(c) Chartered Professional Accountants of Canada. Contact CPA Canada for permission to reproduce this article.

Haggling redux

Armed with algorithms, retailers are making it harder for online shoppers to search for the cheapest deal.

In 2011, for a brief moment, a paperback book was offered on Amazon for $23,698,655.93. An error, promptly corrected. But the story of how such a glitch could happen, as told by The Atlantic, is revealing.

It seems pricing has entered the domain of what, in finance, is called high-frequency trading. Just as transactions on stock prices are executed by algorithms at lightning speed, prices shown by online retailers are algorithmically managed and adjusted in microseconds. That’s why, for example, buyers will sometimes find that the price on an item waiting in their shopping cart might change before they check out.

Big data and droves of economists now working for the online retailers have sounded the death knell on fixed prices. Now, the price of headphones and Swiffer mops varies according to how budget-conscious a buyer’s browsing history shows him or her to be. Online retailers, armed with their algorithms, which also keep a lookout on competitors’ prices, adjust prices constantly in order to identify the highest price at which a shopper will buy. The paperback price glitch was the result of an algorithmic price war between two third-party sellers that had run amok.

The practice of setting a fixed price for everything is relatively recent. Department stores such as Macy’s and Wanamaker that appeared in the mid-nineteenth century found it impossible to train their employees in the fine art of haggling. So Wanamaker announced: “One price to all; no favoritism.”

It appears now that fixed prices might have been a short interlude in the ancestral practice of haggling. After the Internet allowed consumers to endlessly comparison shop and hunt for the cheapest deal, retailers are retaliating. They are staring through the screen and comparison shopping potential buyers in the quest for the highest price.

As The Atlantic puts it, “Could the internet, whose transparency was supposed to empower consumers, be doing the opposite?”

This article was originally published in the July 2017 issue of CPA magazine.