If you’ve been buying used and rare books online for any period of time, I’m certain you’ve run into strange pricing anomalies. I’m not just talking about George R.R. Martin’s paperback collection Sandkings listed for $2,000 at Amazon, or Philip K. Dick’s Flow My Tears, the Policeman Said for $7,700 (although there’s plenty anomalous about those prices, as anyone with a copy will tell you.)
No, I’m talking about the instances where prices for books inexplicably spiral out of control, as UC Berkeley biologist Michael Eisen noted on his blog:
A few weeks ago a postdoc in my lab logged on to Amazon to buy the lab an extra copy of Peter Lawrence’s The Making of a Fly … Amazon listed 17 copies for sale: 15 used from $35.54, and 2 new from $1,730,045.91 (+$3.99 shipping)… the two sellers seemed not only legit, but fairly big time (over 8,000 and 125,000 ratings in the last year respectively). The prices looked random – suggesting they were set by a computer. But how did they get so out of whack?
Intrigued, Eisen began to track the prices.
I started to follow the page incessantly. By the end of the day the higher priced copy had gone up again. This time to $3,536,675.57. And now a pattern was emerging.
On the day we discovered the million dollar prices, the copy offered by bordeebook was 1.270589 times the price of the copy offered by profnath. And now the bordeebook copy was 1.270589 times profnath again. So clearly at least one of the sellers was setting their price algorithmically in response to changes in the other’s price…
Once a day profnath set their price to be 0.9983 times bordeebook’s price. The prices would remain close for several hours, until bordeebook “noticed” profnath’s change and elevated their price to 1.270589 times profnath’s higher price. The pattern continued perfectly for the next week.
Why were they doing this, and how long would it go on before they noticed? As I amusedly watched the price rise every day, I learned that Amazon retailers are increasingly using algorithmic pricing (something Amazon itself does on a large scale), with a number of companies offering pricing algorithms/services to retailers. Both profnath and bordeebook were clearly using automatic pricing – employing algorithms that didn’t have a built-in sanity check on the prices they produced…
Like bidders at auction, the two algorithms continued to bid the price of the book up each day. The price eventually peaked on April 18th, 2011, at $23,698,655.93 (plus $3.99 shipping). At that point, someone at seller profnath noticed the irregularlity, and dropped the price to $106.23. Bordeebook’s price adjusted automatically, as Eisen notes, “to the predictable $106.23 * 1.27059 = $134.97.”
As Eisen notes,
What’s fascinating about all this is both the seemingly endless possibilities for both chaos and mischief. It seems impossible that we stumbled onto the only example of this kind of upward pricing spiral – all it took were two sellers adjusting their prices in response to each other by factors whose products were greater than 1… One can easily see how even more bizarre things could happen when more than two sellers are in the game… especially when they were clearly not paying careful attention to what their algorithms were doing.
Eisen has screen caps of several of the prices. Read his complete article here.