Communications of the ACM
Northeastern Researchers Find That Amazon Might Not Always Be Pitching You the Best Prices
A team of researchers has shown that Amazon is much more likely to point buyers to sellers who use an automated practice called algorithmic pricing, even though those sellers prices may be higher than the pricing of others.
Credit: YoungHee Jang/Northeastern University
Sellers who use algorithmic pricing to automatically adjust the price of their product are more likely to be featured in Amazon's "buy boxes" as the featured seller, even if they do not offer the lowest price, according to researchers from Northeastern University.
The automated system adjusts product prices depending on competitors' prices and inventory levels in real time, and sellers can subscribe to algorithmic pricing through third-party companies and set specific pricing strategies.
Researchers tracked the pricing strategies of 500 sellers and analyzed the price volatility of best-selling products; the prices of a third of the products changed at least once daily, and 17% changed more than three times daily. On average, 60% of retailers using algorithmic pricing offered products at higher costs than non-algorithmic sellers.
"Now, 70% of the time they only raise the price by $1, but there are many cases where the price increase is on the order of $20 to $60," says Northeastern professor Christo Wilson. "So you really have to take that extra step and click through to the list of all sellers for a given product if you want to find the lowest price."
Even with higher prices, algorithmic products are more likely to be featured in the buy box than a product with a lower cost but similar customer feedback, the researchers found.
From Northeastern University News
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