Are pricing bots a boon or bane for consumers?
It’s a common plot twist — a scientist invents a new medicine or technology intended to help humankind, but in the end its original intent is perverted to cause harm. Such may be the case with so-called pricing or shopping bots.
The idea behind the tech is pretty straightforward: an application is created that automates price checks of competitive websites. This allows a retailer to respond almost instantly to price changes made by rivals that could put the company at a competitive disadvantage.
The upside for consumers is clear: retailers constantly jockeying for a price leadership position assures that shoppers will not be paying more than they should for a given item. Consumers often conduct online searches to double-check prices listed by retailers.
A cottage industry has grown out of companies keeping tabs on Amazon.com’s prices. Engineers at Walmart, Reuters reports, were given “a rude surprise” earlier in the year when the proprietary tech they used to track Amazon’s prices stopped working. Bots used by Amazon were thought to have thrown up a shield against Walmart’s price probes. This forced Walmart to use secondary sources to keep pricing tabs on its rival.
While Amazon and Walmart are engaged in a pricing battle designed to gain consumer market share, a recent article on The Economist site investigated whether bots are being used by some retailers to engage in “tacit collusion” to improve profit margins.
In the book, Virtual Competition: The Promise and Perils of the Algorithm-Driven Economy, authors Ariel Ezrachi and Maurice Stucke point out that the use of artificial intelligence could lead to “tacit collusion on steroids,” perhaps even cases in which erstwhile rivals are keeping prices higher without being fully aware that it is happening.
In a review of Messrs. Ezrachi and Stuckle’s work, The Complete Review cites the use of algorithms to adjust prices to improve profit margins on an individual and ongoing basis. The authors suggest that this is a form of individualized discrimination by which prices are based on what a consumer is likely to pay rather than a base market rate.
- Amazon trounces rivals in the battle of the shopping bots – Reuters
- Price-bots can collude against consumers – The Economist
- Virtual Competition by Ariel Ezrachi and Maurice Stucke – The Complete Review
DISCUSSION QUESTIONS: Do you think pricing bots are a boon or a bane for retailers and consumers? Do you see that changing in the years to come?