Sellers on Amazon use automatic tools which pushed a book on flies up to $23,698,655.93

Robo-pricing gone wrong

Barney Jopson for the Financial Times:

Amazon sellers – using third-party software – can set rules to ensure their prices are always, for example, $1 lower than their rivals’. More complex algorithms can analyse data to set prices most likely to secure a prominent position on the site.

Last year, out-of-control algorithms inflated the price of The Making of a Fly, a genetics book, to more than $23m, according to Michael Eisen, a biologist who blogged about it.

Eisen's blog is a great case study. My favourite excerpt:

The behavior of [one of the sellers,] profnath is easy to deconstruct. They presumably have a new copy of the book, and want to make sure theirs is the lowest priced – but only by a tiny bit ($9.98 compared to $10.00). Why though would  [the second seller] bordeebook want to make sure theirs is always more expensive? Since the prices of all the sellers are posted, this would seem to guarantee they would get no sales. But maybe this isn’t right – they have a huge volume of positive feedback – far more than most others. And some buyers might choose to pay a few extra dollars for the level of confidence in the transaction this might impart. Nonetheless this seems like a fairly risky thing to rely on – most people probably don’t behave that way – and meanwhile you’ve got a book sitting on the shelf collecting dust. Unless, of course, you don’t actually have the book….

My preferred explanation for bordeebook’s pricing is that they do not actually possess the book. Rather, they noticed that someone else listed a copy for sale, and so they put it up as well – relying on their better feedback record to attract buyers. But, of course, if someone actually orders the book, they have to get it – so they have to set their price significantly higher – say 1.27059 times higher – than the price they’d have to pay to get the book elsewhere.

Of course, realistically this sort of thing isn't the natural result of computers entering the fray; if the two booksellers had used the tool at all well, they would presumeably have entered some sort of upper bound, where an actual human person would be notified.

Really, this is just another example of how the internet makes economics textbooks come to life. This is exactly the sort of situation which sounds like it might happen in theory, but never could in practice, and then, all of a sudden, it does. Amazon has already been known to practice dynamic pricing, charging customers the most it thinks they will pay. What next?

A really expensive book? Or a really well-designed fly?

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Show Hide image

Geoffrey Howe dies, aged 88

Howe was Margaret Thatcher's longest serving Cabinet minister – and the man credited with precipitating her downfall.

The former Conservative chancellor Lord Howe, a key figure in the Thatcher government, has died of a suspected heart attack, his family has said. He was 88.

Geoffrey Howe was the longest-serving member of Margaret Thatcher's Cabinet, playing a key role in both her government and her downfall. Born in Port Talbot in 1926, he began his career as a lawyer, and was first elected to parliament in 1964, but lost his seat just 18 months later.

Returning as MP for Reigate in the Conservative election victory of 1970, he served in the government of Edward Heath, first as Solicitor General for England & Wales, then as a Minister of State for Trade. When Margaret Thatcher became opposition leader in 1975, she named Howe as her shadow chancellor.

He retained this brief when the party returned to government in 1979. In the controversial budget of 1981, he outlined a radical monetarist programme, abandoning then-mainstream economic thinking by attempting to rapidly tackle the deficit at a time of recession and unemployment. Following the 1983 election, he was appointed as foreign secretary, in which post he negotiated the return of Hong Kong to China.

In 1989, Thatcher demoted Howe to the position of leader of the house and deputy prime minister. And on 1 November 1990, following disagreements over Britain's relationship with Europe, he resigned from the Cabinet altogether. 

Twelve days later, in a powerful speech explaining his resignation, he attacked the prime minister's attitude to Brussels, and called on his former colleagues to "consider their own response to the tragic conflict of loyalties with which I have myself wrestled for perhaps too long".

Labour Chancellor Denis Healey once described an attack from Howe as "like being savaged by a dead sheep" - but his resignation speech is widely credited for triggering the process that led to Thatcher's downfall. Nine days later, her premiership was over.

Howe retired from the Commons in 1992, and was made a life peer as Baron Howe of Aberavon. He later said that his resignation speech "was not intended as a challenge, it was intended as a way of summarising the importance of Europe". 

Nonetheless, he added: "I am sure that, without [Thatcher's] resignation, we would not have won the 1992 election... If there had been a Labour government from 1992 onwards, New Labour would never have been born."

Jonn Elledge is the editor of the New Statesman's sister site CityMetric. He is on Twitter, far too much, as @JonnElledge.