Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Fox in the Henhouse: Why Interest Rates Are Rising - 23rd Apr 18
Stocks and Bonds, This is Not a Market - 23rd Apr 18
Happy Anniversary Silver Investors! - 23rd Apr 18
The Hottest Commodity Play In 2018 - 23rd Apr 18
Stock Market Correction Turns Consolidation - 23rd Apr 18
Silver Squeeze, Gold Fails & GDX Breadth - 23rd Apr 18
US Economy Is Cooked, the Growth Cycle has Peaked - 23rd Apr 18
Inflation, With a Shelf Life - 23rd Apr 18 - Gary_Tanashian
Stock Market Predictive Modeling Is Calling For A Continued Rally - 22nd Apr 18
SWEATCOIN - Get PAID to WALK! Incentive to Burn Fat and Lose Weight - Review - 22nd Apr 18
Sheffield Local Elections 2018 Forecast Results - 22nd Apr 18
How Long Does it take for a 10%+ Stock Market Correction to Make New Highs - 21st Apr 18
Sheffield Ruling Labour Party Could Lose 10 Council Seats at May Local Elections - 21st Apr 18
Crude Oil Price Trend Forecast - Saudi Arabia $80 ARAMCO Stock IPO Target - 21st Apr 18
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

How Online Retailers Are Killing True Free-Market Pricing

Personal_Finance / Retail Sector May 03, 2017 - 05:11 AM GMT

By: John_Mauldin

Personal_Finance

BY PATRICK WATSON : American stores are dropping like flies. More than 8,600 retail locations could close their doors in 2017, according to a recent Credit Suisse report.

On the other hand, people are still shopping, just in different ways. And the shift from brick-and-mortar stores to “online malls” has many consequences we don’t even understand yet.


For example, it’s becoming clear that online retailers aren’t shy about using our own data against us. What do you call a market in which the price you pay depends on who you are?

Shopping The Shoppers

On the surface, online shopping seems to favor shoppers. It’s easy to compare prices, shipping cost and time, sales tax, and other factors to get the best deal. Retailers have to offer lower prices to make you buy, right?

Well, maybe. Last week, I read a fascinating Atlantic Monthly article by Jerry Useem: “How Online Shopping Makes Suckers of Us All.” It’s about the sophisticated ways online merchants adjust and even personalize prices to maximize revenue. A quick excerpt:

“I don’t think anyone could have predicted how sophisticated these algorithms have become,” says Robert Dolan, a marketing professor at Harvard. “I certainly didn’t.” The price of a can of soda in a vending machine can now vary with the temperature outside. The price of the headphones Google recommends may depend on how budget-conscious your web history shows you to be, one study found. For shoppers, that means price—not the one offered to you right now, but the one offered to you 20 minutes from now, or the one offered to me, or to your neighbor—may become an increasingly unknowable thing. “Many moons ago, there used to be one price for something,” Dolan notes. Now the simplest of questions—what’s the true price of pumpkin-pie spice?—is subject to a Heisenberg level of uncertainty.

Which raises a bigger question: Could the internet, whose transparency was supposed to empower consumers, be doing the opposite?

In other words, online retailers are now comparison shopping us. E-commerce companies are learning how to dynamically adjust prices based on where you came from, what you bought in the past, where you live, what time of day it is, and even the current weather in your zip code.

Dynamic Pricing

If you ever took an economics class, you know about the law of supply and demand. It’s how the market sets prices. Low supply and high demand lead to higher prices. High supply and low demand push prices down.

That applies whether the goods are groceries, books, stocks, or anything else. Every product has an equilibrium price.

Online retailers are pushing this idea to its limits. They’ve figured out that consumer demand is both individualized and dynamic.

Not every person demands a product with equal intensity. Maybe you really want that history textbook because you are enrolled in a class that uses it. You will pay more than someone who just wants to accessorize their living room.

Your demand also changes with time. You want the book more now than you did last month, before you enrolled in the class. You won’t want it at all after the semester ends.

Since the emergence of online malls, it’s become much easier for retailers to manipulate your demand. They used to do this with limited-time discounts, buy-one-get-one offers, etc. But they all had a common basis in the product’s “list” price, which didn’t change very often.

No More Equilibrium

Just like stock prices change by the minute, online shopping is moving toward a similar pattern… but even more chaotic.

Stocks still have consolidated tickers—everyone can see the most recent price and decide whether to trade or not.

In retail, the concept of a “list price” may lose its meaning entirely. Your price for a widget will be different from my price, and both our prices could change again in a few minutes.

Who wins in that environment?

A free and open market ought to be a more efficient one, if everyone has access to the same information at the same time. But that isn’t the case now, and it may be even less so in the future.

“Equilibrium” in this context may mean we never know what the true value of a given product is. We’ll only know how much we paid.

However, I think the “digital malls” connecting online retailers and customers will perform well as the new environment takes shape.

Amazon is one such company. Many other retailers use the Amazon web platform and its logistical network to power their online sales.

That’s only the latest in what should be a string of opportunities as consumers and retailers adjusts to a new landscape. It will be a wild but interesting ride.

Subscribe to Connecting the Dots—and Get a Glimpse of the Future

We live in an era of rapid change… and only those who see and understand the shifting market, economic, and political trends can make wise investment decisions. Macroeconomic forecaster Patrick Watson spots the trends and spells what they mean every week in the free e-letter, Connecting the Dots. Subscribe now for his seasoned insight into the surprising forces driving global markets.

Correction May 2, 2017: This article was updated to remove an error in identifying companies that dynamically adjust their pricing.

John Mauldin Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules