[HN Gopher] Amazon Used Secret 'Project Nessie' Algorithm to Rai...
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Amazon Used Secret 'Project Nessie' Algorithm to Raise Prices
Author : bookofjoe
Score : 183 points
Date : 2023-10-03 18:23 UTC (4 hours ago)
(HTM) web link (www.wsj.com)
(TXT) w3m dump (www.wsj.com)
| bookofjoe wrote:
| https://archive.ph/NWu1D
| mellosouls wrote:
| Bonus points for the actual OP posting an archive link :)
| cm2012 wrote:
| It's pretty crazy to me that the FTC targeted Amazon in
| particular because they had a bone to pick, have done massive
| discovery, and just gone fishing with that discovery to find
| anything that sounds vaguely bad.
|
| I think this is probably normal for large gov agencies and
| prosecutions in general, but it just shows how arbitrary and
| political this stuff really is.
| pkilgore wrote:
| Widely rationalized as the government has finite resources, so
| there's a better deterrence effect of going after prominent
| entities and persons vs. randomly selecting bad actors.
|
| IMO this is good. The biggest and most elite among us should be
| held to a higher standard than a random guy on the street or a
| small business, not a lower one.
|
| Westley Snipes, Donald Trump, Hunter Biden, Amazon, Tesla,
| ExxonMobile, Amgen. I sorta want everyone and anything in that
| class of society on their best behavior at all times, lest the
| reins of government fall to a Party with reasons to make an
| example out of them. Unlike most, they have the resources to
| make it a fair fight too.
| jklinger410 wrote:
| I continue to not see the difference in this vs physical stores
| measuring customer behavior and adjusting their pricing.
| Considering also store brands, which fluctuate pricing based on
| those behaviors and the pricing of their competitors.
| Spivak wrote:
| Every time issue comes up it's abundantly clear that the
| complaints are due to Amazon doing a thing that's like kinda
| shitty but not abnormal in business mixed with a massive pool
| of sellers that have zero exposure to traditional retail. You
| don't see business like Nike making a fuss because to them
| Amazon is just another retail channel that has their own teams
| managing the relationship and the weirdness isn't that
| different than the other people they sell to.
|
| But I also sympathize because I think the eternal September of
| people stepping into that world producing so many WTFs at the
| accepted state of things they harmonize is a potentially good
| vector to push for some change because no one else is going to
| do it. The people who don't get eaten alive have no motivation
| to upset things lest they inadvertently hurt themselves.
| belval wrote:
| You and me both, this and the "AmazonBasics is creating cheaper
| copies of best selling items". That's literally what Walmart
| (GreatValue) or Costco (Kirkland), and basically any brick and
| mortar store has been doing to improve their margins in the
| last 50 years.
|
| As a customer I am not harmed by this, if anything I win
| because the intermediate sellers between the Chinese factory
| that actually makes the stuff and me is replaced by Amazon who
| is willing to accept smaller margins.
| fallingknife wrote:
| Yeah, it's a huge win. I have probably saved over $10K in my
| lifetime by buying store brand generics.
| grogenaut wrote:
| Is it secret if there's literally a building named after it?
|
| https://www.google.com/maps/place/Amazon+-+Nessie/@47.623881...
| schott12521 wrote:
| I've walked by / inside of this building countless times, never
| knowing what "Nessie" was codename for..
| [deleted]
| paulddraper wrote:
| Hm, perhaps it is not the name that is secret but the algorithm
| itself and its use of it.
| hk__2 wrote:
| So they used a super-secret algorithm to... raise prices? That's
| all?
|
| When you're the leader in your category, it's quite obvious that
| competitors are aligned on your prices, and that if you raise
| them they would raise them as well. At a previous company our
| main competitor fixed most of its prices to 1 cent below ours, so
| when we raised the prices they followed us as well.
| phkahler wrote:
| >> At a previous company our main competitor fixed most of its
| prices to 1 cent below ours, so when we raised the prices they
| followed us as well.
|
| So theoretically if you both raised prices too much
| arbitrarily, a third player might enter the market at a lower
| price. How realistic is that? I think any newcomer would be
| well aware of your ability to lower prices to compete, and a
| new player probably has costs just to enter the game so it'd be
| a bit risky.
| AMZNCommentary wrote:
| The pricing system was more archaic and manually driven than I
| expected. Vendor Managers were asked to review pending major
| price drops and raises. Later, a team in India/Pakistan would be
| the first line of defense, then the VM would be asked to review
| in edge cases.
|
| We could easily manually lower the price, however raising it was
| very difficult and required managerial approval.
|
| One thing I felt was anti-competitive was price matching Costco
| at the "each." This would result in absurd 2-day shipping prices
| that could not possibly be profitable. e.g Costco sells a 24 pack
| of soap for $1 per soap bar. We would price match the individual
| soap bar such that it was a $1 delivered to the customer's door.
|
| France caught on to this "pro" customer behaviour and is
| implementing laws requiring minimum shipping charges so that
| E-commerce platforms can't use "free" shipping in a predatory
| pricing manner.
| granzymes wrote:
| From the book "The Winner Sells All" on Project Nessie:
|
| >The focus on matching Walmart on price also created some issues,
| like when Amazon's pricing tool would repeatedly lower the price
| on an item to match its competitor, leading to what insiders
| dubbed a death spiral. Amazon created a specialized team to try
| to determine how and when to decide that its pricing tool should
| pull back and no longer match Walmart's lowest price on a given
| item, but instead match the next-lowest price from a competitor.
| The initiative was called Project Nessie. In the end, the program
| was scrapped when it was determined that the tool did not lead to
| more profitable outcomes.
|
| This sounds like a trends/spike monitoring algorithm that Amazon
| used to figure out when to give up trying to price match the very
| lowest competing offer.
| partiallypro wrote:
| I try not to shop at Amazon, but every time I try to just go to
| Target or Walmart, the prices are higher. I was looking for some
| probiotics and lotion just yesterday, felt that was simple
| enough, so I could just go to one of the two...it was $5 more
| (each) than on Amazon.
| dieselgate wrote:
| Small price to pay to not buy from amazon in my opinion
| InitialLastName wrote:
| Only buy things on Amazon that you would buy off the back of
| someone's truck. You have the same odds of those items being
| meaningfully subject to the US regulatory, consumer safety, and
| trademark ecosystem.
| paulddraper wrote:
| I haven't found that to be the case.
|
| But the selection, reviews, and overall experience of Amazon
| makes it better anyway.
| WendyTheWillow wrote:
| Walmart's online store is actually a marketplace, with Walmart
| being one of the many sellers (they also do fulfillment by
| Walmart).
|
| So, if you see higher prices, it's probably an arbitrage
| situation. Filter down to just Walmart as the retailer, and you
| should get the kind of pricing you expect from Walmart, albeit
| with the selection you would expect from a Walmart.
| bogwog wrote:
| That's probably exactly the phenomenon that the FTC is talking
| about in their complaint. Since Amazon punishes sellers who
| offer lower prices off of Amazon, sellers are forced to use
| their Amazon price as their price floor. And since Amazon has
| huge market share and insanely high seller fees (upwards of
| 40%), then prices across the entire economy go up.
| SoftTalker wrote:
| The Amazon products are (possibly) counterfeit. I think this is
| less likely at Target or WalMart (as long as you avoid the
| third-party sellers on WalMart's site -- not sure if Target has
| those).
| miked85 wrote:
| I'm not sure if WalMart is much better since they have third-
| party sellers.
| flictonic wrote:
| But do they commingle inventory? That's the real problem
| with Amazon, not that fakes are listed on the marketplace,
| but that you can't even trust Amazon as the seller.
| makestuff wrote:
| According to a quick google search Walmart does not
| commingle inventory. However, I think they will
| eventually once their tech can support it. Target started
| commingling inventory so it is only a matter of time
| before Walmart does. From a logistics standpoint it makes
| 2-day shipping much easier since you can spread inventory
| out across the country.
| [deleted]
| ctvo wrote:
| > The Amazon products are (possibly) counterfeit. I think
| this is less likely at Target or WalMart (as long as you
| avoid the third-party sellers on WalMart's site -- not sure
| if Target has those).
|
| Do you have any data on the number of counterfeit items? I've
| been an Amazon customer for 20 years now. I've never had an
| incident, and we order pretty much every week for basic home
| goods.
|
| You're saying that people are selling counterfeit probiotics
| and lotion on the site now?
|
| I've seen this counterfeit claim repeatedly on this site.
| While I understand Amazon intermingling inventory from
| different sources makes it a possibility, I've yet to see any
| data that it's a significant issue. Not to the extent that it
| warrants you telling people their lotion, which is lower
| priced, is counterfeit and not for numerous other reasons.
| themagician wrote:
| Walmart and Target are actually much worse. Target is perhaps
| the worst of all, believe it or not. If a scammer creates a
| listing for a particular UPC, they own it within the Target
| system basically forever. Even if you approach Target as the
| legitimate brand and try to take control of the listing they
| refuse and then try to essentially extort you. They tell you
| that you can essentially "stop the bleeding" by signing up
| with a certain third party vendor that charges thousands a
| month so you can list on Target. And even if you do, that
| product listing still remains controlled by someone else.
| They wanted it to be a kind of "gold rush" where brands would
| run to sign up for fear of losing the ability to sell their
| products to third parties.
| saganus wrote:
| That sounds... weird?
|
| Not saying it doesn't happen, but if this is indeed the
| case, what is preventing the same scammer from essentially
| registering all still-unregistered UPC codes to do
| something akin to domain squatting?
|
| (I am not familiar with how Target online works so maybe I
| am missing something)
| consp wrote:
| Wouldn't you just order one as the legitimate manufacturer,
| check if it's fake, and the sue the shit out of target and
| the seller for willfully selling counterfeit product
| _after_ having been warned about it? I don 't know about
| the US but in some places knowingly selling fakes is
| illegal.
| TedDoesntTalk wrote:
| I try to buy from the manufacturer these days. Always more
| expensive but guaranteed (I think?) not to be counterfeit.
| grogenaut wrote:
| It's kind of crazy to me that the manuf is consistently the
| most expensive place to buy things. Went to the benchmade
| factory store a few weeks back, there's only one. Their
| prices were 20% over what sportsmans warehouse a few blocks
| away had for the same knife.
|
| Like someone comes all the way to your one store location
| and you're gouging them on price. Crazy. I didn't buy
| anything at the store, got the knife at the SW.
|
| They charge even more online which is also fun. This is on
| $425 knives so you know there's hella headroom.
| aaronax wrote:
| Probably they are less efficient at retail operations
| than a retailer, so have higher overhead. Also wouldn't
| want to undercut the retailers, who are providing
| valuable shelf space and marketing.
| SoftTalker wrote:
| More the latter. Why would any retailer carry your
| product if you're going to undercut their price with your
| own direct consumer sales?
| tomjakubowski wrote:
| the retailer can be competitive by providing
| convenience/location, faster shipping speed, etc
| mportela wrote:
| Which cost a lot, so they need to get the product for a
| lower price before reselling. Also, because they are
| buying wholesale, they usually have the upper hand in the
| negotiations. It's quite common for their contracts to be
| contingent to the manufacturer not selling the product at
| the same price point
| hbosch wrote:
| It's not cheap to pay for inventory storage, warehouse
| workers, logistics, etc. When something like
| Amazon/Walmart/other can take on those liabilities for
| you, the costs come down.
| TedDoesntTalk wrote:
| What's "SW"?
| hhh wrote:
| Sportsmans Warehouse
| smegsicle wrote:
| as long as it's not 'fulfilled by amazon' or whatever and
| thus commingled with their garbage
| mitthrowaway2 wrote:
| How many manufacturers offer direct-to-consumer sales?
| bookofjoe wrote:
| A lot, I've discovered, and not just giants like Apple.
| tomschwiha wrote:
| Most stuff you can buy at AliExpress (or similiar), but it more
| conventient to have same/next day delivery and excellent
| customer favoring support. A lot of trash items on Amazon
| though, I try to not buy a lot there, it still happens.
| JohnFen wrote:
| > but every time I try to just go to Target or Walmart, the
| prices are higher.
|
| Isn't it worth paying a bit more in order to stop doing
| business with Amazon, though?
| tonetheman wrote:
| [dead]
| [deleted]
| beauzero wrote:
| This is common practice with 3rd party/used sellers of books. It
| has been going on since the early 2000's and started as an excel
| spreadsheet that would go out and look up a price for you, match
| or go a penny lower, or raise prices when there was no
| competition. It doesn't surprise me that Amazon did the same. Why
| wouldn't they do it?
| huijzer wrote:
| I wonder if things like this happen because Bezos is doing other
| things or because Bezos has changed his mind on "Its All About
| the Long Term". I suspect the former and that some executive is
| optimizing for his personal metrics instead of the long term
| success of the company.
| jsnell wrote:
| > Amazon stopped using the algorithm in 2019, some of the
| people said.
|
| The article doesn't say when this project started, but given
| that end date it would have been entirely on Bezos's watch
| Someone1234 wrote:
| He said that in 2003 though. Amazon lived that business model
| for over 15-years of its life. It is now the largest online
| business in the world, at some point they were going to cash-in
| on their monopolistic position.
| pachouli-please wrote:
| Mega-Giant E-Commerce E-Corp Abuses Consumers and Competitors, To
| Everyone But Their Own Bottom Line's Detriment
| napierzaza wrote:
| [dead]
| paulddraper wrote:
| > The algorithm helped Amazon improve its profits on items across
| shopping categories, and because of the power the company has in
| e-commerce, led competitors to raise their prices and charge
| customers more...In instances where competitors didn't raise
| their prices to Amazon's level, the algorithm--which is no longer
| in use--automatically returned the item to its normal price
| point.
|
| > The company also used Nessie on what employees saw as a
| promotional spiral, where Amazon would match a discounted price
| from a competitor, such as Target.com, and other competitors
| would follow, lowering their prices. When Target ended its sale,
| Amazon and the other competitors would remain locked at the low
| price because they were still matching each other...
|
| Soooooo....it used the algorithm to raise prices, but also lower
| them?
|
| Anyone want to try their hand at an actual headline?
| codetrotter wrote:
| > Anyone want to try their hand at an actual headline?
|
| A better headline would be:
|
| Amazon Used Secret 'Project Nessie' Algorithm to Steer Prices
|
| Using the word "steer" instead of the word "raise".
| vngzs wrote:
| Cory Doctorow disagrees (1) that the consumer welfare theory of
| monopolies is valid and (2) that monopolies which dominate
| industries are economically desirable [0]. I found it
| interesting to realize that most modern antitrust theory - that
| consumer harm is the only reasonable basis for government
| intervention in monopolies - appears to lack historical basis
| in the law. For instance, the consumer welfare standard
| severely downplays the importance of free and fair competition
| among businesses as a means for class advancement.
|
| > This is the "consumer welfare" standard, a theory as
| economically bankrupt as it is historically unsupportable.
| Let's be clear here: The plain language of America's antitrust
| laws make it very clear that Congress wanted to block
| monopolies because it worried about the concentration of
| corporate power, not just the abuse of that power. This is
| inarguable: Think of John Sherman stalking the floor of the
| Senate, railing against autocrats of trade, declaiming that "we
| should not endure a King over the production, transportation,
| and sale of the necessaries of life." These are not the
| statements of a man who liked most monopolies and merely sought
| to restrain the occasional monopolist who lost sight of his
| duty to make life better for the public.
|
| [0]: https://archive.ph/aTv47
| RecycledEle wrote:
| Only on HN do I read something like this.
|
| You are smarter than me.
|
| Thank you for allowing me to be here on HN.
| secabeen wrote:
| > I found it interesting to realize that most modern
| antitrust theory - that consumer harm is the only reasonable
| basis for government intervention in monopolies - appears to
| lack historical basis in the law. For instance, the consumer
| welfare standard severely downplays the importance of free
| and fair competition among businesses as a means for class
| advancement.
|
| This feel similar to the myth of shareholder primacy. In both
| cases, the "agreed on standard" has little to no basis in the
| law, but happens to enrich the powerful and well connected
| over the little man.
|
| https://corpgov.law.harvard.edu/2019/08/22/so-long-to-
| shareh...
| fallingknife wrote:
| What is the reasonable alternative to shareholder primacy?
| Removing shareholders as a check on the executives would
| create an all powerful CEO similar to the structure of tech
| companies with dual class shares but at all companies. I
| don't think that's a good thing.
|
| Also, why would investors want to invest in a company where
| they could not remove a ad CEO that isn't delivering
| returns? They would probably just reinvent shareholder
| primacy through investment contracts.
| Varriount wrote:
| Do shareholders actually act as a substantial check on
| companies though? And it's this a check towards positive
| behavior, or negative behavior (for the company, society,
| etc.)?
| lazide wrote:
| A CEO or board of directors that angers the majority of
| shareholders (or an outspoken minority) doesn't last
| long. That correlation is absolutely clear.
|
| Which means most CEOs and boards focus on managing
| shareholders at least as much as anything else they do.
| paulddraper wrote:
| > myth of shareholder primacy
|
| FWIW that's just logic.
|
| Whether it's de jure or de facto, the owners of something
| will own it to their interests.
| username332211 wrote:
| If you look into the actual historical basis of shareholder
| primacy, you'll find everything is a bit more complicated
| than you think it is. Shareholder primacy has an old idea,
| coming from a the 1919 court case Dodge v. Ford Motor Co.
| The facts of the case were as follows:
|
| 1. The Dodge brothers - minority shareholders in Ford
| Motors, wanted to set up their own automotive company. They
| planned to use the money from Ford's dividends to support
| their company.
|
| 2. Henry Ford would have liked to keep his monopoly on
| affordable cars. He cancelled the dividend and claimed he's
| going to spend the money on improving society (by selling
| the Model T even cheaper) as a thinly veiled excuse.
|
| 3. The courts in Michigan saw what's happening and forced
| Ford to issue dividends.
|
| As you can see in that case case, it was the lack of
| shareholder primacy that enriched the powerful. In the last
| 20 centuries of human history the powerful have always
| crushed the little man with the excuse they are serving the
| public interest. Beware of anything that empowers powerful
| individuals (like corporate CEOs and directors) to take
| arbitrary actions in the name of "social responsibility".
| panarky wrote:
| The internet provider for my home is a true monopoly. I have
| no other choice. I can't click around in my browser, or futz
| with the cables in the walls and choose a competitive
| internet provider. I live in an area with moderate population
| density, so there could be more competition, but the local
| municipality negotiated exclusive rights for one provider. My
| provider knows it, they probably paid handsomely for the
| exclusive rights, and that's why they charge $95 a month for
| unreliable and slow service.
|
| When my uncle had a heart attack, he wasn't in a position to
| shop ambulances, emergency departments, surgeons,
| cardiologists or anesthesiologists. As with internet
| providers, emergency healthcare is not a competitive market,
| and that's reflected in extortionate pricing.
|
| It seems like reducing consumer harm should be the primary
| objective of regulators.
| paulddraper wrote:
| > I have no other choice
|
| There are approximately ~1 gazllion wireless internet
| providers where I live.
| moneywoes wrote:
| why doesn't your provider charge $200 a month then?
|
| any other examples of local monopolies
| eropple wrote:
| _> It seems like reducing consumer harm should be the
| primary objective of regulators._
|
| You're not wrong, but the definition of "consumer harm"
| used in practice hinges on short-termism and is price-
| centered right now. "This won't raise prices...for now, at
| least" is, by itself, an alarmingly strong argument in this
| arena, irrespective of market health or sustainability of
| competition.
|
| The Biden administration has made some steps to counter
| that, we'll see if it's really a thing.
| lazide wrote:
| Personally I'd love it if companies like Comcast, AT&T,
| Wells Fargo, BofA, et. al would need to compete enough
| that they stop _being extractive and manipulative
| assholes_ at a minimum. Or at least stop being periodic
| criminal enterprises. Perhaps even fair and honest market
| participants?
|
| I guess I need to cut back on the heroin.
| sokoloff wrote:
| https://www.starlink.com/ is not available where you are?
| giobox wrote:
| Has anyone who ever suggests Starlink as the solution to
| any given fixed-line ISP problem ever actually used the
| service in a range of typical homes for a meaningful
| amount of time?
|
| I have the latest dish model, live on a one acre property
| with a relatively large clearing, and I _still struggle_
| with the extremely wide field of view of the clear sky
| (no trees, hills or other occluding items) which it needs
| - I simply can't get 24hrs of uninterrupted service, and
| performance is _extremely_ variable. This is even after
| mounting it some 25ft in the air to reduce occlusion
| issues as much as possible. Starlink needs an
| unobstructed view right down to surprisingly low on the
| horizon for 24 hours of solid service, which many, many
| homes simply won't be able to provide.
|
| Starlink is incredible for what it is, but it's not magic
| and becomes very hard to use reliably in urban areas at
| least with the current dishes and tech stack they are
| using. In many urban neighbourhoods it will be close to
| impossible to get a reliable 24 hrs of service unless you
| can knock down your neighbours homes and trees too.
|
| Starlink is best used in situations where there are
| almost no other options, or as a backup connection to
| another more reliable one, _for most people_. It is not a
| great replacement for almost any fixed line service, if
| you have that option. Perhaps this changes in future, but
| people should stop just suggesting starlink in its
| current form as the panacea to all ISP problems.
|
| Occlusion appears to be the single biggest enemy of
| starlink, and it's super easily occluded - so much so,
| the app helps you measure/approximate the occlusion in
| your intended use space via your phones cameras before
| you buy.
| panarky wrote:
| In my testing about four months ago, Starlink had between
| one and seven outages per day lasting more than 10
| minutes each. It was not reliable, and it's even more
| costly than the local monopoly.
|
| My reply wasn't asking for help to find an internet
| service provider. There are actual monopolists extracting
| monopoly rents right this minute. They're causing genuine
| consumer harm right now, so stopping this harm should be
| the priority of regulators.
|
| Where there is no ability to access competitive
| offerings, these actual monopolists are a different
| league of economic pathology from markets where consumers
| can access competition by clicking around in their
| browsers.
| azinman2 wrote:
| It's unreliable with cloud coverage, adds latency, and
| may not match bandwidth with good offerings (for example
| my uncapped 1GBPS symmetric fiber for $60/mo thru Sonic).
| It also is run by Musk which can be a turnoff for many.
| TehShrike wrote:
| I'm using Starlink in Nebraska. It is reliable with cloud
| coverage. I have only lost connectivity for 5-10 minutes
| during the fiercest part of the worst thunderstorms.
| cataphract wrote:
| It's well known that the consumer welfare focus only started
| in the late 70s, thanks in big part to Robert Bork's (the one
| whose SCOTUS nomination famously failed) "The Antitrust
| Paradox".
| mooreds wrote:
| If you are interested in a book length version of this
| argument, I'd recommend Goliath by Matt Stoller:
| https://www.simonandschuster.com/books/Goliath/Matt-
| Stoller/...
| hn_throwaway_99 wrote:
| Was really glad the article you linked mentioned Robert Bork,
| because it's important to realize (a) this shift to the
| consumer-welfare standard is relatively new in US
| jurisprudence, like since the late 70s, and (b) if you
| consider, like I do, that Robert Bork was a Grade-A Turd for
| numerous reasons (can start by looking into the Saturday
| Night Massacre), you can see how this reading of the law is
| well in-tune with lots of other shitty ideas from Bork.
|
| For more info:
| https://en.wikipedia.org/wiki/The_Antitrust_Paradox
| [deleted]
| unethical_ban wrote:
| "Soooooo....it used the algorithm to manipulate the market
| price of items by way of their dominance as an e-commerce
| storefront"
| gorlilla wrote:
| Amazon's price-matching algorithm does nefarious things.
|
| I'd argue that the 'lower prices' just let amazon disperse the
| cost of markdowns across all of the vendors. Meaning Amazon
| still benefits from the lower pricing because they get possibly
| extra sales but only absorb the cost on 'their' products which
| were still matched to their 'competition' who were stuck
| matching Amazon.
| paulddraper wrote:
| > price-matching algorithm
|
| Half the stores I walk into have price matching.
| toasted-subs wrote:
| "Amazon used it's influence to control the market"
| shadowgovt wrote:
| Normally I'm the first one out the gate to remind people that
| the legal standard in the US for monopoly isn't size or impact
| on competition but consumer harm... Amazon could strangle all
| alternative product channels, but if they do so by legitimately
| finding a breakthrough that delivers product to people with 10x
| efficiency, that's (a) not actionable in the US and (b) great
| news, system works as intended, A++ would let winner win again.
|
| ... but in this case? Amazon has _massive_ access to otherwise-
| secret price knowledge that they require sellers provide to
| participate in the marketplace. More than people realize and
| more than is shown in the UI (I did some work for a company
| that specialized in providing that data).
|
| If they used it to feed this algorithm, there's a real solid
| case that they used their unique market position to make things
| more expensive for no consumer benefit, and the antitrust case
| writes itself.
| yonran wrote:
| This is straight out of FTC Chairwoman Lina Khan's original
| article Amazon's Antitrust Paradox
| https://www.yalelawjournal.org/note/amazons-antitrust-
| parado.... Amazon is willing to match any competitor's price in
| order to build market share while not triggering predatory
| pricing antitrust review (which did not consider network
| effects). But the price is low only as long as the competitor
| is there. When small competitors finally give up (since they
| cannot offer the same free shipping variety as Amazon) and drop
| out of the market, Amazon will raise the price in the long run
| and capture monopolistic profits. Repeat for each new market
| that they compete in.
| obblekk wrote:
| This is important.
|
| Not just that amzn algorithmically finds the optimal market
| clearing price.
|
| They may be finding an optimal dumping price to reduce
| competition and then an optimal profit maximizing price to
| capture monopoly profits.
|
| If true, this would be a clear violation of anti trust law,
| despite being algorithmically implemented at scale. Unclear
| if intentionality matters for the law - even if the
| algorithms learned this behavior implicitly as the solution
| to a legal objective, it could be illegal.
| aga98mtl wrote:
| This theorical talk of monopolistic profits does fit the
| market reality. There are at least a dozen retailers for
| every type of product Amazon sells.
|
| Can you provide an example of a product where Amazon enjoys a
| monopoly (or even something close to a monopoly)?
| curiousllama wrote:
| I read that differently. Ie "project Nessie raised prices. One
| place where this was especially impactful was when a competitor
| temporarily lowered prices forcing Amazon to match, Nessie got
| them back up quickly"
| taeric wrote:
| And amusingly, I read it as "assume 3 parties, Amazon,
| Target, Y. Target has a sale, so Amazon price matches sale. Y
| was price matching Amazon. Target ends sale, but Amazon and Y
| have stuck each other on the lower price."
|
| That is, it makes it sound like Nessie was intended to bust
| some broken price matching logic that would allow other
| competitors to stick Amazon at lower prices due to
| interactions with other parties.
| phkahler wrote:
| >> In instances where competitors didn't raise their prices to
| Amazon's level, the algorithm--which is no longer in use--
| automatically returned the item to its normal price point.
|
| This is a form of automated collusion. I'll raise my price and
| if my competitors don't follow suit I will lower it again. It
| only works well for them if the competitors are watching prices
| too and looking for an opportunity to raise theirs. You know
| it's anti-consumer because of the conditional reversion after
| watching competitors prices not following.
|
| I have a feeling there is currently a LOT of this going on
| across all industries in the US. We've seen it rent pricing
| software, now Amazon, and I think fast food and restaurants are
| dojng something similar. Food has gotten obscenely expensive
| expensive outside a grocery store.
| beambot wrote:
| "Price matching" is standard practice in virtually every
| major retailer...
| ada1981 wrote:
| Amazon Uses Computers to Aid In Price Discovery; FTC In Uproar.
| jawilson2 wrote:
| If this were an HFT algo, there would absolutely be an
| investigation by the SEC. You cannot place orders with the
| intent to artificially manipulate the price. This is obviously
| not a regulated exchange, but the end result is similar, so I
| understand why it is an issue.
| lannisterstark wrote:
| This isn't HFT, and Amazon isn't placing any orders. Going
| "I'm gonna lower my prices so competitors have to do it too
| to remain competitive" is not illegal iirc, and I don't think
| it should it be.
|
| This part in specific only benefits consumers.
| Jka9rhnDJos wrote:
| It's called predatory pricing. Pricing products to
| eliminate competition is illegal.
|
| If you sell Widgets and Sprockets, but you have a
| competitor that only sells Widgets, you can price of your
| Widgets so low (on 1-2% margins, for example) that the
| competitor is unable to compete and goes out of business
| because you can use Sprocket sales to keep your company in
| business during that time.
|
| Now that the other company is out of business, the price of
| your Widgets doesn't matter because you no longer have
| competition in the market. You're getting 100% of the
| potential sales and despite selling on a lower margin,
| you're sales volume is now way up making those margins
| acceptable.
|
| You don't have to worry about making a better Widget, or
| improving the Widget making process, because you have no
| competition. And you've priced yours so low, no other
| company can come in and attempt to enter the market because
| they can't compete at your volume and margins.
|
| If there's a high-demand material needed to make a Widget,
| you can put pressure on the producer to lower material
| prices since you are now their primary customer, or
| purchase the company that produces it and prevent access to
| the material.
|
| Predatory pricing consolidates market control and can be
| used to prevent access to the market. Anti-trust laws were
| designed to prevent this.
| username332211 wrote:
| > Now that the other company is out of business, the
| price of your Widgets doesn't matter because you no
| longer have competition in the market. You're getting
| 100% of the potential sales and despite selling on a
| lower margin, you're sales volume is now way up making
| those margins acceptable.
|
| Please don't re-define words. This is not what's normally
| called predatory pricing. Predatory pricing is supposed
| to involve a corporation raising prices after destroying
| it's competition. The thing you are describing is nothing
| more than having a low margin strategy.
|
| Is every dropshipper undermining brand-name (high-margin)
| apparel?
| munk-a wrote:
| Loss leader pricing _when used to force other businesses to
| close_ is quite illegal in the US[1] - when used for other
| reasons the legality varies on a state by state basis in
| the US... it is illegal in quite a few places. I 'm not
| particularly familiar with international laws here.
|
| 1. https://www.ftc.gov/advice-guidance/competition-
| guidance/gui...
| nofunsir wrote:
| There was a pretty big fight over this not too long ago.
| sokoloff wrote:
| Is there evidence that Nessie was used to sell items
| below cost?
| paulddraper wrote:
| Given Amazon's retail profit margins....the answers
| _must_ be yes, right?
| Schiendelman wrote:
| Why?
| azemetre wrote:
| Because Amazon is using AWS to literally carry every
| division they have. I don't think retail has ever been
| profitable for them, happy to be proven wrong; but some
| of their newer ventures in hardware: Alexa, Kindle, Fire
| TV, Ring, and Echo have all been losers. If each were
| normal companies they would all likely be going out of
| business, bankrupted, or chopped up for parts for PE.
|
| It's no different than Google using ads to subsidize
| failing ventures in order to gain market share.
| epylar wrote:
| An offer to sell at a particular price is equivalent to an
| order.
| WillPostForFood wrote:
| You should run a sales team where you pay commission on
| how many offers to sell they make.
| charcircuit wrote:
| Price discovery isn't manipulation.
| FeepingCreature wrote:
| Price collusion, however, is. The goal of price discovery
| is to find the price that the market will bear; it is not
| to find the price that your so-called competitors will
| agree to match.
| jjk166 wrote:
| Collusion requires the other party to be in on it. Simply
| reacting to your competitors' actions, or lack thereof,
| is not collusion.
| phkahler wrote:
| >> Collusion requires the other party to be in on it.
|
| The other party is being tested for cooperation. Amazon
| raises the price and then reverts if competitors don't
| follow suit. They didn't revert after seeing sales drop
| or something, it sounds like they reverted based on a
| lack of "cooperation" from competitors.
|
| This is tricky stuff to define wrong doing. What if a
| company wants to see the going rate for a product and
| just looks to Amazon to get an idea? You know, because a
| lot of people will shop at Amazon by default unless there
| is a reason not to, like saving a bit of money. These
| kind of algorithms become anti-consumer the more they get
| automated, but they may seem reasonable on the surface or
| in isolation.
|
| If two algorithms are fine in isolation, but when used
| together cause overall market prices to rise what should
| we think of that? In the above example, Amazon would
| raise their price and the competitor would follow but not
| quite to the level of Amazon. Then if markets really are
| competitive (and fast) someone else may step in at a
| lower price than either, but I don't believe a lot of
| markets are fast or efficient when it comes to lowering
| prices.
| axus wrote:
| Under what conditions should a business be allowed to
| change their prices?
|
| I'm OK with a computer making the pricing decision, but
| like HFT it's the frequency that leads to problems. It's
| a bit sad that the "free market" has to be regulated like
| this, but beautiful theories break down when you get to
| the quantum level.
| lotsofpulp wrote:
| > , but like HFT it's the frequency that leads to
| problems.
|
| What problems?
| paulddraper wrote:
| > The goal of price discovery is to find the price that
| the market will bear; it is not to find the price that
| your so-called competitors will agree to match.
|
| I'm sorry, huh?
|
| Who exactly do you think is participating in this
| "market"?
| hot_gril wrote:
| "Led competitors to raise their prices and charge customers
| more" is serious, yet it's glossed over. If Amazon is truly
| telling competitors to raise prices, that's collusion in of
| itself.
|
| The rest of this is just "Amazon uses pricing algorithm."
| JohnFen wrote:
| > Anyone want to try their hand at an actual headline?
|
| "Amazon Used Secret 'Project Nessie' Algorithm To Attempt
| Market Price Manipulation"
| vb-8448 wrote:
| > Soooooo....it used the algorithm to raise prices, but also
| lower them?
|
| Lowering prices in the short/medium term to throw out of the
| market the competition is a way of rising prices in the long
| term.
| SideQuark wrote:
| By that reasoning no one could lower prices, which is
| ludicrous. How about showing the lowering was followed by the
| harm, instead of dreaming of a world where the prices are
| already raised?
| vb-8448 wrote:
| You miss the point: lower the prices is good, lowering to
| kill competition is bad for users and customers.
|
| Diapers.com is just an example.
| paulddraper wrote:
| What if lowering prices has both consequences?
| SideQuark wrote:
| Every producer lowers prices trying to kill competition.
| It's a major reason to lower prices, and lowering prices
| to kill competition is how goods over time become
| cheaper.
|
| I think you misunderstand the reasons prices actually
| become lower for many goods over time. Or why some
| producers get replaced over time by more efficient
| producers. Without this process there's be no lower
| prices or more efficient production over time.
| azemetre wrote:
| I think the difference is that those other companies
| don't have an "AWS card" to play to subsidize their
| excursions.
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