The Perils of Automatic Pricing

In response to our post about the Amazon.com price difference for Caucasian and African-American dollhouses comes this interesting e-mail from a reader named Stephen Fidele:

Back in the day, I used to work at CD-Now, which was the largest retailer of music on the internet right around 1999-2002.  For some strange reason, I was placed in charge of “pricing.” Say our normal price for a CD was $17.99 … but if that CD hit the “Top 100” we reduced the price to $13.99. Now imagine that we have a CD by a rap artist that has some pretty strong lyrics in it. We also have a “toned down” version, so that parents can protect their children. Invariably, the hardcore version would hit the Top 100 and the price would automatically fall, and I would receive boatloads of complaints from parents asking why the “toned down” version cost more … just one of the problems when you automate a system. We had a similar problem when Joey Ramone (of the Ramones) died.  All of their old stuff went back to the Top 100, and the system automatically lowered the price … I fixed that in a hurry! Anyhow, I am not sure if the “powers that be” at Amazon are aware of even the possibility of this situation.  Again, it’s more of a systems problem than anything else.

And, from the comments on that same dollhouse post, another (more) interesting point, from a reader named Brian:

This is mild compared to the price differences of private adoption for white and black babies in the U.S. My wife and I are thinking of adopting and shockingly found in Texas, the cost for a white infant was $35,000 and the cost of a black infant was $17,000 – these are published numbers on private adoption websites. $20 difference on a dollhouse is not much in comparison.


Scott from Ohio

Wouldn't hitting the Top 100 indicate higher-than-average demand? Why are they lowering prices in response to an increase in demand?

Mike B

Because you can make it up in volume. Low demand items have to have higher margins to justify their shelf space.

CDS

Said differently, retail is all about turning cash into inventory back into cash. There's a metric in retail called "Inventory Turnover" which measures how quickly you go through this cycle - the faster you can go through that cycle, the more successful you'll be (all else being equal).

Taken to the point of absurdity, Mike B's comment reminds me of the episode of I Love Lucy when Lucy and Ethel start a business. Ricky asks about their pricing strategy and they comment that they lose X cents per sale, but they make it up in volume.

aepxc

Alternatively, the stupidity of reading too much into things.

econobiker

CD-Now! Oh, the memories of Web 0.5.

Back in 1999 -2000ish, I culture jammed Pizza Hut via CD Now when CD-Now had a free sample music CD tie in with the roll-out of the "Big New Yorker Pizza". You got to put your own limited character title on the CD-Now/Pizza Hut co-branded cd which you mixed and ordered on-line at CD-Now with a special code from the Big New Yorker box.

My Pizza-Hut/CD-Now sample cd was titled "NJ PIZZA RULES, SCREW PIZZA HUT". Wanted to go farther but figured this was enough.

CD-Now would be later purchased by Amazon.

Tobias

Leeat Yariv and coauthors have a fascinating paper on the latter topic: http://www.hss.caltech.edu/~lyariv/Papers/Adoption.pdf

frankenduf

im kinda shocked it's legal to fork over cash for babies

Enter your name...

Well, it works like any other bribe in the developed world. You're not paying for "the baby"; you're paying for various consultants and services—just like you don't give someone else's employee a bunch of money to recommend your contract, but you do offer to hire him as a consultant on how to win the contract.

RPM

Why "fix that" when the price of Ramones' CDs is lowered? What did you have against the Ramones? Did the KKK take your baby away?

Marina

The racist adoption pricing thing is messing with me on multiple levels here. I should point out that I'm Australian, so a lot of this is new and confusing to me (and I'm not referring to the racism).
- Obviously, the price difference by race is immeasurably f***ed up.
But this also: You mean that in the U.S. you guys advertise details about babies for "adoption" (sale) on the internet?! So there are private adoption agencies?! - Private,like, they're a business, that makes a profit?! And the government doesn't enforce a set a price for adopting a baby (and have laws to ensure that the money goes to the actual baby's welfare?!).
The price of a human being is just decided on the free market?! And the white ones cost more?!
WHAT IS WRONG WITH YOU PEOPLE?!?! Please please tell me I have misunderstood!