normally be available.

Meanwhile, in an entirely separate story, it seems that these same "users" are outing another secret Amazon policy. Slate has an article about Amazon's secret price guarantee, where they'll match the lower price if the site happens to drop the price of something you bought within 30 days of purchase. The company doesn't officially state that policy anywhere, but Slate found out about it from a user in Amazon's forums, who discusses the policy. Again, this would appear to mess with Amazon's attempt to keep the information flow asymmetric, preventing them from being too aggressive in dynamic pricing.