Another Market Emerges

Two weeks ago we sent out an article on the death of retail sales. This has been something many have seen coming with the predominance of giant online retailers such as Amazon. As their unbelievable growth continues, Amazon is doing enough business to create an internal economy of its own among the third party sellers available on the site.

The third party vendor sales on Amazon account for roughly 49% of what they ship out according to the Wall Street Journal. This huge volume from smaller sellers has created intense competition from these vendors who can see huge sales boosts from getting Amazon’s #1 spot for a certain category.

This has led these vendors to go as far as creating pricing algorithms for their items to keep them competitive in these top spots. These algorithms and constant jockeying for position can lead to considerable price swings in items. This has almost created a mini stock market for the items on Amazon where prices are set by what people are willing to pay for an item and how the algorithms react to different price movements. This has even created “flash-crashes” on the prices of certain items if a few algorithms get into an electronic bidding war.

The Wall Street Journal tracked the price of Duracell batteries over the course of the past 5 months to find prices ranging from just under $9 to $12 for a 20 pack. Personally, I’ve seen movements of up to $30 in a month on less popular items like pocket knives. So despite its mission to make online shopping cheaper and more simple some Amazon shoppers wouldn’t be happy to see current prices much lower than what they may have paid 2 or 3 months ago.

To combat this Amazon has started it’s own brand of everyday items to help give people a consistent option. Also, analysts believe that as more of these vendors become more sophisticated the size of these price swings should shrink with an increased number of offerings. Whatever happens, this does draw the mind to interesting places. Will we be watching a ticker one day to decide when to buy our tennis shoes like we would with a stock? Who knows, but this story, like many others really makes you realize how much power companies like Amazon could have to shape what the experience of buying things will be like in the future.