When shopping on Amazon, you may have noticed that some products’ prices seem to fluctuate. It’s not your imagination. Armed with over one billion gigabytes of data on customers and products, Amazon’s algorithms are continually adapting to supply and demand in order to get as close to their products’ equilibrium points as possible. When determining pricing, many factors, including customers' shopping patterns, competitors' prices, profit margins, and inventory are considered. While it may be annoying for us to not be able to predict the prices of goods, these algorithms help Amazon maintain competitive pricing in order to make as much money as possible.
In addition, Amazon uses other strategies such as cutting prices of popular products but marking up prices of less common products. Most customers first come to Amazon to shop for popular products, which they see are less expensive than competitors’. This gives customers the impression that Amazon has the cheapest prices across the market. When customers want to buy a more obscure item, they believe that they are getting a good deal when they may in fact not be.
Amazon’s algorithms show us that finding the equilibrium point for a product is near impossible; it is only possible to get close. This is due to the large number of factors that affect supply and demand. In addition, because of these numerous factors, the equilibrium point is always changing. Supply and demand curves allow us a simplified understanding of the supply and demand of a product by keeping most factors involved constant.
Source: https://www.businessinsider.com/amazon-price-changes-2018-8
Source: https://www.businessinsider.com/amazon-price-changes-2018-8
This is an amazing article. Thank you for writing it down! I've never think about the algorithm in Amazon. The equilibrium point is never shown in the publics' eyes. Most of the time, customers and sellers speculate the proper price for the product. Pricing ticks is broadly used in many products, persuading customers to buy certain products in the illusion of saving more money. In the discount seasons, famous brand stores lowered their price to attract middle-class customers to shop clothes they don't usually buy in the regular season. In fact, many clothes in the store are different to the clothes in regular season. This example might be different to what Amazon did, but I can see a similar pattern.
ReplyDeleteI actually had no idea that Amazon had any sort of algorithm like this, so this was really interesting to read. Part of the reason why Amazon has few major competitors is likely due to some of this, and the fact that they are able to lead customers to believe that they have the best prices across the board. The algorithm also helps explain how Amazon can so easily make a large amount of money, by using consumers' tastes and preferences.
ReplyDeleteThis is really interesting. I had always noticed that things often seemed cheaper on amazon then other sites but I didn't realize that it is just the popular products that are and that the less popular products are more expensive. This is actually a very clever trick. It is also smart that they use an algorithm to try and find the price that matches the equilibrium point. It is interesting that you can't ever actually reach the equilibrium point because there are too many factors to take into account, so you can only get really close.
ReplyDeleteI think in addition, once people get used to the convenience that is Amazon, it's hard to go back. Even if that uncommon book you want to buy is $2 more on Amazon than at your local book store for example, you're already buying $40 of other things so its just more convenient to pay the premium on the book. Amazon uses all sorts of marketing gimmicks to get people to use their site, such as offering free shipping for purchases over $25 (I need to buy $23 worth of stuff but I can buy this extra pair of pants and get free shipping) and advertising products to complement whatever you just added to your cart which you will then be more likely to buy as well.
DeleteThis is really interesting. Last year in US history we also read an article about Amazon. The article talked about how they will try get rights to sell products like Birkenstocks stocks. When Birkenstocks said no they threatened to sell knockoffs at a super low price. This forced BrikenStocks to sell with amazon. In another example a diaper company said no and amazon sold diapers below profit for months until the diaper company was forced to join or go out of business.
ReplyDeleteI really like how you focused on applying supply and demand to something that many of us use – Amazon. I think it's really interesting to see how algorithms play a role in the economy's supply and demand. As someone who always loves a good deal, I never knew Amazon used an algorithm. This is really good to know to understand the price fluctuations. Another application that uses algorithms for supply and demand is Youtube, as the home page for a user is created with an algorithm that exposes users to new videos they may not have seen before but the algorithm has expectations for, and it gets them going on a "binge" while also accommodating the demand of videos similar to previous ones you've watched. It definitely works for me, as I end up spending more time watching videos than I've planned, with the "play next" option. I also think the previous comment by Evelyn is really interesting to also show the power of large companies to manipulate supply and demand.
ReplyDeleteI believe Amazon's algorithms only apply to goods "Sold by Amazon." Individuals and third-party companies are not included in this.
ReplyDeleteThis is an amazing article. Thank you for writing it down! I've never think about the algorithm in Amazon. The equilibrium point is never shown in the publics' eyes. Most of the time, customers and sellers speculate the proper price for the product. Pricing ticks is broadly used in many products, persuading customers to buy certain products in the illusion of saving more money. In the discount seasons, famous brand stores lowered their price to attract middle-class customers to shop clothes they don't usually buy in the regular season. In fact, many clothes in the store are different to the clothes in regular season. This example might be different to what Amazon did, but I can see a similar pattern.
ReplyDelete