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.”