OnDemand WTP Pricing Research

Lessons learned from the EU’s algorithmic price war that ripped off consumers | SmartCompany

Algorithms used by the retailers

In principle, a retailer or merchant could use the API provided by the platform to manage their pricing.

Research at Northeastern University has shown that merchants on Amazon Marketplace that use algorithmic pricing have greater sales. However, merchants may not have algorithm design as a core skill. This was illustrated when a biology textbook was advertised on Amazon Marketplace for over US$23 million.

As a result, there are a significant number of intermediary firms that offer “repricing” software designed to provide competitive pricing and ensure that their clients’ products are promoted by the platform.

For example, in the case of Amazon Marketplace, it’s important that the product is in the “BuyBox”. Although there are several such intermediaries, the practical effect is that only a very limited number of algorithms are used by many merchants on the most popular platforms.

The purpose of the repricing tools is to create a competitive offering from the merchant. Essentially it also acts as tool to discover rivals’ costs on the basis that the minimum acceptable margin for merchants is likely to be comparable.

The effect of the use of algorithms in a selling space where the products are identical is that the best consumer price is based on the private value of the second most competitive seller.

This results in that pricing that reflects both costs and acceptable margins.

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Lessons learned from the EU’s algorithmic price war that ripped off consumers – SmartCompany.