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Algorithmic pricing on Amazon 'could spark flash crash’

Algorithmic pricing on Amazon 'could spark flash crash’

High-speed trading tools traditionally used on the stock market are helping to shape Amazon’s price movements

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Sellers on Amazon’s retail site are increasingly using high-speed algorithmic trading tools to automatically set prices, which could lead to a malfunction similar to the 2010 flash crash.

According to the Financial Times, prices on Amazon’s website change as often as every 15 minutes, where sellers are using tools traditionally developed by data miners at banks to ensure that their prices are always below their rivals’.

Third-party software is allowing sellers to detect a competitor’s price and automatically undercut that price by, for example, £1.

However, this could lead to a situation similar to the US flash crash, where algorithmic trading was blamed for stock prices falling to near zero and then bouncing back within 20 minutes.

According to biologist Michael Eisen, unrestricted algorithms already created a situation last year whereby the price of a genetics book, entitled The Making of a Fly, was priced at more than $23 million (£14.8 million).

However, some sellers are also creating fake accounts with extremely low prices in an attempt to automatically pull down the price of rival products so that they can buy up their competitor’s stock.

Jack Sheng of eForCity, which sells electronics on Amazon, warned of the dangerous impact algorithmic pricing could have on the retailer’s prices: “If something is mispriced down to $1, your inventory can be cleaned out in no time.”

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  • Rene Schickbauer I see it as some kind of proof for Darwins evolution theory The smart survive while the not so smart eg the ones that dont implement reasonable price limits in their software go bankruptITs called a free economy isnt it Smart companies win the others go bust and should NOT be saved by the government no matter how big andor stupid the company
  • PeaceMongerAgain Agreed situations like are described in the article havehappened but it such a naive approach to pricing and markets will correct andremove sellers who engage in the behaviorAdditionally algorithmic pricing is built into a huge percentage ofonline seller portfolios Articles like this are naive in their attempts to alarmconsumers Maybe it will get a few people to read the article but thecredibility of the author as reasonable and objective has to be called intoquestionIt is akin to screamingfire in a theatre when you see the move listed is the toweringinferno
  • PeaceMongerAgain Although this has happened in the past to other markets It is a naive approach to pricing and markets will correct and remove sellers who engage in the behaviorAdditionally algorithmic pricing is built into a huge percentage of online seller portfolios Articles like this are naive in their attempts to alarm consumers Maybe it will get a few people to read the article but the credibility of the author as reasonable and objective has to be called into question It is akin to screeamingfire in the theatre when you see the move listed is the towering inferno
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