Algorithmic Price Fixing, Amazon Variations
Source: John Holbo
Henry’s post was interesting. It reminded me of an anecdote passed along by an acquaintance, who shall go nameless.
The individual in question is involved in publication of limited run, high quality art books. You can’t do that if you can’t make significant profit, per unit. (‘Volume volume volume!’ doesn’t hack it if you lack volume.) Medium-length story short:
This person – small fish – backed out of a deal with medium-sized fish, when it became painfully clear medium-sized fish’s deal with Leviathan – Amazon – made the margins too small. That’s business. But, in the aftermath, small fish’s sold-out limited editions are Currently Out of Stock, Available Soon on Amazon, in perpetuity, at a steep discount. Which is nonsense. Those orders Amazon is taking will never be fulfilled. Now, Amazon isn’t taking anyone’s money on false pretenses. It’s not illegal, nor should it be – but it is odd – for me to offer to sell you an apple for 5 cents, even though I’ll never have that apple, so you’ll never give me the nickel. In almost all cases, Amazon’s uncertain promises of Available Soon are reasonable, and welcome to suppliers as well as customers, and that’s basically why they do it. But Amazon does not lightly cull old titles from the lists. This puzzled me for a long time. On a personal note: it was only last month (!) Amazon stopped offering to take orders for the previous edition of Reason and Persuasion. That book was ‘available soon’ for years – more than 4 years I think? – after the previous publisher let it go out of print. I didn’t really mind, even after the new edition came out. New edition cheaper. But if it had been the other way around – if I had replaced a cheap edition with an expensive, newer edition – it would have been inconvenient. Buyers would maybe keep waiting for a cheaper Godot who’s never coming. Which gets me back to small fish. Small fish would like to make fresh runs of books. But it cannot be done at anything like the price point Amazon is promising. But everyone looks to Amazon to know what a thing ‘should’ cost. So small fish has a problem. If YOU saw a publisher offering an art book for sale for their site for $75, while Amazon says it’s ‘available soon’ for $45 – ‘expected in 1-2 months!’ – what would YOU do?
This isn’t a problem except for the small set of people in something like small fish’s peculiar economic position. (And there’s a quick fix that does quite a bit of good. Publisher posts on their site that ‘seriously, Amazon price ain’t real! $75 or nuthin’! Final offer!’) So this doesn’t crack the Top 100 of Potential Negative Externalities of Amazon Economics, even. But it’s a case of effective, algorithmic monopoly pricing with curiously distinctive, digital-age features. Little guy hit by backstroke from Amazon’s price-slashing in ways that might not be obvious.
Once your product is on Amazon, if you back out, Amazon gets to declare, forevermore, what it SHOULD cost. And probably everyone will believe Amazon.
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