The Aresan Clan is published four times a week (Tue, Wed, Fri, Sun). You can see what's been written so far collected here. All posts will be posted under the Aresan Clan label. For summaries of the events so far, visit here. See my previous serial Vampire Wares collected here.

Sunday, April 24, 2011

The 23 million dollar book

So what happens when two book sellers put a book for sale on Amazon marketplace with automatic pricing algorithms, one of which is set to price the book a percentage higher than the lowest price of the other books sold and the other a smaller percentage lower than the lowest price? Well, in such circumstances, the algorithms can actually get into a price war which actually causes the price to go up ad infinitum. In the case noted here by Michael Eisen, the price of a book on the developmental biology of flies was ratcheted up to 23 million dollars before someone noticed. It goes without saying that no one bought the book at that price.

Eisen gives a plausible explanation of how this worked. One of the sellers, he's guessing, probably didn't have the book, so they set up an automatic algorithm that would make sure their price was 1.270589 times the price of the cheapest alternative so that, if someone actually bought the book from them, they could turn around and buy the cheapest alternative and then resell it at a profit. The other seller, used an automatic algorithm that would make sure their price was 0.9983 times the price of the cheapest alternative, to make sure their copy was always the cheapest, but only slightly cheaper than the next cheapest alternative. Since 1.270589 is much greater than 1 than 0.9983 is less than 1, the two will constantly be pushing the other books price up. For example, if you imagine the second company originally listing the book at $100, as soon as the first company, that uses the 1.270589 calculation, lists their book, it will be automatically priced at $127.06. This would then lead the other company to reprice their book at $126.84, which would lead the first to reprice at $161.06, which would lead to the other repricing at $160.89 ... and so on.

I think I've seen this before, though I never pieced together the why like Eisen did. I remember seeing the elegant graphic novel Milk Teeth being priced way into the stratosphere for a while. Right now its list price is $16.95, but there was a time when it had gone out of print after the first printing sold out. People started selling used copies, but then the used copies started dwindling and getting more expensive. Then used copies started appearing at prices in hundreds of dollars. I assumed it was the sellers deciding to offer absurdly high prices because of high demand, but it may just as likely been the pricing algorithms getting out of control, since these algorithms don't appear to work very well when there are very few copies being offered.

Postscript: You can actually check out Amazon's selection of super expensive books, ranging in the 100s of millions of dollars, with a search. All cases I observed were of one seller selling the only copy of a book for a ridiculous price, and many were from the same sellers, such as GINAA or thebrothersbooks. Some sellers must have some seriously messed up pricing algorithms.

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