The New Regulatory Side of Pricing Online & In-Store
Online sellers have never had so many tools available to them from pricing algorithms to data collection technologies; however, on their journey to find that perfect price they might need to make a quick pitstop at their state’s federal courthouse. Let me explain.
In the new world of the Internet of Things (IoT) your home electronics are now providing an incredible amount of data to online retailers allowing them to create new pricing algorithms that increase in value with every new data point. Also with web scraping technology an item’s price online can be collected, stored, and analyzed automatically creating a marketplace where every seller can see the price and inventory of their competition. A few years ago this technology was ideal as once a retailer could identify the market rate of an item they could then undercut it and outsell their competitors. But with today’s pricing algorithms and automation tools, the competition can immediately repost the same discount price in a matter of minutes… In this case, the retailer’s competitive advantage completely disappears and the entire marketplace loses revenue. Ideally, the retailer would be better off flipping their strategy and artificially inflating their prices to force competitors to automatically match them; but there is one big problem with this strategy!
The Fix Is In
This is price fixing, which we all know is illegal. But the new algorithms, run by artificial intelligence designed to learn and create optimal solutions are not burdened by knowledge of the Federal Trade Commission, which unfortunately creates a gray area around the law.
Recently the Financial Times ran an article highlighting David Topkins, who was convicted of price fixing, selling classic movie posters on Amazon and getting all the other sellers to agree to an artificially high price. The question the article posed is: How do we handle price fixing in an age when computer data mining systems and algorithms can communicate with each other and come to the consensus of a particular price? Are the retailers who commissioned the pricing algorithms at fault or the actual designers of the algorithms?
And it’s not just online retailers that need to be cautious. For brick and mortar retailers it’s a slower process but still the same concept. Most retailers are beginning to investigate the ideas of comprehensive price mining and flexible pricing systems/algorithms for their strategy and are catching up to the sophistication of online retailers.
Who’s Getting the Cuffs Next?
Unsure, the Federal Trade Commission and other authorities are brainstorming how they’re going to prevent monopolistic pricing when they’re dealing with computers that are simply doing what they’re programmed to do—with no paper trail. One thing’s certain: In this new economy, competition on replicable things like the price is only going to be part of the product marketing mix, it’s up to sellers to enhance the rest of their marketing mix.
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