High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/26c5bb7a-c12f-11e1-8179-00144feabdc0.html#ixzz204X2r15F High-speed trading tools pioneered in the stock market are increasingly driving price movements on Amazon’s website as independent sellers use them to undercut and outwit each other in a cut-throat online market place.
Product prices now change as often as every 15 minutes as some of the 2m sellers on Amazon’s site join the online retailer in using computerised tools – often developed by former data miners at investment banks – to lure shoppers with the best deals.
However, this “robo-pricing” has become a source of tension as Amazon competes against its own clients while it enjoys access to their sales information and has greater experience of data mining.
Amazon sellers – using third-party software – can set rules to ensure that their prices are always, for example, $1 lower than their main rival’s. More complex algorithms can analyse historical data to set prices most likely to secure a more prominent position on the Amazon website.
However, the tools also create the risk of malfunctions similar to the 2010 “flash crash”, when so-called “algo trading” was blamed for some US stock prices plunging to near zero, then rebounding in the space of 20 minutes.
Last year out-of-control algorithms inflated the price of The Making of a Fly, a genetics book, to over $23m, according to Michael Eisen, a biologist who blogged about it.
Some sellers have even created dummy accounts with ultra-low prices to deliberately pull down those of rivals so they can corner a market by buying their goods, say pricing experts. That practice violates Amazon’s rules of conduct.
Eric Best of Mercent, a Seattle developer of ecommerce tools, said: “Pricing is becoming like equity trading, with real-time reflection of supply and demand, increasingly sophisticated rules, and all the consequences for unexpected results.”
