Michael Eisen is an evolutionary biologist at Berkeley who -- at the risk of oversimplifying -- specializes in flies. A few weeks ago, one of his postdocs went online to order Eisen's lab another copy of The Making of a Fly: The Genetics of Animal Design, and was surprised to discover the selling price on Amazon: $1,730,045.91. Writing at his excellent blog, It Is NOT Junk, Eisen, like a true scientist, figures out the story of the most expensive book on Amazon -- it all comes down, he writes, to "algorithmic pricing."
Screen capture from Michael Eisen's blog.
"Amazon," Eisen writes, "listed 17 copies for sale: 15 used from $35.54, and 2 new from $1,730,045.91 (+$3.99 shipping)." The question was: why were the two new copies so expensive? The answer turns out to be that the two booksellers, "profnath" and "bordeebook," were locked in an algorithmic battle. Each day, profnath would use an algorithm to set its price at 0.9983 times bordeebook's price. Then, later that day, bordeebook would notice profnath's new price, and reset its own price to 1.270589 times that amount. Because the two sellers were, as Eisen puts it, "adjusting their prices in response to each other by factors whose products were greater than 1," the prices of the books kept creeping up. As Eisen watched, the price crept up and up, eventually reaching an astonishing $23,698,655.93. (The book's author, Eisen writes, was "appropriately amused and intrigued.")
It makes sense for one seller to algorithmically undersell another -- but why would bordeebook deliberately overprice its copy of The Making of a Fly? Eisen's theory is that bordeebook doesn't actually have the book in stock. If someone orders it -- perhaps because they're a repeat customer, or can't find the book elsewhere -- then profnath can pick the book up somewhere else, and realize a 20% profit. The crew in Eisen's lab, meanwhile, "couldn’t help but start thinking about ways to exploit our ability to predict how others would price their books down to the 5th significant digit." Unfortunately, if they've figured out an arbitrage play, they're keeping mum about it.
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