Amazon Algorithm Price War Leads to $23.6-Million-Dollar Book Listing
Two Amazon Merchants. Two different pricing algorithms. One seemingly normal book. This perfect storm of competitiveness lead to a twenty-three million dollar list price for a standard academic book.
What do you usually expect to pay for a book on Amazon? Perhaps $7-$10, if you're scouting for a paperback? Around $20 or so if you're looking to score a hardcover? Maybe $1,000-$1,500 if you're trying to hunt down that elusive, rare edition of "Teaching With Calvin and Hobbes?"
If your eyes aren't open yet, how about this: $1.7 to $2.1 million for a book—a perfectly average, out of print but not quite rare title that's considered a fundamental work of development biology? Or how about… $23.6 million?
That's the result of a recent bidding war between two third-party Amazon merchants, each attempting to use algorithms to sell an out-of-print version of Peter A. Lawrence's, "The Making of a Fly: The Genetics of Animal Design."
UC Berkeley associate professor Michael Eisen first noticed the pricing irregularities when he attempted to pick up a copy of the title a few weeks ago on Amazon. The book–with a list price of $70 on Amazon–was only available as "New" from two third-party merchants: "profnath," who was listing the title for $1.7 million, and "bordeebook," who one-upped his competition with a price of nearly $2.2 million.
To say that Eisen was intrigued is a bit of an understatement, as it's not very often that one encounters a 2,428,471-percent markup on a fairly benign academic title. So Eisen proceeded to do what any normal professor would in such a situation: He started tracking the irregularity.
As it turns out, $1.7 million wasn't the ceiling, but rather, the deck.
The two third-party merchants continued to engage in a bidding war of-sorts over the book's cost, and their prices started shooting up higher and higher. But each merchant adjusted the cost of their copies of the book according to a pattern.
Eisen noticed that Bordeebook always edited the book's price to be exactly 1.270589 times that of Profnath's price–and Profnath, upon realizing that the copy of the book it was offering was now dramatically lower than Bordeebook's, would undercut its competitor and change its price to 0.9983 percent of Bordeebook's listed amount.
Or, to put it another way, Bordeebook was trying to win big based on its high rating and positive feedback on Amazon–and, according to Eisen, was likely going to have to buy the book itself from a third-party in order to fulfill a purchase request. Hence, Bordeebook used an algorithm to automatically price its book just a wee bit higher than the competition, ensuring that it would have enough money to purchase said title and still make a little overhead.
Profnath, in contrast, was going the eBay route: Offering the book for the lowest price in the hopes that the discount would attract sales.
The vicious circle of pricing continued until April 19, when both companies apparently noticed what was going on and dropped their prices accordingly. Profnath now lists the title for $106.23 and, you guessed it, Bordeebook is all of 127 percent higher at $134.97.
"What's fascinating about all this is both the seemingly endless possibilities for both chaos and mischief," wrote Eisen in a blog post.
"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," he added.
Kind of makes the ol' campus bookstore look like a steal, no?