The coming retail apocalypse: some axioms | Hacker News Reader

The coming retail apocalypse: some axioms

antipope.org

138 pointscstross69 comments

This might be relevant:

In Scott Adams' The Dilbert Future (1997), he introduced the word confusopoly. The word is a portmanteau of confusion and monopoly (or rather oligopoly), defining it as "a group of companies with similar products who intentionally confuse customers instead of competing on price". Examples of industries in which confusopolies exist (according to Adams) include telephone service, insurance, mortgage loans, banking, and financial services. [from wiki]

The central idea is that if companies made it easy to compare their products, then those companies would be forced in to a detrimental competition on price. So instead, if each company offers a slightly different package, with different feautres and prices, then simple comparison doesn't exist.

This is still the spirit of collusion, and is prone to defectors. There should be large incentives for one company to leave the cartel, make a simple service, and sell it at the same price of their competitors. They would save money by reducing their own internal complexity, and would gain money by winning over customers.

I worked on a mortgage search engine start up for a couple years. Mortgages are a wonderful example of how well intentional pricing complexity can succeed. Mortgage companies supply money - the most perfect commodity around. In order to avoid a pricing race to the bottom, the mortgage shopping process has become one of the most confusing possible. Obtaining an accurate price quote involves filling out a several page application which most people can't do accurately without the help of a broker. Pricing is a combination of interest rate and fees which can range into the tens of thousands of dollars. Fees are calculated in multiple steps and include certain closing costs which are only known weeks into the process - often when it's too late to switch mortgage brokers and still make your contractually-agreed close date. In the small surveys I've done, more than half of mortgage applicants only learned the total amount they'd be charged the day they close the mortgage. And many were surprised to learn of unanticipated charges amounting to >$1,000 above what they expected.

This strategy was very successful in extracting differential payments from consumers. Prior to some recent regulatory reforms, the most successful 5% of mortgage shoppers negotiated fees of $6,000 on a $200k mortgage. The least successful 5% were charged fees of $18,000. These are borrowers with equivalent financial circumstances and credit rating.

Much of this is due to the complexity of mortgages. So I'm dubious that this sort of apocalypse will prove true for all types of products. But I do expect to see it increasingly in categories where there is high product complexity, the product isn't easily compared based on technical specifications, brand reputation isn't important, and/or there is little value in cultivating customer loyalty (for example, I may purchase a couch once every 15 years).

I think that has already come to an end, at least for simple residential mortgages. When I refinanced my home mortgage a few months ago I just filled out a short form on Zillow.com and it gave me instant price quotes. Then I picked the cheapest one, filled out a longer form, and closed a few weeks later with total fees of about ~$600.

With the tools and information available now only a fool would get stuck with $6000 on fees (unless they're intentionally paying points to knock down the interest rate).

I hate to say this, but you likely paid a higher origination fee than $600. It just wasn't due at close - instead it was baked into your mortgage payment every month in the form of a slightly higher interest rate. At the end of the day, brokers and bank branches want to earn a few thousand for "originating a mortgage." This is fancy way of saying retailing a mortgage. Although they often take less - maybe $900 - for a refinance. You can find out how much you were charged by looking through your mortgage paperwork. The bulk of the mortgage broker or bank branch retail mark up comes from something that is usually labeled "origination fee."

That said, thanks to recent reforms, an individual brokerage can no longer charge two borrowers will different commissions for the same mortgage. However, two different brokers can each charge very different fees. Quicken Loans, one of the largest mortgage originators out there, is notorious for charging much higher commissions than nearly anyone else. And thanks to the difficulty of comparison shopping, they're still successful in obtaining premium prices... even in the age of Zillow and Google.

No, I know all about origination fees. My interest rate was rock bottom, the absolute best available on a refinance of that type at the time. And based on what I've seen, comparison shopping is no longer difficult at all. If suckers are voluntarily paying higher prices then it isn't because of difficulty.

What's easy for you may be quite difficult for others. I'm not sure the Hacker News community should ever be considered the middle of the bell curve. To wit: prior to the financial crisis, one of the largest mortgage search engines conducted a large randomized survey of home owners. A little under 40% did not know if they had a fixed or adjustable rate mortgage.

When the Obama Administration put forth a package of proposed financial reforms a few years back, one of their suggestions was that every mortgage lender would be required to make its most prominent offering a “plain vanilla” mortgage that amortized in 30 years and had a simple fee structure. Needless to say, this requirement did not make it into the final law.

Sadly, the mortgage industry has reached an equilibrium such that some level of consumer abuse is, practically speaking, necessary to compete. No one has successfully disrupted this market, because it requires simultaneous technical, product and policy change on the part of brokers, federally-guaranteed agencies like Fannie/Freddie/HUD, lenders, mortgage insurers and title companies. Not impossible, but as my start-up learned, incredibly capital intensive.

I always point to this as an example of how something reasonably close to a large, lightly-regulated market can still produce inefficient and negative outcomes for our society.

Airline ticket pricing is not a good general example: The airlines get away with arcane pricing in part because they have successfully outlawed arbitrage by prohibiting the resale or transfer of tickets away from the original buyer, in the name of "security".

I'm dubious that this practice is going to work so well for, say, socks. There is no law against trading socks on the secondary market.

Hm, though to argue against myself for a minute, it occurs to me that my unhappiness with e.g. Amazon Kindle books might be poetically summarized as "Kindle is like buying books from an airline's sales department." Non-refundable, non-tradable, locked to me.

So maybe there's more mileage in the idea of "airlinification" than I initially thought. Though Amazon gets away with it (to the extent that they do) mainly because their "convenience" argument is pretty strong for virtual goods: You don't have to warehouse the books, tote them around, re-buy them if your house burns down, etc. These selling points do not apply so well to airline tickets (though airlines will certainly try to sell you on the awesome convenience of non-tradable non-refundable e-tickets), let alone my metaphorical socks.

Still, though. More and more things can be virtualized or time-shared. It is not at all hard to imagine carshares like Zipcar going the way of airline pricing, for example. Yikes.

Rental car companies already use airline-like pricing schemes, with a mandatory minimum rental period of 24 hours. One of Zipcar's selling points is that their pricing scheme is simpler and more granular. If Zipcar changed their pricing scheme, they'd become just another rental car company in the minds of their customers.

I suspect that there will always be people who prefer the more straightforward style of pricing. After all, knowing exactly how much you're going to pay and knowing you won't be paying for any unnecessary hours counts as a feature for a lot of people. It's like buying a Linode. It might not be the cheapest option for all use cases, but it gives you peace of mind.

Zipcar already operates basic peak/off-peak pricing, with weekends being pricier per hour than during the week.

Different prices for easily resold products is alive & well. The biggest example is coupon discounts, where stores enable people to buy things they wouldn't otherwise at the cost of some inconvenience for them.

People who are less price sensitive don't clip generally coupons.

The same argument applies to socks - if you aren't price sensitive then you'll pay for new socks. Others may well be happy buying socks on a secondary market, so stores can provide different pricing for them (using coupons or whatever).

Well, sure, I would never argue that you can't differentially price socks in different market segments, using coupons and regions and so forth. You obviously can, and everyone does, to some degree.

But this hardly rises to the level of an incipient retail apocalypse. It isn't even new. This is nineteenth-century stuff.

The question is: Will differential pricing be pushed farther, now that computers are available to dynamically segment the sock market in real time? (Perhaps wool socks will cost more depending on the current local wind chill factor?) Probably. But there's a real cost in trust and goodwill and complexity that must be balanced against the advantages of differential pricing. In general, customers don't love being segmented, particularly in ways that aren't long-standing traditions (as clippable coupons are) or that don't fall along culturally accepted lines (we'll pay more for goods with famous people's names on them, or with made in the USA labels on them - these are just and proper activities in American culture - but we will be less pleased to pay significantly more for goods at 4pm than we do at noon, or to pay more if we're a woman than if we're a man). And so customers will tolerate only so much market segmentation before they start looking for cheaper or more transparent alternatives: Join Costco, shop Priceline, bid for the goods on eBay from a grey-market reseller, use your wife's Amazon account instead of your own, make up some fake demographic information, whatever.

And my hypothesis is that, if you think about pricing from the perspective of the airline industry, you're going to overestimate customer tolerance for fancy pricing games, because the airline-ticket market is constrained in unique ways that don't apply to other industries.

The problem with this article is that it only seems to present options for intelligent selling agents. Where pricing inequality exists, so too does a market for equally intelligent buying agents.

Personalised pricing, complex pricing structures (to prevent comparison) and other newer retail tricks can be overcome fairly easily. For example, proxying purchases through intermediate parties that have access to pricing closer to the point of equilibrium. Or grouping buyers together to starve an industry or supplier of cash flow until pricing requirements are met.

This is a game theory exercise where both buying and selling agents are involved. It is unwise to assume that sellers will have the upper hand. As many cost comparison websites have shown, a market also exists amongst buyers to force prices down to a level of equilibrium.

I agree that buyer have power too but there is disparity in resources on the buying side where the buyers are at the retail level. The "easily overcome" tricks require that consumers join the intermediate groups that a buying and otherwise participate in more complex transactions in order to defeat them. This can establish a different equilibrium that is better for consumers but it still involves an extra cost in one form or another. The intermediary takes their cut too (even a co-op would have overhead to address).

Agreed -- although the profit margins available to intermediaries will be very small. Buyers and sellers have a mutual interest in squeezing the intermediaries as much as possible. Thankfully the costs of operating an intermediary on the Internet are small.

Variable retail pricing is a multi-billion dollar industry, the mechanisms are just a wee bit different than revenue management in the airlines. Examples include variable pricing by region, outlet, and season. Other examples are sales, coupons, and rebates. You can trivially pay five different prices on the same day for bitwise identical copies of the same Chinese sock if you want to.

A wrinkle for the retail apocalypse: wonder why X/Y/Z is closing but you can find a bank branch and cell phone shop within one block of any arbitrary location in a middle class neighborhood in an American city? Answer: lucrative backends to their retail transactions. (Starbucks is essentially the same, in that siting is less about selling coffee and more about selling habitual coffee consumption.)

Thanks -- I was just going to come here to post this.

It's one of the things that WalMart makes their money on. They grow traffic to their stores with huge discounts on visible necessities like toilet paper, competitive grocery prices, etc.

But when I look at their prices for less common items, their audacity is sometimes staggering. I remember once being unable to find a cheap surge protector for less than $30, and thinking, "I wonder if that's by design. I came here for milk and a car battery -- they know I'm not going somewhere else for my 'in-between' items."

I seem to remember a discussion on HN once around the legality of variable pricing -- it seems a fascinating topic and I'd love to read a writeup on the process, and especially the software that WalMart or any other large chain has for pricing their goods.

Why would variable pricing be a legal issue?

I imagine it would be a legal issue depending on how it is discriminated.

I don't know particular US laws, but I imagine it would be a legal issue for me to have a separate "for whites" price and "for blacks" price where there were significant differences.

In a way this already exists. For "most whites" (who happen to live in Europe and the USA) prices are quite higher compared to what they are for "most yellows" (who happen to live in continental Asia). One can spin this as being racist if one's so included, although a quite odd kind of racism when we take into account the usual usage of the word.

I see I'm being down voted for the above comment. I guess it's being interpreted as racist? If so, I apologize, it wasn't my intention, quite the opposite. I'm white, yes, but I live in Brazil, where goods, specially electronic ones, cost 2 to 3 times what they do in the USA, and virtual ones, such as ebooks, which could be cheap, are usually region locked out of our reach. So, I meant the quotes as ironic, as my intention was to criticize companies for doing these price games. As for Asians, I have the utmost respect for them and their achievements, to the point of following Eastern religions (I'm a Shintoist and a Buddhist), so it would never, ever, cross my mind to even come near attacking them. Lastly, although somewhat I'm articulate in English, it's a second language for me, and one I learned by myself through books, not by attending classes, my native one being Portuguese, so it can also be the case that the way I expressed myself didn't come out as I intended (expressing sarcasm properly is way more difficult than writing in a straightforward way). So, if that also came into play, please let me apologize again!

And, if it'd be possible for someone to, taking into account the above, point me what exactly I did wrong in the original comment, so that I can avoid such mistakes in the future, please do so, as being a non-native speaker there's no other way for me to know other than asking someone who is. I'd love to read it, and be sure I'll start applying the lesson immediately!

Thanks!

I think it's the racial allusions. I don't think you intended to sound cavalier about race, but I can see how someone reading very quickly would come to that conclusion.

In addition to what tptacek said, viewing pricing through the race lens is grossly oversimplifying the state of the world. Copyright protection laws, cost of living, and other local market conditions are probably much more important than race when firm X decides its pricing tiers.

So, you disagree with him. Better to say why than to downmod to express the sentiment. On the other hand, people are hair-trigger here about race, and for somewhat decent reasons.

You might not know this since it's your second language, but it sounds pretty rude in English to refer to Asians as "yellows". That alone will make people read your comment through the lens of "this guy doesn't respect other races."

In informal settings, you can generally call people of western European descent "white" and people of African descent "black," but for other races, referring to them by stereotypical colors will get you pegged as culturally insensitive at best.

Couple that with the fact that blanket statements about races are treading on thin ice even in the most benign circumstances and you'll see what happened here.

Data point:

Last month I had to choose an ISP in Spain. The experience was painful. Every company has only "special offers" in the front page and I had to dig to the very deepest of their webs to find the real numbers and, even then, cut through a lot of BS, intentional poor phrasing, and all kind of misleading statements.

The provider I chose was not better than the rest. The real price was striked-out and a lower price, only valid for exceptional circumstances presented as the norm.

On the phone it's worse. They consistently scam people.

I spent several hours hating all them. But that's a recurring expense of forty euros a month, plus a hundred up front. If this scheme was imposed for small purchases, no way. Either I would choose a simpler retailer, even if more expensive, or wouldn't buy at all.

Same thing happens in the US. Time Warner Cable's web site was offering internet access for the "special offer" of $29.99 a month for the first year. I actually had to call them up on the phone to find out what the normal rate would be after one year -- it was nowhere to be found on their web site. Same type of thing happens with cell phone contracts. Are people really stupid enough to buy a monthly recurring service without knowing what it will cost after the first year? Apparently, the people selling these services think so.

> * I have, like most people, had the frustrating experience of trying to work out whether my mobile phone contract or the airline flight I'm been booking is actually the cheapest one that meets my needs,*

UK mobile phone contract pricing is very frustrating. Free market should mean customers shop around to get the best deal. Providers thwart that by including lock-ins of various forms (contract lengths, cost of new phones, making it tricky to keep the same number, making it tricky to move a phone to a different network.) and by having a bewildering array of different contract types.

> If you earn 50% more than average you can expect your grocery prices to begin creeping up, because your suppliers can infer what's in your wallet

Or maybe the retailer wants your custom, and thus offers you cheaper prices to secure it. Poorer people spend less money and generate more cost per visit, thus are not as attractive. Retailers don't want to exclude those customers, but do want to get more cash out of them.

My grocery prices consistently creep up with my income. The retailers accomplish this by presenting me with a trade off between price and quality/convenience. In other words, they extract more money from my by giving me more value in return. I don't see why that can't continue to work. If they start fucking around with weird pricing schemes instead, that destroys the tradeoff and with it my incentive to continue giving them more money.

Ah, okay. So they're offering you cheaper prices, but on more expensive items?

No, I mean that I tend to buy those more expensive items more often now, because they offer additional quality or convenience which is now worthwhile to me. I also tend to shop at more expensive stores, since they tend to have better stuff and be closer to me.

This has been predicted before. However, human ingenuity will prevent it from propagating to its logical conclusion.

Have you tried to compare prices of mattresses? One way mattress sellers prevent price comparison is by identifying mattresses with unique names. They may have the same brand, or even specifications.

In addition, we are now seeing a steady growth of private label offerings by retailers. Initially these are in the low priced/budget segments, but increasingly the retailers are moving into mid-range products, where margins are higher, and effectively pushing out branded goods, where margins are driven down by price competition.

The development of websites that group together different brand/name mattresses according to physical properties would eliminate any advantage sellers have of creating artificial value in model naming and numbering. Widespread use of such websites would have a devastating impact on premium priced products as consumers would no longer attach value to "premium" marketing labels and branding.

If sellers want to make brand names, model numbers and other identifiers redundant, buyers will eventually be the beneficiaries.

I believe you are handwaving the problem away here.

Have you ever tried to go to a mattress shop and ask them about spring density, the gauge of steel used, and the spring layout on a mattress? These information is totally proprietary and the average salesman wouldn't know either.

This information could be obtained by users/consumer review companies by reverse engineering (or purely testing) products to make numerical comparisons of various properties.

In the case of mattresses, the size of springs isn't as relevant as the amount of sag in the bed when a 70kg person is lying on it. A more advanced measure could be the evenness of weight distribution across the mattress. These measurements are unlikely to be performed by consumers because of the time and effort required. However product review companies could generate revenue from selling consumers detailed comparisons/analysis of products.

I almost wish retailers would try to price discriminate more based on all the personal information they gather. That would finally create a massive financial incentive for people to defend their privacy.

Geek: "Hey, if you use this browser extension you won't get tracked."

User: <Yawn>

Geek: "Did I mention you'll also get better prices when you shop online?"

User: "Sign me up!"

Unfortunately, that will probably play out the other way around. Stross mentioned "loyalty cards", trading privacy for prizes or discounts; online that will be "loyalty cookies" ...

"More recently we've seen comparison sites with customer ratings to supply metadata about, for example, supplier reliability: but these tread dangerously close to defamation in some cases: see for example the class action lawsuit against Yelp (alleging extortion: dismissed, but shows the shape of things to come). Price comparisons are relatively safe."

As someone intimately familiar w/3rd party seller feedback on Amazon, I can tell you that the feedback there is taken very seriously by 3rd party sellers, by customers, and by Amazon. If a seller drops below a rating threshold, they are warned, and if the poor ratings persist, they're given the kiss of death: their "Featured Merchant" status is revoked.

I've never heard any suggestion of these ratings treading "dangerously close to defamation."

IMO, online feedback / reputations are very successful at rewarding good sellers and punishing bad ones. So this paragraph is a pretty weak dismissal of customer ratings as a way of proving a value add.

I think the difference is that sellers opt in to sell through Amazon, and probably sign a contract allowing Amazon to collect and display feedback; Yelp is operating without the seller's explicit consent. So unless the rating site can lock in a huge swath of consumer demand and so demand that sellers consent to allowing feedback, the artcle's point about independent rating sites stands.

Good point, I stand corrected.

I wonder about the editor aspect of small shops, like a book shop with a special selection, or a shop with children's toys (one of those closed in our neighborhood recently, apparently some former customers cried).

Amazon sucks for discovery of things imo. At least for serendipity - in an extreme case, an acquaintance met his lover in a library...

Will those small retailers simply be replaced by affiliates who are content with earning 10% on their referrals? Is 10% a fair price for that kind of thing? And Amazon even seems to have a cap on how much you can earn, like if the item is really expensive you won't even get the full 10%?

Amazon sucks for discovery of things imo.

I have always been a library lover, and even took a library science course (cataloging and classification) as an undergraduate elective. But from the beginning on Amazon I have liked the "customers who bought this also bought . . . " recommendations built from Amazon's database, and I have learned of many interesting books by Amazon's recommendations that I later bought. In library science, "browsing function" is discovery of books by scanning the shelves where books of similar classification are put, which groups books differently in each library (each library has a different collection, and some libraries are classified by the Dewey system, and some by the Library of Congress system, in English-speaking countries). Amazon does very well as a place to apply the browsing function, because its collection size is huge, and similarities of books can be scanned by author, by subject (Amazon has subject classifications for most of its books), by what readers have written reviews of them, and by what buyers have bought them. I now wish that my friendly local public library, which I use VERY heavily and where my second son volunteers, would implement browsing paths as varied and as powerful as Amazon's, and my local public library is already famous in many parts of the United States for having some of the most detailed cataloging and one of the most powerful and convenient online catalogs in the country.

Compare

https://catalog.hclib.org/ipac20/ipac.jsp?profile=elibrary#f...

http://www.amazon.com/

starting with some of your favorite books to see what browsing turns up in each online catalog.

You mean browsing the "customers also bought" section? Maybe - because if you simply want to browse "fantasy books" (for example), last time I checked you are stuck with thousands of books and no further way to drill down.

How does the subject classification work? Maybe I don't see some features because Amazon Germany doesn't have them :-/

Amazon desperately needs personalized rankings a la Netflix, particularly as they expand into digital content.

I've been trying to watch some of Amazon's free Prime video content, but it's very difficult - I have to wade through page after page of My Little Pony to get to anything I'm interested in. There is practically no discoverability features besides "customers who watched this also...", which is generally not very useful.

Moving ratings? They are so highly variable for media, and so subjective to personal taste, that they are practically useless. Global reviews work fine for electronics, but they fall apart utterly when applied to content. Go look at the star rating distribution for any reasonably controversial book - all over the place, and tells me nothing about how I would like it.

The MP3 store is similar. iTunes does a pretty decent job with Genius, but is still pretty poor discoverability-wise. Spotify's new-content discoverability is also extremely poor. Rdio is pretty good, but I would pay for a Pandora that plugs into a music store/subscription service. IMO this is some pretty lazy engineering - what works for selling DVD players does not work for selling content, but Amazon's UI for browsing digital video is practically identical to their physical-shopping UI, and that's entirely unacceptable.

Maybe you aren't giving Amazon the credit they deserve. MLP is huge in the hipster geek set that frequents HN. Cf http://www.google.com/m?q=my+little+brony

Another example of better discovery tool online is jinni.com .it uses semantic search to categorize movies and tv content. It really does a great job in discovering new movies.

And regarding the small shops and discovery: The web is flooded with sites telling us about interesting products. do you really feel a lack of interesting stuff to purchase?

I have mostly sufficient ideas for stuff to buy, but I am also probably living in my own filter bubble. I don't even know many web sites to visit - basically I only visit Hacker News, some German news mag I'd like to quit, and a friend's forum.

How do you stumble across a small online toy shop with a choice selection?

I did a few search for stuff like "interesting online toy store" , "fun toys" "best toy blog" etc, doing a bit google search , a bit blog search and following a few links and got those:

http://www.drtoy.com/ - seems more geared towards adults , helping them choose best toys for children.

http://www.scientificsonline.com/ scientific toys

http://www.yoyo.com is by amazon, looks pretty nice

http://www.designertoyawards.com/categories/20 they won an award

http://www.toptoysblog.com/ toys with reviews

It isn't harder than discovering interesting programming tools, for example , which is to say, pretty easy. But it's a lot of text.I wonder if there's something a lot more visual , video based for the children.

Thanks - I must admit I did not actually do that search myself before. It is getting harder to trust online, too - top results are likely to be SEOed, Reviews are fake and so on (not the sites you picked, but in general).

I would probably be able to pick something from the sites you found, but a real shop would still be more fun for now. Especially with the toys, it would for example be nice to check the kind of sounds they make. We just got two toys for Christmas that are unbearable...

One of his examples is bad.

I'm pretty sure that the much publicized "different customers see different prices on Amazon" debacle was just a simple A/B test, and not some complex scheme along the lines of, "Joe can afford to pay more!"

Apple is also a bad example of luxury and/or simplicity. They are nothing like a Gucci bag or an exotic car. At best they are an automatic transmission vs. a manual one (following his "simplicity" argument) but there are automatic transmissions from other companies too now, it's not the 1990s. Also their customer service is appalling, their failure rates have been proven to be middle of the pack.

I am not ignorant of using them either, I used OSX and iOS for years and I say Android ICS is better, Ubuntu is better and new iterations of Windows certainly don't seem to be worse (although I have less data there).

People like to compare the latest OSX to Win95 or even XP (2001) but don't compare as often to the most recent offerings. There is a total intolerance to criticism. Android ICS has been said to be better than the latest iOS by multiple reviewers, so it's at least neck and neck with the last bit probably depending mainly on personal preference, but say that here and you will risk a downvote. In fact it's almost certain to get downvotes and they will only sometimes be balanced out but people appalled at the abuse of the voting system being used to just hammer someone who doesn't belong to the group.

Nice, a classic example of witless fandroid drivel. An irrelevant comparison to Apple used to introduce a pro-Android rant along with the obligatory "I used to use IOS" and explaining any downvotes for this tosh as pro-Apple groupthink.

Nobody in the world of art, architecture or fashion thinks one company has a monopoly on good things. It's only a function of Apple being the only alternative to Microsoft's monopoly for a short time (which included MS propping them up) that instilled people with the idea they are magic. Anyone who knows the real history of computers knows they aren't magically inventive. Now as the market is healthier than before there is more competition. Some reviewers have handed victory to Android ICS devices. Far from being a "fandroid" I said that's more like it's neck and neck with personal preference coming into play.

But neck and neck is sufficient for my point, they don't have a monopoly on good design and they certainly aren't in some class of their own "luxury" above the normal products. They are just another computer company, as they always were. People who, in modern capitalism, have tied part of their egos and identities to the fate of one of the largest corporate legal entities in the world will no doubt be hurt by this.

Usually it is that the sellers are actually different, like one is Amazon itself, and the other is a third-party.

So you have a product that is priced like: Amazon.com: $14.99 with $5 shipping (free for Prime) 3rd Party: $12.99 with $3 shipping.

Amazon will show Prime members the first one, and non-Prime members the 2nd one.

Yes there's definitely the prime vs non prime vs 3rd party price differences.

But are you sure there's no evidence of what he references? He seems pretty explicit, and it seems a very odd conclusion w/no specific evidence: "prices on offer to different customers varying for the same product, presumably on the basis of the customer's willingness to pay more for goods in prior transactions."

Here are the two examples of it coming up that I remember, both due to Prime vs. non-Prime and Amazon switching the first result to a lower priced third-party: http://crookedtimber.org/2008/12/22/amazons-price-discrimina... http://brightviolet.wordpress.com/2010/05/18/amazon-coms-pri...

Maybe someone has a real example though... I just remember the debunked ones.

When I hear an odd conclusion with no evidence, I usually disregard the conclusion, not infer the existence of fascinating undetected evidence.

When I read an article linked from Hacker News, then read some comments that are generally not tearing it to pieces, I assume the author must have some credibility and therefore is not throwing out conclusions for fun. Also, I have a minor in inferring existence of fascinating undetected evidence.

Amazon will also almost always ship their product within a day. I can almost always order something with my Prime membership Monday and have it on Wednesday with no extra shipping costs[1]. The 3rd party? Who knows. It might take them a day or two to ship. Or more.

[1] Ignoring the $75 annual fee for Prime, of course.

I worked there for ~ 7 years until earlier this year, and we were expressly forbidden from doing any sort of A/B testing with prices. Simply not allowed. I think what people are seeing is one or more of:

  different merchant offerings
  prime discounts
  limited availability offers disappearing
  the "chosen" offer changing over time
  multiple detail pages for the same item with different merchant offers

This is not a very cohesive argument. Basically he is suggesting that we are going to see tiered pricing in all retail, but doesn't explain what the tiers will be based on.

A more likely scenario? Price will equal convenience. Retail stores will be more connected to the internet so that you can see who has what item in stock within 5 miles of where you are. The Big Box retailers do this already.

We will then see a new breed of startups based on adding impulse purchases to the item that you bought online and are picking up locally (loss leaders online).

Interesting observations, but I'm inclined to think that the complex pricing algorithms will have relatively limited applicability. The problem is that they exert a non-trivial cognitive cost on the buyer; most consumers, given the choice, would likely be happy to pay a few percent extra to _not_ have to worry about the futures market for potatoes with each trip to the supermarket.

The key exceptions to this are with goods or services that are both highly perishable and very expensive -- such as airline tickets. An empty seat on an airplane is a non-storable asset which "perishes" the instant the plane takes off; therefore the airline is highly incentivised to sell it at _any_ price -- but obviously as high as possible -- rather than let it expire. Meanwhile, for most consumers, airline tickets are bloody expensive to purchase, and it's worth no small amount of hassle to find a good price. Thus there's significant motivation on both sides to fuel a constantly-evolving algorithmic war between airline pricing schemes and intelligent price-comparison agents.

A seat at the barber's is also "perishable" in a sense, in that any time a client isn't sat in it, the barber is losing potential revenue. However it's only fractionally perishable: unlike an plane about to close its doors, a barber's seat that is unoccupied in any given minute can still get a client the next. So there's not the same do-or-die motivation to fill that seat, which diminishes the need for clever algorithmic pricing. From the consumer's side, meanwhile, a haircut is a relatively trivial expense -- not worth the time or effort to try to scrounge a better deal. Any barber that doesn't simply list its price in a sign on the window is one that wouldn't be getting my business, in any case.

The cognitive simplicity of making a purchase is an asset that doesn't just extend to pricing. One of the major successes of the iPhone and iPad, for example, is the fact that there is effectively only one model being promoted at any given time. Unlike other brands of mobile devices -- where the consumer is essentially asked to balance out their requirements for price, UX/UI, app availability, form factor, memory, camera, battery life, etc. -- the iPhone customer is asked to make a single choice:

   Do I want one?

   [ ] Yes
   [ ] No

The simplicity of this choice has been a genuine factor in iOS's success. (NB: I'm not an iOS fanboy; I just switched from an iPhone to a Galaxy Nexus and am almost completely happy with it. But must give credit where it's due.)

Anyhow, I think that Stross is correct when he says that the disintermediation of tradable goods will cause a price-based race to the bottom. This is probably unavoidable. Furthermore, even for non-tradable goods/services such as locally-delivered services, many of these will inevitably be automated and will also be racing to the bottom. (I fully expect that most fast-food will be cooked and served by automated systems within 10 years; interventions by organised labour my forestall this for a while longer, but not indefinitely). What interests me is how anything non-cheap/automated will survive: it will be, as Stross suggests, anything which creates value in a way that is not based on price. My believe is that the key ingredients in this will be creativity and meaning.

In America, for example, I've seen anecdotal evidence that small local farms are have been withstanding the recession, and even expanding fairly considerably. If this is true, it's certainly not because they offer any price advantage; rather, it's because they form relationships with their customer base that provide layers of meaning that add value beyond the simple raw commodity. Where this kind of relationship can be successfully cultivated, I believe that there's a real future for locally-based retail. Otherwise, the future is all about local automation and disintermediated global markets.

Apple devices tend to have one primary dimension of choice so that they have products at various price points On the iPhone/pad it's memory size. On computers it's screen size. But it is simpler than others, true.

> the iPhone customer is asked to make a single choice:

It's amusing to look at just how complex the iPhone buying process has actually become. You have three different models to choose from, two of which come in two colors. For the newest model, you have three storage sizes to choose from.

But those are the easy parts. Once you've chosen those, you must then choose a carrier and a plan. In the US, there are now three carriers to choose from, none of which have anything like identical plans you can just price-shop. Each carrier then has a variety of options, from talk time (4 different ones on AT&T, I believe) to text messaging to data plans, and they can often be mixed and matched in various combinations. If multiple family members have phones it gets even more fun, as you then get into the various family plans.

Compare this with how the iPhone was originally: there was one model with a couple of different storage sizes, one carrier, and one data plan. You still had different voice and text messaging plans, but it was still substantially simpler than it is today.

The iPhone is certainly still much simpler to buy than its competitors, but it seems that the simple yes/no choice is too simple for the customers.

An example of the simplification of this process. Over the holidays, my dad needed to buy an external hard drive to backup his music collection. He has one of these hi-fi devices that has a built-in hard drive and is slowly transferring his music collection to it.

We bought it from a retailer because he wanted it right then, so he could run the backup procedure and have me fix it if it didn't work (yes, family tech support is a joy). We went into the shop, and none of the USB external hard drive manufacturers actually tell you what speed the drive runs at. That is, they don't tell you what RPM the drives run at. As it is a backup drive, it's not like it needs to be fast (the first run may take all night, but afterwards, it will probably only be a gigabyte or so of changed files every few days). But the fact that none of the companies actually advertise the RPM slightly shocked me. Not just on the boxes either, but if I scanned the barcodes with the barcode/QR app I have on my phone, the manufacturers websites don't list the RPM either.

An interesting discussion of what's coming. I agree that suppliers are in a race to the bottom unless they can provide added value, but the author seems to fixate on algorithmic pricing as the ultimate determinant of who wins. He mentions Amazon in this context, but does not mention Amazon Prime, which is just the sort of value-add he's talking about.

I think Bezos saw this coming a long time ago and so he got Amazon ready to be more than a simple rock-bottom-price retail outlet. People love Amazon, and once they get Prime, they start buying from Amazon because all the hurdles have been taken away. In the meantime, Prime offers them additional benefits like streaming movies & TV. I don't think you can really look at the future of retail without this offering looming pretty large. And I don't even have Amazon Prime!

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