Algorithmic pricing on Amazon could cause crash

Sellers on Amazon’s retail site could cause a malfunction similar to the 2010 flash crash by increasingly using high-speed algorithmic trading tools to automatically set prices.

Prices on Amazon’s website change as often as every 15 minutes, according to the Financial Times, because sellers are using tools traditionally developed by data miners at banks to ensure that their prices are always below their rivals.

According to biologist Michael Eisen, unrestricted algorithms already created a situation last year whereby the price of a genetics book, entitled The Making of a Fly, was priced at more than $23 million (£14.8 million).

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Such a large fluctuation in pricing could lead to a breakdown on the site, similar to the US flash crash, where algorithmic trading was blamed for stock prices falling to near zero and then bouncing back within 20 minutes.

Competition on the retail site is fierce, with some sellers going as far as creating fake accounts with extremely low prices in an attempt to automatically pull down the price of rival products so that they can buy up their competitor’s stock.

Jack Sheng of eForCity, which sells electronics on Amazon, warned of the dangerous impact algorithmic pricing could have on the retailer’s prices: “If something is mispriced down to $1, your inventory can be cleaned out in no time.”