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Amazon prices book at $23 million, bad algorithm to blame

Posted by on 24/04/2011

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Michael Eisen was just browsing the used-book section on Amazon, looking for a book about flies, only to find out that one of the books called The Making of a Fly was priced at over $23 million. It turns out that a bad bit of algorithm caused the price to skyrocket without stopping at a reasonable ceiling price.

When the UC Evolutionary Biologist’s colleague logged into Amazon to pick up an extra copy of the book, there were 15 being sold used from a price of $35.54, while two were new ones were listed for a ridiculous price of $1,730,045.91 and $2,198,177.95. So how did such a situation arise? It turns out that the stores selling the books were using a pricing algorithm which were used to boost and undercut prices. The two stores in question were profnath and bordeebook. Profnath would be the first to list a changed price, and then Bordeebook would then list a higher price which was 1.270589 times greater than profnath’s price. Profnath would then list an undercut price of Bordeebook’s raised price, which happened to be lower by 0.9983 times.

After a couple days of monitoring, it went something like this:

Clearly one or both of the companies used a price management mechanism, and it turns out that bordeebook may have been boosting their prices with the hope that consumers would purchase from them based on their extremely positive selling rating of 93% (based on 125,891 ratings).

Since the algorithm didn’t have price cap though, the robots just kept pushing the price higher and higher, because they were simply reacting to each other’s price change. After a few more days of monitoring, the price skyrocketed to $23,698,655.93, which was simply unbelievable (plus a $3.99 shipping fee).

Eisen reported the problem to the sellers and profnath reduced their price to $106.23, with bordeebook automatically listing theirs at $134.97 based on the same 1.270589 ratio mentioned above. Hopefully a price ceiling was set this time.

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