Best of the Week
Most Popular
1. Best Cash ISA Savings Account for Soaring UK Inflation - February 2018 - Nadeem_Walayat
2.Gold Price Forecast 2018 - February Update - Nadeem_Walayat
3.Bitcoin Crypto Currencies Crash 2018, Are We Near the Bottom? - Nadeem_Walayat
4.Trump Bubble Bursts, Stock Market Panic Dow 1175 Point Crash Analysis - Nadeem_Walayat
5.Gold Corrects, Bitcoin Markets Crash, Whilst Stocks Plunge - Nadeem_Walayat
6.US Treasury Bonds: Fuse to Light the Bonfire - Jim_Willie_CB
7.Dow Falls 666 Points As Cryptocurrencies Crash And Krugman Emerges From His Van - Jeff_Berwick
8.Stock Market Roller Coaster Crash Ride Down to Dow Forecast 23,000 - Nadeem_Walayat
9.Trading the Shadows - Oil, Dollar, Stocks, Gold Trend Analysis - B.R. Hollister
10.Stock Market Analysis: Baying for Blood - Abalgorithm
Last 7 days
1 Week Later, Stock, Bond Market Risk Remains ‘On’ as 2 of 3 Amigos Ride On - 17th Feb 18
Crude Oil Prices: A Case of Dueling Narratives? - 17th Feb 18
Free 1000 Youtube Subscribers Services - YTpals, Subpals, SubmeNow Test - 17th Feb 18
How to Trade as We Near March Stock Market Top - 16th Feb 18
Bitcoin as Poison - 16th Feb 18
GDX Gold ETF Weathers Stock Market Selloff - 16th Feb 18
Casino Statistics and Demographics - 16th Feb 18
IS Today Thee Stock Market Turn Day? - 16th Feb 18
Huge SMIGGLE Shopping HAUL, Pencil Cases, Drinks Bottles, Back Packs, Toys.... - 16th Feb 18
Tesla Cash Keeps Burning at $320 a Share - 15th Feb 18
Big Conflict Ahead in the Financial Markets - 15th Feb 18
Stocks Extend Rally Off Friday's Low, But Short-Term Exhaustion Near - 15th Feb 18
Stock Market Out on a Limb... - 15th Feb 18
Things Only a True Friend Would Say About Gold - 14th Feb 18
Global Debt Crisis II Cometh - 14th Feb 18
Understanding Crude Oil Behavior - 14th Feb 18
Stock Market is Getting Scary... - 14th Feb 18
Stock Market - This Time is Different. Really?! - 13th Feb 18
Gold and Silver Long-term Buy, Short-term Sell Signal - 13th Feb 18
SPX Futures Are Sliding... - 13th Feb 18
Stock Market Topping Process Begins. The Bubble Finds its Pin - 13th Feb 18
Math Behind the Stock Market Crash and What’s Next – PART2 - 13th Feb 18
Gold Stocks Groundhog Week - 13th Feb 18
Platinum Looks Poised for Surprising Gains This Year - 12th Feb 18
Friday's S&P 500 Stock Market Bounce To Continue, But Selling May Resume - 12th Feb 18
The Inflation Trade and Bond Yields Rising Result in Equities Correction - 12th Feb 18
February 2018 Stock Market Crisis – What Next? - 12th Feb 18
How To Profit From The Bitcoin Bloodbath - 12th Feb 18
The Philippine Economic Dream Could Be Within the Reach  - 12th Feb 18
Is the Stock Market Correction Over? - 12th Feb 18
What Does the Stock Market Decline Mean for Gold - 12th Feb 18
Addicted to SMIGGLE Mega Review, Pencil Cases, Stationary, Back Packs, Drinking Bottles, Toys... - 12th Feb 18
Best Cash ISA Savings Account for Soaring UK Inflation - February 2018 - 11th Feb 18
The Fed’s Impossible Choice, In Three Charts - 11th Feb 18
US Stock Market, Gold, Silver and the Macro Backdrop - 11th Feb 18
After Two weeks of Stock Market Decline, People Are Ssking, “Are We There Yet?” - 11th Feb 18
How to Grow Tomatoes From Seeds, Homegrown Organic Money Saving Gardening - 11th Feb 18
Youtube KILLS ALL Small Channels with New DeMonetization Rules - 11th Feb 18
Lot of Stock Market Damage to Be Caused before New the Fed Chief Will React - 10th Feb 18
Best Ways to Make Money - 10th Feb 18
Stock Market Selling Unleashed! - 10th Feb 18
How to Get Free Youtube Subscribers to Get to 1000, YTpals, Subpals, SubmeNow, Do they Work? - 10th Feb 18
Stock Market Buy or Sell? This Insight May Help You Decide - 9th Feb 18
Stock Market Roller Coaster Crash Ride Down to Dow Forecast 23,000 - 9th Feb 18
What Is Stock Market Volatility Telling Us Now? - 9th Feb 18
Crude Oil $100 Price in 2019? - 9th Feb 18

Market Oracle FREE Newsletter

Urgent Stock Market Message

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