An explanation for the multi-million dollar books on Amazon – algorithmic pricing

At first I thought it was a joke – a graduate student with too much time on their hands. But there were TWO new copies for sale, each offered for well over a million dollars. And the two sellers seemed not only legit, but fairly big time (over 8,000 and 125,000 ratings in the last year respectively). The prices looked random – suggesting they were set by a computer. But how did they get so out of whack?

Amazingly, when I reloaded the page the next day, both priced had gone UP! Each was now nearly $2.8 million. And whereas previously the prices were $400,000 apart, they were now within $5,000 of each other. Now I was intrigued, and I started to follow the page incessantly. By the end of the day the higher priced copy had gone up again. This time to $3,536,675.57. I continued to watch carefully and the full pattern emerged.

 

 

Once a day profnath set their price to be 0.9983 times bordeebook’s price. The prices would remain close for several hours, until bordeebook “noticed” profnath’s change and elevated their price to 1.270589 times profnath’s higher price. The pattern continued perfectly for the next week.

But two questions remained. Why were they doing this, and how long would it go on before they noticed? As I amusedly watched the price rise every day, I learned that Amazon retailers are increasingly using algorithmic pricing (something Amazon itself does on a large scale), with a number of companies offering pricing algorithms/services to retailers. Both profnath and bordeebook were clearly using automatic pricing – employing algorithms that didn’t have a built-in sanity check on the prices they produced.

via Michael Eisen

Dynamically priced seats – Baseball is using big data to improve ticket sales

“We work with half of baseball right now,” said Barry Kahn, CEO of Qcue, a company that helps teams sell dynamically priced tickets. That’s up from just four teams at the start of last season (2011). In all, 17 of 30 Major League teams will use dynamic pricing this season, according to Ticket News.

via NPR

What is “dynamic pricing”?

From the website of Qcue, an Austin, TX, based start-up:

“50% of tickets are never sold, while 10% are resold for twice the face value”

Dynamic pricing is smart pricing. It considers all the available data points to price tickets more accurately before they go on sale. Once tickets begin to move, dynamic pricing applies advanced analysis to adjust prices based on sales and other measures of shifting demand.

  • Determines what drives sales using variables such as start time, opponents, etc. to set more accurate prices from the onset and maximize demand across the house.
  • Captures opportunity for markups and encourages sales across every section of the stadium.
  • Recognizes shifting values even before fans do by constantly evaluating weather, players, playoffs, promotions, etc.
  • Improves business efficiency and optimizes revenue opportunities through automation of valuable business intelligence.

Sophisticated algorithms analyze real-time sales data and other external factors to generate forecasts based on various pricing strategies.

 

More from NPR

Baseball teams are finally doing what airlines have been doing for decades: changing ticket prices on the fly, based on demand.

At ballparks around the country this year, ticket prices will fall when rain is in the forecast and rise when a superstar comes to town.

From an economic standpoint, the only question is why they didn’t do it sooner. Why not sell seats on the cheap if they’d sit empty otherwise? Why not charge a premium for sellouts?

 

Personally, I’m happy that MLB owners are picking up on this technology, maximizing revenue, cutting into scalpers, even though it may end up in higher ticket prices for me:

They (Qcue) estimate that a team can generate an additional $900,000 in incremental revenue over the course of a season by making one additional change to each of its section prices.

  • Average price change per seat: $1.55 increase
  • Average percentage change per seat: 3% increase
  • Average price decrease: -$13.63
  • Average price increase: $3.27

via The Business of Sports