I recently went online to order several cans of King Oscar sardines. I prefer the cans with two layers of small fish, although they do cost a little more than cans with a single layer of larger fish. I googled “King Oscar two-layer sardines” and wasn’t surprised when the result was a large number of clickable ads. One ad caught my attention: Amazon was offering two-layer sardines at the unusually low price of $3.00 per can. I clicked on the ad and was taken to an Amazon page where I was recognized with the greeting “Hi Gary” and showing off King Oscar’s two-ply sardines – for $3.99 a can!
I went back to the search results page and tried again. Same result. I then went to another computer on a different network and googled “Amazon King Oscar two-ply sardines.” This time Amazon didn’t recognize me and the price was $3.19 per can. Welcome to the world of ‘dynamic pricing’.
The pros and cons of dynamic pricing
A few days earlier I had listened to an NPR Planet money podcast: “Is dynamic pricing coming to a supermarket near you?” On the programme, two economists discussed the benefits of physical supermarkets replacing fixed price tags with electronic shelf labels that can change prices in response to fluctuations in supply and demand. One advantage is that stores can easily reduce the price of blueberries and other perishable products that are nearing their expiration date, rather than throwing away the blueberries after the expiration date. That seemed logical to me.
Another alleged benefit is that a store can send “price hunters” to competing stores and lower prices that turn out to be higher than competitors’ prices. This price chasing reportedly leads to price wars that benefit shoppers. But the idea that brick-and-mortar stores would engage in short-term price wars for sardines seemed far-fetched to me. I certainly won’t be driving from store to store keeping an eye on fluctuating sardine prices so I can grab the cheapest cans.
An alternative outcome is that stores raise their prices when their price hunters see that competitors have done so too higher prices. Dynamic pricing through price hunters can also lead to stores working together effectively by all charging the same price.
How different online shopping is
When I move to a new city, I try many stores in the area and look for one or two that offer attractive combinations of price and quality. These are the stores I go to regularly and will continue to go until I notice a general deterioration in value for money.
Shopping on the Internet is different because it is easier to compare prices and buy things from different stores. It is also easier for online retailers to use dynamic pricing to take advantage of unwary consumers. I’ve probably paid too much for some Amazon products in the past and was therefore identified by the algorithm as a careless shopper – or at least one who didn’t care much about price. So naturally the algorithm concluded that I would probably pay €3.99 for a can of sardines, while other customers paid €3.19 or even less.
This assumption was not only incorrect, but also ignored the fact that such exploitation entails costs.
In game theory, there is an important difference between a singles game and a repeated game. In a single-shot game played only once, players can cheat, lie, and scam each other without worrying about the consequences. In repeat games, players must consider how their reputation is affected by their actions. Behavior that is profitable in the short term can be disastrous in the long term. I’m just one person, but I’m done with Amazon.
The life cycle of Internet service quality
Cory Doctorow coined the term enshittification to describe the life cycle deterioration of the quality of an Internet platform’s products and services:
This is how platforms die: first, they are good for their users; then they abuse their users to make things better for their business customers; Finally, they abuse these business customers to recover all the value for themselves. Then they die.
Wired
Amazon originally sold quality products cheaply and its search algorithm was designed to help customers find the products they were looking for. It initially lost billions of dollars, but built a huge customer base. After millions of shoppers became addicted to it, the company began raising fees, selling low-quality products and generating search results determined by the fees paid by companies. The only way for unknown companies making low-quality products to gain visibility on Amazon is to pay these search fees – with the predictable result that most of the top Amazon search results customers see today are junk.
Enshittification isn’t just Amazon. Think of Facebook, Google Search, Uber and many other companies. The enshittification thesis resonated with many and the American Dialect Society chose it as its 2023 Word of the Year.
Amazon vs. Walmart
When I told a friend in the industry that I had sworn off Amazon, I called it the “Walmart of the Internet.” He said Amazon was actually much worse than Walmart. Some products sold on Amazon are genuine, such as Nike shoes made and sold by Nike. But, he continued, other products are real but stolen, such as the loot provided by a flash mob that loots a Nike shoe store. Other products are counterfeit products. When you buy something on Amazon, you never know if it’s legitimate, stolen merchandise, or counterfeit.
And then there’s the cheap junk that doesn’t do what it’s supposed to do or falls apart quickly after purchase. If Amazon sells pruning shears for a third of the cost of high quality scissors and keeps half of the retail price for itself, you can imagine the quality. We can also understand why Amazon alternatives, such as Shein and Temu, are likely to hurt profits. If Amazon keeps half the sales price, a competing website can sell the product for almost 50% less and still make a profit.
In 2023, third-party sellers paid nearly $200 billion in fees to Amazon and accounted for more than 60% of all Amazon sales. A better analogy than the “Walmart of the Internet” is the “flea market of the Internet.” Vendors pay to set up tables and booths at flea markets. Some of the items for sale are genuine; many of them are knockoffs, “boxes that fell off trucks,” or flimsy junk.
I remember the last flea market I went to. One of my sons bought an orange Adidas T-shirt for a few dollars. The first time it was washed the orange color bled onto all the clothes in the washer. Like I said, that was my last flea market. And my search for sardines from Amazon was my last Amazon search.
