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Algorithmic Pricing On Amazon 'Could Spark Flash Crash'

timothy posted more than 2 years ago | from the these-tulips-on-special dept.

Businesses 274

DerekduPreez writes "Sellers on Amazon's retail site are increasingly using high-speed algorithmic trading tools to automatically set prices, which could lead to a malfunction similar to the 2010 flash crash. According to the Financial Times, prices on Amazon's website change as often as every 15 minutes, where sellers are using tools traditionally developed by data miners at banks to ensure that their prices are always below their rivals'. Third-party software is allowing sellers to detect a competitor's price and automatically undercut that price by, for example, £1. However, this could lead to a situation similar to the U.S. flash crash, where algorithmic trading was blamed for stock prices falling to near zero and then bouncing back within 20 minutes." At Slashdot's sister site for Business Intelligence, Nick Kolakowski has some more information on this possibility.

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Big difference. (1)

Anonymous Coward | more than 2 years ago | (#40602005)

Amazon you actually buy/sell something, while stocks are imaginary shits used to make a buck.

Re:Big difference. (3, Insightful)

Anonymous Coward | more than 2 years ago | (#40602595)

Go read an Austrian economics book. Speculation is useful and voluntary. It's nothing at all like gambling unless you think betting on red changes the odds that red will come up in an honest casino.

Re:Big difference. (1)

gtbritishskull (1435843) | more than 2 years ago | (#40602815)

Poker is gambling. And, betting in poker will change the probability of your opponent folding and you winning the hand. So, by your logic speculation in gambling?

Re:Big difference. (1)

Anonymous Coward | more than 2 years ago | (#40603133)

You can bet money on anything. Games of chance vs. games of skill. That is all.

Re:Big difference. (1)

amRadioHed (463061) | more than 2 years ago | (#40603445)

So... speculation is gambling then. Thanks for the clarification.

Re:Big difference. (1)

magarity (164372) | more than 2 years ago | (#40602755)

Part ownership, even a small percentage, is very real. There are probably two or more partners who own the trendy cofffee shop in the artsy neighborhood from which you anonymously posted that drivel.

Re:Big difference. (2)

Quiet_Desperation (858215) | more than 2 years ago | (#40602973)

Another fine lesson in Slashdot Economic Theory brought to you by the letter G and the number zero.

Falling to near zero?? (5, Interesting)

bhlowe (1803290) | more than 2 years ago | (#40602019)

I didn't read the article, but presumably the traders wouldn't allow their sale price to drop below the cost of the item plus the marginal expense to sell on Amazon.... so if anything, the prices will drop to at or near the cost of the item... Which is good for buyers, bad for resellers...

Re:Falling to near zero?? (0)

Anonymous Coward | more than 2 years ago | (#40602055)

Minimum reserve.

Problem solved.

Thank you

Re:Falling to near zero?? (5, Interesting)

jpmorgan (517966) | more than 2 years ago | (#40602079)

And if they do, it's still good for the buyers, and the sellers aren't likely to make the same mistake twice.

With algorithmic pricing, the Amazon marketplace is just operating as an automated dutch auction [wikipedia.org] . It's how markets should behave: raw supply and demand, with no collusion or other market distortions propping up prices.

Re:Falling to near zero?? (5, Interesting)

jrroche (1937546) | more than 2 years ago | (#40602395)

With algorithmic pricing, the Amazon marketplace is just operating as an automated dutch auction [wikipedia.org] . It's how markets should behave: raw supply and demand, with no collusion or other market distortions propping up prices.

Because everyone automatically undercutting their competitors by a few cents over and over until everyone is selling at cost and all but a couple players eventually have to shut down because they can't afford to run a profitless business forever, whereupon the few remaining players can finally raise prices ... isn't effectively collusion or a market distortion.

Re:Falling to near zero?? (4, Informative)

L4t3r4lu5 (1216702) | more than 2 years ago | (#40602515)

That's how true unregulated Free Market economies end, which is why they're a bad idea.

I've no idea if that's even true; It just makes sense that it would happen.

Re:Falling to near zero?? (0)

Anonymous Coward | more than 2 years ago | (#40602779)

"That's how true unregulated Free Market economies end"

It's like you have zero understanding of unregulated Free Market throughout human history, congrats.

"which is why they're a bad idea."

They ARE a bad idea, but having nothing to do with your ridiculously silly false assumption.

Withdraw products and reintroduce them later (1)

tepples (727027) | more than 2 years ago | (#40602751)

until everyone is selling at cost and all but a couple players eventually have to shut down

Or at least withdraw some product lines. Or a seller might not go for the absolute lowest price on a particular item but instead shoot for breadth of available products, allowing discounts on combining multiple products into one shipment.

whereupon the few remaining players can finally raise prices

Causing the sellers that had withdrawn some product lines to reintroduce those product lines.

Re:Falling to near zero?? (4, Insightful)

Bob9113 (14996) | more than 2 years ago | (#40602771)

Because everyone automatically undercutting their competitors by a few cents over and over until everyone is selling at cost and all but a couple players eventually have to shut down because they can't afford to run a profitless business forever, whereupon the few remaining players can finally raise prices ... isn't effectively collusion or a market distortion.

Your comment is exactly correct, but I get the feeling you are trying to be snarky. You also fail to mention the next step after the remaining players raise prices: New competitors enter the market, undercut the would-be oligarchs, and the process starts all over again. The lower the barriers to entry (and with Amazon, they are very low (except that Amazon is the sole supplier (but I digress))), the lower the cost for the new competitors to jump in.

Eventually, equilibrium is reached at the point where the cost of entering the market plus the time value of the startup money is just covered by the profit over the average lifespan of a new entrant. It is a naturally self-regulating system that seeks the optimal market price of consumer goods and constantly adjusts for the changing time value of money. Pretty cool stuff, right?

Re:Falling to near zero?? (1)

TubeSteak (669689) | more than 2 years ago | (#40603269)

Because everyone automatically undercutting their competitors by a few cents over and over until everyone is selling at cost

This is what free market theory predicts (cost + normal profit). This is a good thing for buyers.

and all but a couple players eventually have to shut down because they can't afford to run a profitless business forever, whereupon the few remaining players can finally raise prices ... isn't effectively collusion or a market distortion.

This is what happens in real life. This is not a good thing for buyers.

It's what we had 100+ years ago and regulating that anti-competitive behavior was considered "market reform"
Nowadays, removing regulations on anti-competitive behavior is considered "market reform"
How did we get here?

Re:Falling to near zero?? (0)

Anonymous Coward | more than 2 years ago | (#40603453)

And when the few remaining players raise prices, new competition arises and the cycle repeats. Thus prices remain low indefinitely.

Re:Falling to near zero?? (4, Interesting)

MortimerV (896247) | more than 2 years ago | (#40602153)

Exactly, a floor price is used to prevent this sort of crash from happening. I'd imagine there could be some sellers on there that haven't set up their floors properly and they could lose money on a few products, but the entire site won't implode from this.

If those sellers don't honor the prices, they'll get bad user ratings and lose some future sales over it.

Re:Falling to near zero?? (5, Informative)

N0Man74 (1620447) | more than 2 years ago | (#40602313)

Floors are good, but so are ceilings.

Amazon’s $23,698,655.93 book about flies [michaeleisen.org]

Re:Falling to near zero?? (1)

TheDarkMaster (1292526) | more than 2 years ago | (#40602837)

Ceilings in profits? This does not exist (at least in the minds of CEOs).

Re:Falling to near zero?? (4, Interesting)

History's Coming To (1059484) | more than 2 years ago | (#40602319)

You'd be surprised, there are many businesses built around a model of selling at a loss for the first year or two just to pressure the competition and build a reputation as the cheapest, then they ramp the price up once they have a sufficient chunk of the market. Businesses will also sell old stock at a loss simply to free up capital that's trapped in stockholding.

Re:Falling to near zero?? (1)

ZorinLynx (31751) | more than 2 years ago | (#40602945)

Best Buy is my favorite historical example of this. Back when they started they were famous for selling music at well below the prices of their competitors.

I bought so many CDs there in those first few years. Then once they had a market, they raised the price to match everyone else.

(This was before the "MP3 revolution", when CDs were still the only good way to get music)

Re:Falling to near zero?? (1)

BrianRoach (614397) | more than 2 years ago | (#40603165)

Businesses will also sell old stock at a loss simply to free up capital that's trapped in stockholding.

Not to mention that often you're charged a restocking fee by your distributor and it counts against your account purchase totals (which grant you perks such as line discounts, better rates overall, etc).

When I was running my business our main distributor would allow a 6 month restock, but with a 15% fee. We'd simply put inventory that wasn't moving that we would have returned on "clearance" at (or up to the 15% below) cost to get rid of it. It was only things that we literally thought we'd never get rid of that we'd return.

Re:Falling to near zero?? (1)

mr1911 (1942298) | more than 2 years ago | (#40602581)

presumably the traders wouldn't allow their sale price to drop below the cost of the item plus the marginal expense to sell on Amazon

Presumptions are dangerous. There are many instances where items are sold below cost.

To your point, there should be a floor price and/or a cap on the number of units sold at the discount prices. In reality the sellers are not always as forward thinking as you would expect them to be and the "flash crash" situations occur.

Re:Falling to near zero?? (0)

Anonymous Coward | more than 2 years ago | (#40602891)

Studies of automated trading make it abundantly clear that a transaction delay of 15 minutes is more than enough to eliminate the possibility of a "Flash Crash". "Flash Crashes" are caused by trading speeds that approach the theoretical limit.

Gay (-1)

Anonymous Coward | more than 2 years ago | (#40602021)

You're gay Slashdot. I hate gays. Oh, and niggers

Re:Gay (0)

thePowerOfGrayskull (905905) | more than 2 years ago | (#40602095)

That was so perfunctory.

Put some feeling into it next time, or don't bother. Can't believe you're making a mod waste valuable points on that lackluster attempt at trolling.

Re:Gay (0)

arkane1234 (457605) | more than 2 years ago | (#40602131)

think of the gay nigger whales...

Problem? (5, Insightful)

Bigby (659157) | more than 2 years ago | (#40602027)

And that is a problem, why? Just like in the flash crash, some people lost money and some people got big deals. If you don't want it to affect you, don't get involved. In both cases, it hurts the organizations and institutions more than an individual trader/buyer/seller.

Re:Problem? (5, Insightful)

space_in_your_face (836916) | more than 2 years ago | (#40602099)

From TFA: Jack Sheng of eForCity, which sells electronics on Amazon, warned of the dangerous impact algorithmic pricing could have on the retailer’s prices: “If something is mispriced down to $1, your inventory can be cleaned out in no time.”
I hope you put a minimum price on every item for which an algorithm decides the price. If so, I don't see the problem if someone "clean out your inventory". It means a lot of sales at a price you agreed...
OTOH, if you didn't put a minimum price, you just get what you deserve.

Re:Problem? (5, Insightful)

darkwing_bmf (178021) | more than 2 years ago | (#40602167)

This is the kind of problem that is solved with natural selection. The companies too stupid to put in a minimum price will go out of business and the remaining companies will be stronger.

Re:Problem? (2)

gorzek (647352) | more than 2 years ago | (#40602223)

There has to be a way to set a minimum price, otherwise this system is too dangerous for any seller to want to use.

Re:Problem? (1)

DarkOx (621550) | more than 2 years ago | (#40603081)

It sounds simpler than it is. Lets say you use a simple cost + model. Suppose you bought 10 widgets whole sale at $5 and the current retail price is $6.99. Widget 2.0 comes out. The whole sale price the manufacture is using to clear inventory moves to $3.10. Your competitors let their algorithms run and things settle at $4.50 retail. You stuck a floor into your pricing system of $5.01 your cost. Trouble is now while your were not paying attention to that specific SKU because you sell 1000's of SKUs; you have been under priced and everyone looking for a good deal on 1.0 widgets has scooped them up from your competitors. They no longer want yours at any price.

This can all happen in day with the rate information flows on line. You will have lost the opportunity to sell the 1.0 widgets for $4.50 a $0.50 loss, and will now take a $5.00 loss on each one when you eventually dispose of the unsaleable inventory.

Re:Problem? (1)

gorzek (647352) | more than 2 years ago | (#40603119)

And if you were using the "old" system, in which you have to manually adjust prices, the same (or worse) wouldn't happen?

Every time you put in a new SKU, you should be setting its "minimum reserve" price.

I'm not sure how Amazon handles this in the automated pricing system, but it shouldn't work out to be any worse in terms of lost opportunities than the existing system (in which the price never changes whatsoever unless you go in and change it yourself.)

Re:Problem? (1)

DarkOx (621550) | more than 2 years ago | (#40603435)

And if you were using the "old" system, in which you have to manually adjust prices, the same (or worse) wouldn't happen?

It certainly can and does happen. Which is one of the many reasons lots of small shops have trouble competing.

    I was simply addressing the "Just set you price floor to cost." The fact is there are reasons you would want to sell under costs and even cases where you would want that to happen without intervention.

Re:Problem? (0)

Anonymous Coward | more than 2 years ago | (#40602327)

They'll just make it up in volume selling the items at the price

Re:Problem? (4, Interesting)

Kjella (173770) | more than 2 years ago | (#40602431)

Approximately 99.999% of all shops I know both online and offline have some sort of "typo clause" in their terms and conditions, if their $100 item is suddenly $1 for some reason I think most will choose to exercise it if the algorithm goes completely bonkers. But if it's a minor mispricing relative to the item value or their total sales and they don't want the flurry of 1-star reviews that's bound to follow, they eat that loss. Been there, done that, got my order fulfilled - let's call it a surprise sale for both parties. If you're fucking this up so badly you can't take it, you really got no business running a retail store.

Re:Problem? (1)

ceoyoyo (59147) | more than 2 years ago | (#40602745)

Interesting. Where I live there's a law that if the register rings up a price higher than the price on the item, you pay the lowest price minus 10%. It encourages retailers to set their prices carefully. Usually what happens is that someone discovers a mismatch, gets the deal and the retailer hurriedly fixes the price tag.

Kind of sucks if you're an online retailer and you can sell out before you notice the problem, but those are the risks you take if you use an automated system.

Re:Problem? (0)

Anonymous Coward | more than 2 years ago | (#40602915)

In uk law a price on a shelf (and website) are an " invitation to treat" when you go to the checkout you are offering a contract which is then accepted by the cashier - they can not charge you a higher amount than that shown on the ticket but chan "decline your offer" and refuse to sell it to you at the ticket price.

The website analogy was set up in case law quite a few years ago when £999 monitors where marked up online at £99 and some disgruntled would be purchasers tried to take the seller to court for fufillment of the order (they had had auto confirms from the site).

Re:Problem? (1)

Hatta (162192) | more than 2 years ago | (#40602169)

If you don't want to be affected by the stock market, don't invest. Is that really what you mean to say?

Re:Problem? (1)

Bigby (659157) | more than 2 years ago | (#40602225)

Yes. Invest in yourself. Invest in private businesses. Start a company.

Also, we are talking about highly liquid markets. Long term investments are not affected by flash crashes...as long as you don't set trailing stops, etc...

Starting a company is not for everybody (1)

tepples (727027) | more than 2 years ago | (#40602789)

Start a company.

That's not for everybody. For one thing, it costs money to learn how to run a business (MBA). For another, I get the impression from several recent Slashdot stories that a lot of startups end up killed by exclusive right trolls, with a legal team unable to bear the cost of being buried in motions.

Re:Starting a company is not for everybody (1)

Bob the Super Hamste (1152367) | more than 2 years ago | (#40603205)

That's not for everybody. For one thing, it costs money to learn how to run a business (MBA)

I would hardly say having an MBA means you can run a business, especially given how many MBAs I have see that can't seem to manage their way out of a wet paper sack.

Re:Problem? (4, Informative)

Errol backfiring (1280012) | more than 2 years ago | (#40602179)

Well, that depends how and when the prizes are determined. If you are browsing a page with article of, say, $2, and it costs $20 as you enter the shop, you're just mislead.

Apart from that, our economics are based on a stabilizing situation. If something is sold too cheap, it will be corrected in due time. If something is sold too expensive, that would be corrected also. In that equilibrium, consumer and producer would meet half-way their self-interest. So in the end, the price is "right".

High-speed trading is an unstabilizing situation, meant to just suck money out of a trade. From a consumer's point of view, the price is now always wrong. Nothing of value is bought with it, and the customers pay dearly for that nothing.

Re:Problem? (0)

Anonymous Coward | more than 2 years ago | (#40602353)

High-speed trading is normally stabilizing as it smooths out wrong prices more quickly.
Unless there are stupid algorithms and then those traders loose money instead of making it, also exchanges have rules against bad algorithms already and also have limits for how many commands per second you can shoot, and have protection against building too much position. At least in Europe, I know less about US exchanges.

Anyone that is purposefully unstabalizing the market to make money from it is doing market manipulation which is already against the law.

Re:Problem? (1)

Anonymous Coward | more than 2 years ago | (#40602575)

> Anyone that is purposefully unstabalizing the market to make money from it is doing market manipulation which is already against the law.

Unless you're Too Big To Fail, in which case the law doesn't apply to you.

Re:Problem? (0)

Anonymous Coward | more than 2 years ago | (#40602985)

"doing market manipulation which is already against the law"

oh you are just ~precious~

Re:Problem? (1)

TheDarkMaster (1292526) | more than 2 years ago | (#40602899)

If something is sold too cheap, it will be corrected in due time. If something is sold too expensive, that would be corrected also. In that equilibrium, consumer and producer would meet half-way their self-interest. So in the end, the price is "right".

It does not exist on real life. Most sellers force the price it wants, and uses its market share, patents, lobbys, even guns for hire (seriously) to prevent any competition.

Re:Problem? (0)

Anonymous Coward | more than 2 years ago | (#40602983)

So in the end, the price is "right".

Also remember to spay and neuter your pets.

Re:Problem? (1)

Anonymous Coward | more than 2 years ago | (#40602185)

And that is a problem, why? Just like in the flash crash, some people lost money and some people got big deals. If you don't want it to affect you, don't get involved. In both cases, it hurts the organizations and institutions more than an individual trader/buyer/seller.

The problem with the flash crash is that trades were canceled by the exchange, protecting those companies who were too stupid to protect themselves and fucking up the market dynamics.

Re:Problem? (1)

Anonymous Coward | more than 2 years ago | (#40602265)

And that is a problem, why? ... In both cases, it hurts the organizations and institutions more than an individual trader/buyer/seller.

Except that the institutions are the ones running the casino we refer to as the stock market. 2010 by far wasn't the only flash crash. It's just one that affected big stocks and was easily and widely noticed before it could be corrected. By "corrected", I mean that the stock exchange simply decrees that all trades that took place within a window of time that it doesn't like are cancelled [zerohedge.com] .

The foolish algo-traders that should have been hoist by their own petard (and possibly go out of business entirely) receive infinite mulligans. The poor shmucks that thought they could win against the house, get, well, screwed. Say a stock trades at $100, flash crashes and you manage to buy it for $1 and sell it for $20. Later in the day the exchange kills your buy order, but leaves your sell order alone because it's not in the right time frame. Now you have to buy the stock at $100, and you take an $80 loss.

Re:Problem? (2)

superid (46543) | more than 2 years ago | (#40602333)

I'm sure some people got good deals in the flash crash but IIRC didn't the NYSE back out many of the trades saying that they were erroneous?

Re:Problem? (0)

Anonymous Coward | more than 2 years ago | (#40602693)

And that is a problem, why? Just like in the flash crash, some people lost money and some people got big deals.

Yes, but then many investment firms got a "do over" canceling the transactions where they lost money.

Look, if you're going to put computer algorithms in charge of your money, you get both the good & the bad. Add some sanity checks to your algorithms, or put humans in charge.

Re:Problem? (2)

magarity (164372) | more than 2 years ago | (#40602791)

And that is a problem, why? Just like in the flash crash, some people lost money and some people got big deals.

No, they don't. The sellers will notice the price dip and cancel all the sales with the excuse of it being a mistake.

Bring it on I say (2)

msgmonkey (599753) | more than 2 years ago | (#40602031)

I'd like to see what happens when the sellers stop fulfilling orders. Plus how long before someone brings out a sniping tool for customers to purchase items when at the bottom of the curve?

Re:Bring it on I say (0)

Anonymous Coward | more than 2 years ago | (#40603207)

already exists: http://www.camelcamelcamel.com/

Minimums (0)

Anonymous Coward | more than 2 years ago | (#40602037)

wouldn't someone think to put minimums on this? Much like you specify a maximum on your e-bay bid?

floor (0)

Anonymous Coward | more than 2 years ago | (#40602043)

Seems to me if you just set the price of the item to never fall below cost you're never going to have a flash crash... at least one that will bankrupt you.

Add an "it's not worth it" detector (2)

davidwr (791652) | more than 2 years ago | (#40602051)

Each vendor needs to add "is it worth it to let others control our prices" logic to its auto-pricers.

Is it worth it to let a widget normally priced at $10 to drop to $5? to $1? to $0.01?

Except for deliberate loss leaders and other promotional items, you may want to set your short-term "floor" to be somewhere around your actual costs and your long-term "floor" to be a bit higher.

If a competitor undercuts you below where you are willing to let your program auto-price and he keeps it there, you may want human intervention.

So what? (5, Interesting)

Lev13than (581686) | more than 2 years ago | (#40602065)

As long as Amazon forces the sellers to honour the price, then I don't see a problem. Pure market forces will balance the risk/reward for dynamic prices - if one or two consumers get lucky, then that's the cost of doing business.

The biggest mistake that the exchanges made following the flash crash was to cancel the errant trades - if you fuck up the pricing, you need to deal with the consequences. Getting rid of downside risk removes half the equation and blocks any incentive to play smart.

Re:So what? (2)

gorzek (647352) | more than 2 years ago | (#40602261)

Amazon processes the payments and it's all done as one transaction: you say "I want to buy this item," Amazon shows you what you will be charged, you complete the transaction, done. The seller would only be able to reverse it (such as if they are out of stock), not initiate a new one or change the price after the fact.

Re:So what? (1)

silas_moeckel (234313) | more than 2 years ago | (#40602373)

Letting the seller claim to be out of stock after the fact breaks the downside for them. Amazon needs to require they ship the goods that were paid for. Sellers can dynamically update there stock levels as sales via other methods come in.

Re:So what? (1)

gorzek (647352) | more than 2 years ago | (#40602445)

Sure, but nothing is perfect, and any sales done outside Amazon's system are not necessarily going to be reflected in real-time on Amazon's side.

Requiring the seller to honor an out-of-stock product at the stated price could easily be very onerous to the seller--what if there is no more stock to have, ever? This does happen.

The seller can either fulfill the order or cancel it with a refund. The buyer either gets the item or gets their money back, so I'm not sure where the harm is done to the buyer (other than wasting their time, I suppose.)

Re:So what? (1)

ceoyoyo (59147) | more than 2 years ago | (#40602829)

The risk (to Amazon) is that their pricing will become a joke and nobody will use it.

If I buy something that looks like a good deal on Amazon and I'm consistently told that the seller is out of stock, I'm going to quit using Amazon.

Re:So what? (1)

gorzek (647352) | more than 2 years ago | (#40602999)

Yup, and I doubt Amazon would take that lying down--instead, they would take it out on the sellers.

Re:So what? (2)

rickb928 (945187) | more than 2 years ago | (#40602461)

That's almost funny.

If the seller finds that the price was driven below cost by the algorith, how much would you want to bet that they will simply declare the item 'out of stock', and refuse to sell to you?

Groupon has been through an analog of this repeatedly, where someone will offer services for a discount, and get flooded with redemptions such that they cannot afford to do several years' work for nearly nothing. All the examples I'm aware of resulted in the offerer negotiating with their customers and resolving the problem, but Groupon at one time was deaf to the complaints that they should have counseled the merchant better. Probably correct, but not very helpful.

I'm betting reversals will happen, and Amazon will be selective in their punishment of vendors. Net result, mistrust and reduced confidence.

Re:So what? (1)

gorzek (647352) | more than 2 years ago | (#40602537)

I suppose they could do that, but then the user should be able to rate them negatively. Enough users give them a bad rating for being consistently out-of-stock, their listings will decline and sales will drop. Self-correcting, I would say.

Sellers and Amazon both have incentives to protect their reputations. Yeah, maybe some fly-by-night seller doesn't give a shit and is just trying to game the system, but then they aren't going to get positive ratings, either. If Amazon picks up on someone screwing with the pricing system and then not shipping to customers, they'd be foolish not to terminate them.

As always, the rule is "buyer beware." Does that seller have poor ratings or very few? Does the price seem unreasonably low? Does it say there are only a handful left in stock? Hmmm, choose carefully. You might want to move to another seller.

(Even if they pull the "out of stock" crap, you're still not out any money. As I said in my other reply, the only thing you're losing is time and possibly a price that was too good to be true in the first place.)

Re:So what? (3, Insightful)

timeOday (582209) | more than 2 years ago | (#40602873)

I like to accumulate things in my Amazon "shopping cart" sometimes over a period of weeks until I have enough for free shipping, or finally decide whether I really want something. But I have found this increasingly nonproductive as prices jump all over the place constantly. Most of what I put in my basket is "no longer available from seller" or the price goes up a little a few days later.

I'm not saying I've being cheated, but I'm enjoying Amazon less as it's becoming less of a storefront and more of a bazaar-type experience, with wildly varying shipping costs and return policies from item to item. I might as well go on ebay, or else a more conventional storefront like newegg if I don't want the hassle.

Re:So what? (1)

fatphil (181876) | more than 2 years ago | (#40603025)

I notice that there's always a problem paying for flights with RyanAir. I go through the process a second time, and the price has gone up. They're crooks in almost every other possible regard (e.g. they'll charge you 24e in credit card fees for 2 people 2 ways on 40e flights. (i.e. 15% is a 'hidden' fee)) so I'm presume this is deliberate too.

Re:So what? (1)

PieceOfShitAndroid (2538056) | more than 2 years ago | (#40602477)

During a flash crash in the stock market, orders will often be cancelled after the fact. Just sayin'

Re:So what? (1)

misexistentialist (1537887) | more than 2 years ago | (#40603131)

They don't, which is why this story doesn't make sense. If you order something from a 3rd party seller on Amazon at a too-good-to-be-true price you're wasting your time because it will be canceled.

Unfortuantely, the other way (1)

Anonymous Coward | more than 2 years ago | (#40602071)

The problem is that this actually seems to work the other way. There are reports of certain obscure books being priced at over $1,000,000 because of how this software is actually used in practise.

So what? (4, Interesting)

SirGarlon (845873) | more than 2 years ago | (#40602085)

Who, other than the retailers, care if there is a "flash crash?" Presumably if they lose enough money on flash crashes they will stop with the algorithmic pricing.

Likewise, if I find algorithmic pricing makes prices unattractively high, I'll shop somewhere else. There has to be someone out there selling a product similar to what I want, without the algorithmic gouging.

In short, I think this is one case where we can trust the market to operate correctly.

Re:So what? (1)

Anonymous Coward | more than 2 years ago | (#40602137)

The real fun will happen when it algorithmically displays higher or lower prices on a per-user basis based on your purchase history; e.g. if you generally buy premium products, it charges you a higher amount for the same product because it assumes you have a higher willingness to pay.

Re:So what? (3, Interesting)

SirGarlon (845873) | more than 2 years ago | (#40602363)

it charges you a higher amount for the same product because it assumes you have a higher willingness to pay

And if you do have a higher willingness to pay, then I don't see the problem.

Re:So what? (4, Informative)

tlhIngan (30335) | more than 2 years ago | (#40602869)

The real fun will happen when it algorithmically displays higher or lower prices on a per-user basis based on your purchase history; e.g. if you generally buy premium products, it charges you a higher amount for the same product because it assumes you have a higher willingness to pay.

That's called dynamic pricing, and Amazon did it at one point [slashdot.org] .

Of course, the problem with dynamic pricing is it relies on the ignorance of the user. As discovered in that article, if you use a different browser or not logged on, it would display a different price than when you went to check out.

And with the proliferation of smartphones and tablets, it's possible someone might browse Amazon and buy on their PC, and realize the price is different. You'd basically need to give everyone a personal ID code to ensure whatever screen they look at shows their own price. Which breaks the moment someone else looks up the item and gets a different price.

Dynamic pricing only works when the user is treated in aggregate (e.g., a vending machine that alters prices based on outside temperature but everyone pays the same), or the user cannot inform themselves of alternative pricing.

It should also be differentiated from preferential sorting - where a person who buys premium products will do a search and be shown the premium products first, then the cheaper ones down the line. Done right, preferential sorting can make a search engine seem "good" at finding stuff the person wants without having to wade through listings of cheaper stuff they don't want.

Re:So what? (1)

ceoyoyo (59147) | more than 2 years ago | (#40602857)

It would be an interesting experiment for someone to start up a stock exchange that has a two minute delay on trades or some other barrier to HFT. See if it wins in competition with the others.

Buy low (0)

Anonymous Coward | more than 2 years ago | (#40602091)

I look forward to finding some great deals on Amazon because of this, it's the sellers own fault if they sell it cheap. I don't see any problem with it, when we are talking about selling physical goods on Amazon.

No way; pure FUD (0)

Anonymous Coward | more than 2 years ago | (#40602103)

Pure bullshit FUD. Unlike the stock market where losses and gains are infinite and millions of transactions happen automatically every second, the retail market has hard limits and although there are a large number of transactions they are 100% controlled by slow moving consumers. Businesses are not going to sell a product at a loss. That's business 101 and those are concrete limits that are already coded into their algorithms.

I could see a flash explosion or whatever you want to call it where the prices go up to insane levels but then the slow moving consumer has plenty of time to reject those high prices.

This article sounds ridiculous (no I didn't read it).

Re:No way; pure FUD (1)

rickb928 (945187) | more than 2 years ago | (#40602615)

True - one fix for sellers is to limit the number of items in any one campaign. Then iterate and improve.

The stock market problem is that HFT will gladly risk 100MM shares for the arbitrage, and if somehow the market evaporates, someone is holding the bag. Which brings us to this problem - despite the regulators' responsibility to, um, regulate, they are nearly always behind the curve. And the REAL problem - our legislature doesn't dare let the brokerages pay for their mistakes, since that would impact their investments also.

Throw them all out. Everywhere.

Old stuff (1)

Vlaix (2567607) | more than 2 years ago | (#40602105)

I've seen these tools used on every type of public online market, from Amazon to WoW's AH. On the former, the more surprising thing was the usage of delivery prices as the actual prices and the item prices as merely a means of getting on top of the board.

Re:Old stuff (0)

Anonymous Coward | more than 2 years ago | (#40602247)

Inflated delivery prices/insanely low item prices only work with consumers who can't add the two together and always use the lowest sale price as their purchasing determinant. As for the algorithmic pricing tool, then if the retailer doesn't set a reserve price then its their lookout.

Re:Old stuff (1)

biodata (1981610) | more than 2 years ago | (#40602393)

I think there is a slightly different problem with the inflated delivery prices, which is that the retailer sorting algorithms seem to display prices, lowest first, ignoring the delivery cost. This means that if you price your deliveries realistically, your goods will likely be further down the list than they really should. Adding two things together is easy, but in a list of 100 choices, having to do all the additions one by one to work out the lowest price is just stupid when the website should be doing it for you.

Not gonna happen (2)

LittleImp (1020687) | more than 2 years ago | (#40602163)

If you think about this for 1min, you will realize that all the sellers have to buy the stuff themselves from somewhere. Obviously they will put in a limit so the price will never go so low that they would make a net loss. An since the buy-prices are not depending on the amazon-sell-prices, no such "flash crash" could possibly ever happen. Of course I do not expect some journalist to think for 1min before writing an article.

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Anonymous Coward | more than 2 years ago | (#40602173)

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It sounds like a good deal for the customer (4, Funny)

circletimessquare (444983) | more than 2 years ago | (#40602199)

But if I buy a paperback copy of "Fifty Shades of Grey" for only $0.10 due to a flash crash in autogenerated stock prices, I metaphysically lose, society loses, civilization loses. The seller still wins, Mephistopheles wins, evil triumphs.

Re:It sounds like a good deal for the customer (1)

rickb928 (945187) | more than 2 years ago | (#40602677)

With any luck, evolution kicks in and such sellers die off. The stronger/smarter survive. We pay what we should expect to.

My morning commute is usually 30 minutes. The afternoon commute at least 45 minutes, same route in reverse. All I Want© is to have a speed-limit ride. I don't need to get there faster, I just want predictability. In the morning, we are largely all into predictability. In the afternoon, we are joined by idiots that must have speed over predictability, so bad things happen and cause delays. Oh, and increased volume which magnifies the problems. Evolution isn't solving this either, since the idiots' cars are saving their lives. Will Amazon save idiot sellers? Or will they punish them for idiocy?

Re:It sounds like a good deal for the customer (1)

circletimessquare (444983) | more than 2 years ago | (#40602941)

the solution is to have a job/ living location where you can walk or ride your bike back and forth. that is the now the evolutionary prerogative, once you consider oil price volatility as well

or ride a train

but we live in a country where mass transit is some sort of socialist evil

therefore, the entire country is doomed according to your parameters

Already happens (0)

Anonymous Coward | more than 2 years ago | (#40602215)

This already happens in reverse. Sellers algorithmically set prices, but instead of going lower they go a bit higher. The end result is books that cost millions of dollars [techdirt.com] .

It also happens without algorithms. Try grabbing a random book off your shelf and see what it's worth on Amazon. Chances are it's worth $0.01 there, because supply is way higher than demand and everybody trying to undercut each other has sent prices to the bare minimum.

Is there a tool for buyers? (1)

sl4shd0rk (755837) | more than 2 years ago | (#40602217)

Would be nice to have a cron job that detects when the price hits 0.

Monkey business... (1)

bdwoolman (561635) | more than 2 years ago | (#40602219)

From the TFA:

However, some sellers are also creating fake accounts with extremely low prices in an attempt to automatically pull down the price of rival products so that they can buy up their competitor’s stock.

It seems to me that that is a matter for law enforcement. Since they would not actually sell those products in good faith. 'Fraud' is the operative word.

As for an Amazon flash crash. I mean, okay, maybe. But what is the big deal if the price of a Dixon stereo tanks artificially? I mean except, perhaps, for the sales executive in charge of that department. He might get a bollocking or lose his job. However, if a blue chip stock price crashes in some kind of algorithm-fueled artificial negative feedback loop, billions can be lost... and thousands of jobs. So to a "flash crash on Amazon" I say, "Meh." That is, unless it helps me cadge a good deal on a Nexus.

Re:Monkey business... (1)

rickb928 (945187) | more than 2 years ago | (#40602703)

Again, Amazon should punish sellers that don't honor their pricing. Simple concept. Ask eBay.

eBay doesn't punish the sellers (0)

Anonymous Coward | more than 2 years ago | (#40603185)

Funny you suggest that example...

On Sunday I bought (buy now) an expensive item from a seller whose listing claimed they had four of the item in stock.

On Monday eBay and paypal allowed the seller to back out of the transaction by claiming that they are out of stock. eBay simply does not punish storefront sellers who do not honor their pricing.

Re:Monkey business... (1)

ceoyoyo (59147) | more than 2 years ago | (#40602929)

"if a blue chip stock price crashes in some kind of algorithm-fueled artificial negative feedback loop, billions can be lost... and thousands of jobs"

I don't understand the difference. If the blue chip price crashes, the idiots who put out low sell prices will lose money and get fired. That's so sad. Those people should be out of business. The problem comes when you protect those people, such as by reversing trades after the flash crash.

If by third party software you mean eyeballs (1)

sandytaru (1158959) | more than 2 years ago | (#40602299)

At least, our office just glances at the current prices and then sets ours a dollar lower. We don't use any fancy third party tools. We find the product, find the price, and undercut it. Our stuff usually sells within 24 hours this way. Then again, we're just selling used IT equipment, one old scanner at a time.

Happens all the time (0)

Anonymous Coward | more than 2 years ago | (#40602635)

This could lead to a situation similar to the U.S. flash crash, where algorithmic trading was blamed for stock prices falling to near zero and then bouncing back within 20 minutes.

So what?

If you stalk "deal" sites, you'll happen upon too-good-to-be-true deals once in a while. (Pricing glitches, inadvertently stackable coupons, whatever.) Most of the time, when you jump on them, your order is simply cancelled. Amazon won't let themselves lose big here.

Book War Coming Soon! (1)

BetaDays (2355424) | more than 2 years ago | (#40602687)

Loved this when I read it the first time. Book prices go up to a million dollars because of this. http://www.michaeleisen.org/blog/?p=358 [michaeleisen.org]

Won't happen. Here's why: (5, Interesting)

Qbertino (265505) | more than 2 years ago | (#40602701)

A little history:
I was the first to automate price wars on amazon marketplace. (True thing.)

A friend had just joined marketplace with a freshly founded internet media sales joint after it opened and two weeks in was adjusting prices of his sale books manually. Like, seriously, clicking through 200 items a night and entering new prices. I told him to stop that nonsense and built an automated scraper, parser and some other tools in Python that would parse the actual websites for each of our articles ISBN and compare our prices to those of the competition (this was before the days of publicly available Amazon APIs), readjust our pricing to the cent accordingly and upload the freshly generated updates once all 200 000 items were parsed.

Orders went from 3 - 5 per day to 120 - 150 per day. My buddies were packaging books and CDs all day while I was sitting there grinning and petting my script and ama-bot setup (still those right here in my project folder :-) ). We made 700 000$ of revenue the first year. A few months in competitors started to do the same - no suprise, the concept is quite obvious to any computer or programming guy - and a ruinous price-war started. My friend went out of business a year later. We could have fine-tuned the automated price adjustments like the marketplace vendors are doing today, such as upping the price of an item only you have got in stock, but after a few bad business decisions my friend didn't want to continue. That was all back in the early 2000s (2003-2004ish).

On the issue discussed:
Before a Flash Crash can happen on sites like amazon marketplace, the vendors involved will either die a painfull death before or finetune their algorythims to a much more complex model. Those still alive and well today have done the latter, and even if updates occur every 15 minutes, I'd bet money that they are still watching the sales and revenue with the appropriate tools and with their own eyeballs, because you can lose thousands within minutes if you don't. You can automate a lot, but you can't automate day-to-day business decisions, especially in such markets.

Bottom line:
Crashes don't happen here, only individual foreclosures for those who don't watch out well enough.

My 2 cents. .... Aaaah, the memories ...

Flash Crash is Good (1)

pubwvj (1045960) | more than 2 years ago | (#40603007)

A flash crash would be great. These sellers are despicable for using this sort of technology and I would love to see them hoisted on their own petard.

Automated buyer watching algorithms could hasten the death of this sort of sales tactic. Assassin buyers and suicide sellers.

EZ peezee (0)

Anonymous Coward | more than 2 years ago | (#40603209)

So all I have to do is set up a website that sells gold for $1000 an oz, let the spider see and respond to it then buy gold on Amazon in bulk? Cool.

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