Algorithmic book pricing and its implications

I was recently asked to offer comments on the issue of algorithmic book pricing for the newsletter of the Antiquarian Booksellers Association.  The issue where the comments appear has now just arrived in the mail.  Since the ABA newsletter reaches only a limited audience and has no online version I thought I should reproduce the text here, in case it might be of interest to others.

Comments from readers who have actually used these services will be eagerly received.

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John Henry said to the captain,
“A man ain’t nothin’ but a man,
But before I let your algo beat me down,
I’ll die with a pencil in my hand
Lord, Lord
I’ll die with a pencil in my hand.”

Back in September the issue of algorithmic pricing surfaced in one of the ABA email Bulletins. It came in response to a letter sent by a member to myself and the ABA office seeking an explanation for a strange phenomenon he had recently observed: out-of-print text books on sites like Amazon and AbeBooks were being listed at absurd prices, in some cases reaching into six figures.  He wondered if this might possibly be evidence of a new scam devised to fleece careless librarians who used automated ordering systems and may not be noticing the prices that they pay.  I suggested, instead, that the most likely explanation was that software, rather than human intelligence, was being used to price the books.

Shortly thereafter  the ABA newsletter editors, ever conscious of the need to fill pages, asked if I could elaborate on the subject for a forthcoming issue.  Having already exposed myself in the pose of someone who understood this depressing subject I did not then find myself in a position to refuse their request.  It is not a subject I would otherwise choose on my own, but here it is.

Let me say, right off, that what I know about this subject has no basis in personal experience.  I have never let a machine price my books or even been in the presence of a machine that I knew was programmed to do so.  I would be fascinated to hear a personal account from a colleague who had actually tried this with his own books, but I suspect that if there really is someone amongst us who has already ventured down this gloomy path he would be reluctant to step forward and tell us about it. So you are left with me.

Algorithmic pricing (also known as robo pricing) refers to the use of specialized computer programs  to automate the pricing of  books (or anything else for that matter).  The best known providers of these programs are Monsoon and Fillz. Once provided with the ISBN number of any book, either of these services can connect to the internet and retrieve the prices and other relevant information for all the copies of that book available on the major book sites.   This is, of course, an automated version of what most of the rest of us already do manually nearly every day.  But the robo pricing engines take this one step further and include the ability to customize a small program (the “algorithim”) that processes all the data that it collects and spits out a price to match the particular instructions it was given.   It might, for instance, decide that it wants its copies to be priced at the exact median of all available copies (a bad strategy I would think) or to be 5 pence cheaper than any other copy, or half the average of any book with over 10 listings, or to be priced with virtually any other clever strategy the bookseller might conceive.  Moreover, the software  runs on a kind of auto-pilot that can continuously update prices online as things change, or even if they don’t .  The knowledge and experience of the bookseller plays no role in this operation.   Facts about the book itself are irrelevant.  All that is taken into consideration is the quantifiable information that can be gathered from the current online listings tied to a given ISBN.

The “algo” has no problems doing its job as long as it is given data to process,  but the situation can become  “interesting” when there are no other copies available for it to price against. Then anything is possible.  This was almost certainly the situation with the books that the concerned member was noticing. With nothing real to go on, the algorithm just went fishing with a very optimistic idea of what price might be possible.  It did not have to do this, of course.  The algorithm could have been designed with more reasonable expectations.  In this case it was just badly designed, and the result was a book that would not sell, at least until the algorithm decided to bring it back down to earth, which it probably eventually did.

An even crazier situation can result when there are only two copies of the same book available at the same time and both are being priced by algorithms that require their copy to always be the second least expensive available.  (Or the most expensive, though I doubt that actually occurs)  Books in this circumstance have been known to reach prices in the millions.

When this happens to a rare but insignificant book it may be good for a snicker or a chuckle, but in the end it is probably harmless.   What robo pricing does at other end of the scale, however, is much more significant and, increasingly, pervasive.   This is because the algorithms are really designed to drive prices down rather than up. They are meant to find the price at which an item is most likely to sell, and that price is almost always the lowest price. When there are hundreds, or even just dozens of identical copies available it is a clear sign that the supply of that book greatly exceeds the demand.   In that case, the successful algorithm will be the one that prices a copy at the lowest possible price.  If multiple sellers are using similar algorithms  then it is likely the price will drop to a penny, or whatever is set as the minimum price for that particular site.

The issue of profit may be irrelevant in this case.  It is probably more a question of minimizing final costs.  Once a book has been purchased, entered into the system, and determined to be too common to sell, it then becomes a question of cutting the bookseller’s loss.  Does it produce the least loss to cull and pulp it, indefinitely allocate a section of finite shelf space for it, or sell it in return for 1p + postage + the email address and personal details of someone now known to buy second-hand books.  In many cases it will be the one penny sale.   This is probably the kind of decision a machine can make much better than a human.

Fortunately, hardly any of us ever have to deal with books of that sort.  But there are books that fall somewhere in between the two extremes described above, and it is with these that the robo pricers expose a new reality that most of us will need to understand and, in a some cases, adapt to.

In the past, the price of a given book, usually pencilled onto the fly leaf,  was set by the seller at a carefully considered figure he believed one of his potential customers might eventually be induced to pay for it.  At the point of sale, in most cases, only one copy and one price would be involved in the decision to purchase.   Unless sold to another customer, the book that was refused one day would almost always have the same price two weeks, two months or two years later.  This is the way most retail products have traditionally been priced, and second-hand booksellers were no exception.  The arrival of the internet  changed this in at least one important respect:  the seller, for the first time, had easy access to the prices and other details of all the copies being offered by his competitors at that moment  and could set his own price on that basis.

There had always been something that you could call a “marketplace” for old books, but before the internet it operated in a dense fog.    Some historical information about the prices of books existed in auction records, price guides and in the proprietary memories of booksellers.  Generally accessible information about current availability and prices, however, did not exist.  There was no real marketplace where public knowledge of current prices and supply was available to all participants.   By making that information available in real time the internet changed  the “marketplace” for rare and second-hand books from a metaphor to a reality.

We are all now dealing with the enormous disruption that results from this.  Our accustomed ability to operate as free traders outside the pricing forces of an open marketplace is continuously challenged and reduced.  Only the portion of the book trade that deals in genuinely rare books escapes these pressures.

It would be merciful to leave the story there and not look further ahead, but the subject I started with cannot really be closed without noting one further aspect in which algorithmic pricing significantly alters the business of selling books: commoditization.  Algorithms can set their prices dynamically.  The idea that you pencil a price into a book and then leave it there until it’s sold may soon become a quaint anachronism.   And when a book price can change dynamically on the basis of all the other prices that are also continuously changing it creates a pricing process where the acquired knowledge of booksellers is, ultimately, unnecessary, if not useless.  In that circumstance the book becomes a commodity plain and simple.  As with any commodity exchange, the market sets the price and the human participants are only there to record the transactions, collect the money and arrange delivery.  On the product side, Amazon has, of course, been treating books as commodities in this respect from it’s very beginning.  When dynamic pricing engines come to set the price of a given ISBN or ASIN in an open online marketplace then the transformation, for that book at least, is complete.

Our one consolation is that this commoditization, if it does indeed take place, will most likely be restricted to books that have ISBN numbers and always have at least a few similar copies for sale online.  I suspect that there are very few ABA members who derive a major portion of their income from online sales of books like these.   They can be thankful that they do not.  But for the portion of the online book trade that does not regularly handle rare or pre-ISBN books the future may not be so bright.

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8 Responses to Algorithmic book pricing and its implications

  1. Cole says:

    Great article. If I’m in the ABA, I would be focused like a laser on pricing. But not on the follies of Robo pricing. The real issue, it seems to me, is the transparency-driven New Equilibrium that the Internet ushered and the relative inelasticity of pricing shown across the trade in light of this.

    I’m quoting here from a fine presentation at the Grolier Club in 2009 by Mark Samuels Lasner:

    “There are only about six institutions and twenty private parties interested in late Victorian literature. I probably know them all. If one of us doesn’t buy something it will just sit there—or travel into the hands of another seller who has more ambitious ideas. There are books that simply cannot be sold at the price asked, not at this present moment, and perhaps not for years. On the Internet, as I write, I find no fewer than thirty first editions by Oscar Wilde offered between $10,000 and $100,000. Signed copies, presentation and association copies, exceptional items. Most have been listed for months, some for years. There are dealers who have had the same things on their shelves for decades. Why not see if we can help these books find a new home—mine, or yours, or someone else’s—by reducing their price?”

    His experience, I suspect, is true across many fields of collecting. Legendary book seller Peter Howard was fond of saying that only 10% of stock left the trade every years. Others have disputed that number. If you don’t agree, double or triple it. It’s still a fascinatingly low figure. I’m not saying books mid-market/high-market antiquarian books are overpriced. I don’t need to. The market does that. But I don’t have a tremendous amount of sympathy for booksellers who are puzzled that their stock isn’t moving. Like it or not, the trade no longer set prices. The tremendous increase in transparency means that the market does.

    As a collector I’m not looking for bargains. But when I see books gathering electronic dust from being listed in line for 4-5 years, it really makes me wonder if people really want to sell the books. I don’t think robo pricing should be a concern. The bigger issue is adjusting to the new market equilibrium, which very few have done well.

    • Jim Hinck says:

      Meant to reply sooner. Sorry.
      You make a good point. I think Peter’s 10% is probably fairly accurate if it is meant to measure the ratio of annual gross sales versus total prices of inventories held. But if you compared cost of goods sold to total cost of inventories held then I think the percentage figure would go up, perhaps significantly, although with huge variation from dealer to dealer. There are specialist dealers who regularly turn their inventory twice a year on a cost basis. That would be 200% instead of 10%.

      The standard practice for dealers in the past was to mark their prices aggressively and let inflation take care of their mistakes. Inflation (as opposed to price appreciation) is not doing that job anymore, so the mistakes accumulate.

      But another aspect is something that is a new development that came with the internet. In the past, auction records were the primary published source of information on pricing. Everything you found in auction records represented a book that had been sold. This was encouraging to collectors. The books that did not sell were invisible. The internet reverses that. Now what you see when you search online are all the books which have not sold, at least yet. So we have no idea how many Oscar Wilde first editions have actually been sold by dealers for over $10,000 over the last 10 years. And that would be much more valuable information than the total of mispriced items that remain for sale, waiting for inflation to catch up with them.

      • Cole says:

        All great points.

        Reminds me of a quote from Ken Gloss of Brattle Books in a Podcast interview that he uses when someone quotes the price of a book listed on the internet as an indicator of its value.

        It is indeed an indicator of value — it tells you what price the book is NOT selling at, otherwise it wouldn’t be there!

        That fact is far too often missed.

        I find the whole area of pricing in this market fascinating and yet a little frustrating as a collector.

        (BTW, Jim lucky for you to live in Cambridge, home of my Alma Mater. Beautiful place.)

  2. JUNE SAMARAS says:

    For a REALLY entertaining account of the effects of “robo-pricing”
    follow the saga of the truly expensive Fruit Flies on Amazon…

    June S

    http://www.michaeleisen.org/blog/?p=358

    Amazon’s $23,698,655.93 book about flies

    By MICHAEL EISEN | Published: APRIL 22, 2011

    A few weeks ago a postdoc in my lab logged on to Amazon to buy the lab
    an extra copy of Peter Lawrence’s The Making of a Fly – a classic work
    in developmental biology that we – and most other Drosophila
    developmental biologists – consult regularly. The book, published in
    1992, is out of print. But Amazon listed 17 copies for sale: 15 used
    from $35.54, and 2 new from $1,730,045.91 (+$3.99 shipping).

  3. Peter M. Thornber says:

    Thank you, Jim, for tackling this depressing topic; I had wondered whether some stratospheric pricing was due to misplacing the decimal point in currency conversions[to my mind an insuperable argument for jettisoning decimalisation and metrication]. I tend, as a prospective purchaser, to blackball any vendor displaying such unrealistic prices. Abandoning the pricing exercise to a machine seems a breach of professional principles and at odds with the standards of the ABA [and its ILAB/LILA siblings] and the PBFA.

    Of course, most, if not all, practitioners of this soulless and lugubrious method of pricing will be novices and amateurs. But it is a phenomenon that could put our buying public off.

    Another niggle I have is that there is not much coverage of condition, provenance, etc. on Amazon.

    A solution would be more efforts at outreach and education of our public. Could Vialibri help?

    Thank you again for raising this topic.

    • Jim Hinck says:

      Thanks Peter. I don’t think there is too much that viaLibri can do about robopricing other than, perhaps, exposing buyers to a more professional type of bookselling than what they will find on Amazon. But, for the moment at least, we are still relatively unknown to the general book buyer. Its a big mountain to climb.

      As a bookseller, if you want to play in Amazon’s yard you have to play by their rules. That means embracing commoditization and ruthless price competition. And that price competition is going to be increasingly automated as time goes on. The alternative is to withdraw.

      But there is one thing that antiquarian booksellers as a group can do to combat algorithmic pricing machines: ignore ISBN. You probably can’t do that on Amazon, but elsewhere it has no use for the seller. Machines search by ISBN, but buyers search by author and title. (textbooks a possible exception). If you are listing a book that is also listed by a robopricer you cannot compete with them. They will always undercut you. Unless you leave off the ISBN, in which case your copy will be invisible to them. ISBN is the enemy of any knowledgeable bookseller. Few realize this. But if all the serious booksellers would remove the ISBNs from their descriptions the robopricers would be powerless to steal from them. Because that is what the are really doing. They are stealing the pricing knowledge of the booksellers who actually know what books are worth. And ISBN is their key to the safe.

      I have more to say about ISBN in another earlier post, which explains why buyers should not use it to search for books. It is an area where buyer education is definitely needed.

      Jim

  4. Peter M. Thornber says:

    Pricing is a test of the dealer’s proficiency and professional judgment; to leave it to a lifeless algorithm is the direst, downmost negligence.

    I’ve just refreshed my memory of the ABA Code of Good Practice: “2. PRICING Members are responsible for the professional, fair and informed pricing of all material offered for sale,

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