I recently ordered several cans of King Oscar Sardines online. I prefer cans with two layers of small fish, but they cost a little more than cans with one layer of larger fish. When I Googled “King Oscar Double Layer Sardines,” I wasn’t surprised to see a number of clickable ads pop up. One ad caught my attention. Amazon offers He Double Layered Sardines for an unusually low price of $3.00 per can. When I clicked on the ad, I was taken to an Amazon page. There he recognized me with a greeting of “Hello Gary” and showed me his double tiered sardines of King Oscar. Price is $3.99 per can.
I went back to the search results page and tried again. Same result. I then went to another computer on another network and Googled “Amazon King Oscar 2-layer sardines.” This time Amazon didn’t recognize me and the price was $3.19 per can. Welcome to the world of “dynamic pricing.”
Advantages and disadvantages of dynamic pricing
A few days ago I was listening to NPR planet money The podcast “Will dynamic pricing be introduced to your local supermarket?” The show explores how brick-and-mortar supermarkets can replace fixed price tags with electronic shelf labels that can change prices as supply and demand fluctuate. Two economists spoke passionately about the benefits. One advantage is that stores can easily lower prices on blueberries and other fresh produce that are nearing their sell-by date, rather than throwing them away. It made sense to me.
Another claimed benefit is that stores can send “price hunters” into competing stores to reduce prices found to be higher than competitors’ prices. It is said that this price hunting can lead to price wars that benefit shoppers. However, the idea that physical stores would be involved in a short-term sardine price war seemed far-fetched to me. I’m not going to keep an eye on the fluctuations in sardine prices and drive from store to store to get the cheapest canned food.
Another consequence is that stores may raise prices if price seekers discover that competitors are lowering prices. taller than price. Dynamic pricing by price hunters can also effectively cause all stores to collude by charging the same price.
How is online shopping different?
When I move to a new city, I try many stores in the area and find one or two that offer an attractive combination of price and quality. These are stores I go to regularly and will continue to go until I notice an overall decline in the combination of price and quality.
Internet shopping is different because it’s easy to compare prices and buy items from multiple different stores. It also makes it easier for online retailers to use dynamic pricing to take advantage of unwary consumers. I’ve probably paid too much for some items on Amazon in the past and been identified by its algorithm as a careless shopper, or at least someone who doesn’t really care about price. Therefore, the algorithm naturally concluded that I was likely to pay $3.99 for a can of sardines while other customers said he would pay $3.19 or less.
Not only was that assumption wrong, it ignored the fact that such exploitation comes at a cost.
In game theory, there is an important distinction between one-shot games and repeated games. Single-shot games, played only once, allow players to cheat, lie, and deceive each other without worrying about the consequences. In repeated games, players must consider how their actions affect their reputation. Actions that may be beneficial in the short term can have disastrous consequences in the long term. I’m just one person, but I’m done with Amazon.
Internet service quality life cycle
Cory Doctorow coined this term. Encitization To illustrate the lifecycle degradation of the quality of products and services of Internet platforms:
Here’s how the platform disappears. First, the platform is beneficial to users. They then abuse users to improve the situation for their corporate customers. Finally, they exploit business customers to get all the value back to themselves. Then they die.
wired
Amazon originally sold high-quality products at low prices, and its search algorithm was designed to help customers find what they were looking for. Although it initially lost billions of dollars, it built a huge customer base. After millions of shoppers fell in love with it, the company began raising fees, selling lower-quality products, and generating search results based on the fees businesses paid. The only way for unknown companies producing low-quality products to gain visibility on Amazon is to pay these search fees. As expected, most of the top Amazon search results that customers see today are junk.
Enshittification is not limited to Amazon. Think of companies like Facebook, Google Search, Uber, and many others. Ensitization’s essay resonated with so many people that the American Dialect Association selected it as the 2023 Word of the Year.
Amazon vs. Walmart
When I told friends in the industry that I was leaving Amazon, I referred to it as the “Walmart of the Internet.” In fact, Amazon is far worse than Walmart, he said. Some of the products sold on Amazon are genuine, such as Nike shoes manufactured and sold by Nike. However, he continued, other items are genuine but stolen, such as the loot provided by the flash mob that ransacked the Nike shoe store. Other products are copies. When you buy something on Amazon, you don’t know if it’s authentic, stolen, or counterfeit.
And there are a lot of cheap junk items that either don’t do their job or break quickly after purchase. You can imagine the quality when Amazon sells high-quality pruning shears for a third of his price and keeps half of the selling price for himself. It’s also understandable why Amazon alternatives like Shein and Temu are likely to shave off profits. If Amazon maintained half the selling price, a competing website could sell the product for nearly 50% less and still make a profit.
In 2023, third-party sellers paid Amazon nearly $200 billion in fees and accounted for more than 60% of Amazon’s total sales. A better analogy than “the Walmart of the Internet” is “the flea market of the Internet.” At flea markets, sellers pay to set up tables and booths. Some of the items sold are authentic. Many are knock-offs, “boxes off the truck” or flimsy junk.
I remember the last flea market I went to. One of my sons bought his orange Adidas T-shirt for a few dollars. The first time he washed it, he got an orange color transfer to all the clothes in the washer. As he said earlier, this was my last flea market. And my last Amazon search for him was when I searched for sardines on Amazon.
