WEBVTT - Consumer v. Retailer: Online Shopping Gone Wild 0:00:01.480 --> 0:00:04.880 I'm Bethany McLean and this is making a killing interviews, 0:00:04.920 --> 0:00:08.400 exploring the headlines you thought you understood and finding the 0:00:08.480 --> 0:00:11.880 lessons we can all learn from them. Already in this series, 0:00:11.920 --> 0:00:16.000 I've spoken with Sehiel Patel about Netflix, Mike Isaac about Uber, 0:00:16.440 --> 0:00:20.720 and Peter Robeson about Boeing. I'm at Bethany Mactwelth on Twitter. 0:00:23.079 --> 0:00:25.439 So I have to admit I always thought that I, 0:00:25.760 --> 0:00:28.880 the consumer had the power in online shopping. I thought 0:00:28.920 --> 0:00:32.680 I could outsmart any seller. But now I'm beginning to wonder. 0:00:33.560 --> 0:00:37.239 Just consider this recent headline in the Atlantic how online 0:00:37.240 --> 0:00:41.520 shopping makes suckers of us all, Oh dear. The piece 0:00:41.600 --> 0:00:45.880 asks could the Internet, whose transparency was supposed to empower consumers, 0:00:46.080 --> 0:00:49.920 be doing the opposite. This worries me as a working mom. 0:00:49.960 --> 0:00:53.600 I buy everything, and I mean everything online. I don't 0:00:53.680 --> 0:00:56.360 like to think that I might be losing. There are 0:00:56.400 --> 0:01:00.560 broader implications to this question too. Rob Kaplan, president of 0:01:00.640 --> 0:01:04.319 the Federal Reserve Bank of Dallas, recently positive that continued 0:01:04.360 --> 0:01:08.800 low inflation, something that is confounding economists, might be because 0:01:08.800 --> 0:01:12.600 the Internet is bringing consumers so much transparency about the 0:01:12.640 --> 0:01:16.440 cost of everything that businesses have to perpetually match or 0:01:16.440 --> 0:01:20.240 even discount prices to win sales. It may be that 0:01:20.319 --> 0:01:24.160 business pricing pressure has been fundamentally reduced as a result 0:01:24.160 --> 0:01:29.360 of technology, Kaplin told a recent conference. But if that's true, 0:01:29.520 --> 0:01:32.360 and I'm now questioning whether it is, it appears that 0:01:32.400 --> 0:01:37.600 business isn't going down without a fight. Let's back up. So, 0:01:37.800 --> 0:01:39.920 in what are beginning to seem like the old days, 0:01:40.120 --> 0:01:42.839 there was a one price system, meaning when you walked 0:01:42.880 --> 0:01:45.199 into a store to buy something, that was the price 0:01:45.400 --> 0:01:47.760 for you and for any other customer who would happen 0:01:47.840 --> 0:01:50.520 to walk in. It turns out there's a whole history 0:01:50.600 --> 0:01:53.080 as to how the one price system came to exist 0:01:53.680 --> 0:01:56.680 and a tail in why it's going away and being 0:01:56.720 --> 0:02:01.720 replaced with something retailers called dynamic price. What Jerry you 0:02:01.800 --> 0:02:04.800 see Him explains in his recent Atlantic piece is that 0:02:04.880 --> 0:02:09.519 this new system of dynamic pricing most closely resembles high 0:02:09.560 --> 0:02:13.280 frequency trading on Wall Street. Prices are never set to 0:02:13.320 --> 0:02:16.240 begin with. In this new world, they can fluctuate from 0:02:16.240 --> 0:02:19.240 hour to hour and even minute to minute, a phenomenon 0:02:19.320 --> 0:02:22.040 familiar to anyone who has put something in her Amazon 0:02:22.160 --> 0:02:25.280 cart and bet alerted to price changes. While it's at there. 0:02:26.320 --> 0:02:29.680 Of course, it's not just Amazon. An investigation by a 0:02:29.720 --> 0:02:33.400 local TV station found that Target was offering different prices 0:02:33.480 --> 0:02:37.359 on its app depending on where customers were located inside 0:02:37.440 --> 0:02:40.959 or outside of an actual Target store. Jerry also writes 0:02:41.040 --> 0:02:44.400 this about us. They are content to be fooled into 0:02:44.440 --> 0:02:46.839 paying more if they can keep the belief that they're 0:02:46.880 --> 0:02:50.560 paying less, that they have agency and agility to find special, 0:02:50.720 --> 0:02:54.760 unbeatable deals only for them. Wow. I thought I was 0:02:54.800 --> 0:02:58.800 doing just that, But maybe I am, because it's indisputably true. 0:02:58.840 --> 0:03:01.480 At the very same time that we, the consumers, are 0:03:01.560 --> 0:03:04.880 also getting significantly smarter. Gone are the days where the 0:03:04.880 --> 0:03:07.440 sellers of goods at all the inside info and control, 0:03:07.919 --> 0:03:11.040 or even market leadership. In many cases, you can compare 0:03:11.080 --> 0:03:14.760 prices in real time. So if sellers are getting smarter 0:03:15.200 --> 0:03:18.720 and buyers are also getting smarter on the same exponential 0:03:18.760 --> 0:03:23.400 curve fueled by technology, well who's winning. I'm delighted to 0:03:23.400 --> 0:03:25.200 have Jerry, you see him here with me to answer 0:03:25.240 --> 0:03:27.919 all those questions and more. Jerry, who is now a 0:03:27.960 --> 0:03:31.079 contributing editor at the Atlantic, as a longtime business journalist. 0:03:31.320 --> 0:03:33.320 He and I worked together at Fortune back in the 0:03:33.320 --> 0:03:36.440 glory days. Of the nineteen nineties and early two thousands. 0:03:36.480 --> 0:03:39.080 So we've known each other for oh, I don't want 0:03:39.120 --> 0:03:41.839 to count how long, And amazingly enough, we now both 0:03:41.880 --> 0:03:44.600 live in Chicago, so this episode is being recorded in 0:03:44.600 --> 0:03:48.480 the Windy City. So we have to start with what 0:03:48.560 --> 0:03:51.000 happened to the price of pumpkin pie spice as Christmas 0:03:51.040 --> 0:03:54.320 two fifteen approached? How did you zero in on pumpkin 0:03:54.360 --> 0:03:57.120 pie spice? I sort of stumbled upon it. I was 0:03:57.160 --> 0:04:02.000 looking through a bunch of prices, three charts of different 0:04:02.680 --> 0:04:07.040 products on Amazon, and this kind of thing didn't exist before. 0:04:07.360 --> 0:04:11.080 But there's a few services ones called three camels that 0:04:11.240 --> 0:04:15.120 literally you can see the fluctuations of a price day 0:04:15.160 --> 0:04:19.080 to day, hour to hour, over the last month, over 0:04:19.200 --> 0:04:22.039 last year. And I had no idea about this until 0:04:22.080 --> 0:04:24.040 I read your piece. By the way, some of these 0:04:24.440 --> 0:04:26.600 you know, charts, it's like looking down in a stock chart. 0:04:26.800 --> 0:04:28.920 That one just struck me as funny because it's a 0:04:28.960 --> 0:04:31.599 seasonal ingredient. We all do it and we all know 0:04:31.640 --> 0:04:34.400 what it is. So how did you get interested in 0:04:34.440 --> 0:04:38.400 this story? Anyway? What made you decide to pursue this? Well, 0:04:38.400 --> 0:04:41.360 it's become kind of a commonplace that as consumers were 0:04:41.400 --> 0:04:45.479 more empowered than ever with data. We can go to showrooms, 0:04:45.480 --> 0:04:47.719 we can go to Best Buy and see products that 0:04:47.760 --> 0:04:50.200 we intend to buy elsewhere. We can know the price 0:04:50.240 --> 0:04:54.400 of anything anywhere at any given time through technology. But 0:04:54.560 --> 0:04:57.240 I and my editor at The Atlantic started to notice 0:04:57.279 --> 0:05:01.240 there were some weird things going on with Amazon's seeing strategies. 0:05:01.279 --> 0:05:03.200 At the same time, we also noticed that Amazon had 0:05:03.200 --> 0:05:06.080 been hiring a lot of economists, and really top flight 0:05:06.120 --> 0:05:09.640 economists who would sort of disappear into the Amazon world, 0:05:09.720 --> 0:05:12.200 and so it was kind of like going down a wormhole. 0:05:12.279 --> 0:05:16.000 We looked at what's happening with price online, and the 0:05:16.080 --> 0:05:18.920 deeper I got into it, the more I realized that 0:05:19.040 --> 0:05:22.720 the whole notion of price that's something that is a 0:05:22.800 --> 0:05:25.160 fixed price out there, that it's set, you know, how 0:05:25.279 --> 0:05:27.880 much does it cost is becoming sort of an outdated 0:05:28.000 --> 0:05:33.520 questioned the fluctuations that retailers have learned to do based 0:05:33.600 --> 0:05:37.320 on what they know about our shopping habits. For instance, 0:05:37.720 --> 0:05:40.320 at four pm in the afternoon, we're all at work, 0:05:40.839 --> 0:05:44.320 we've had lunch, we get kind of lazy, and they 0:05:44.440 --> 0:05:47.120 raise their prices because we just get less discriminating at 0:05:47.120 --> 0:05:50.760 that hour. So you'll see this uptick in the morning, 0:05:50.920 --> 0:05:53.680 they'll then like lower the price because we're more meticulous. 0:05:54.320 --> 0:05:56.720 I think this whole idea is terrifying, and I want 0:05:56.720 --> 0:05:58.440 to come back to the notion of the royal Amazon 0:05:58.560 --> 0:06:01.040 played with this, but where there's a character in your 0:06:01.080 --> 0:06:03.880 story who's really fascinating This guy Guru Harri harror on 0:06:04.000 --> 0:06:06.680 how did you find him? And who is he? He 0:06:06.720 --> 0:06:08.760 would be what you call sort of an arms dealer 0:06:08.839 --> 0:06:11.600 in this an arms dealer, and in this contest is 0:06:11.720 --> 0:06:14.440 sort of consumer and retailer, or you can think of it. 0:06:14.560 --> 0:06:16.640 He says, it's more of like a three way battle. 0:06:16.640 --> 0:06:18.919 There's Amazon where he used to work, and he's one 0:06:18.960 --> 0:06:21.320 of the guys who's set up the system that lets 0:06:21.360 --> 0:06:24.760 other people sell their stuff on Amazon third party sellers, 0:06:25.080 --> 0:06:29.320 and he started this company called Boomerang Commerce that basically 0:06:29.400 --> 0:06:35.400 other retailers used to match Amazon's pricing algorithms. And it 0:06:35.520 --> 0:06:37.960 was kind of my window into like, you know, it's 0:06:38.080 --> 0:06:41.200 very hard to you can't interview an algorithm, but I 0:06:41.279 --> 0:06:44.440 went out there to Californi and basically tried to you 0:06:44.520 --> 0:06:47.760 found a human algorithm essentially hand grew Harry. Yeah, and 0:06:47.839 --> 0:06:51.200 he showed me this dashboard and would. It had was 0:06:51.560 --> 0:06:54.159 this is what a retailer sees, and it had a 0:06:54.160 --> 0:06:56.760 bunch of rules you can put in, like if Amazon 0:06:57.240 --> 0:07:00.760 moves its price down, we respond by moving our price 0:07:00.800 --> 0:07:04.560 down ten percent until it gets too costs or something 0:07:04.600 --> 0:07:07.000 like that. These were what you're called guardrails, and if 0:07:07.040 --> 0:07:08.920 you don't put those in, things can get out of hand. 0:07:08.920 --> 0:07:11.640 There was there was one book that because of two 0:07:11.880 --> 0:07:15.040 algorithms interacting with each other, the price got driven up 0:07:15.040 --> 0:07:17.880 to twenty three million dollars at one I wish, I 0:07:17.920 --> 0:07:21.560 wish that were one of my books. Well, speaking of whigs. 0:07:21.640 --> 0:07:24.160 Before coming on here, I went in and checked out 0:07:24.200 --> 0:07:27.440 the price history of some of your books. Oh well, 0:07:27.560 --> 0:07:31.360 it's really really interesting and I can't discern any pattern. 0:07:31.400 --> 0:07:33.520 It's just one of your books. Today. It's offered to 0:07:33.560 --> 0:07:38.520 ask prices seventeen ten, that's respectable. It's been as high 0:07:38.520 --> 0:07:42.200 as thirty five dollars for one day, like maybe four 0:07:42.280 --> 0:07:44.640 or five years ago. It is available for dollars twenty 0:07:44.640 --> 0:07:50.880 three cents, which I think someone just stay wow, that 0:07:51.080 --> 0:07:53.520 is crazy. Okay, but wait, come back to this notion 0:07:53.600 --> 0:07:55.480 that it's a three way battle. It's not just a 0:07:55.520 --> 0:07:59.119 battle between the consumer and the retailer. But your guru 0:07:59.680 --> 0:08:02.760 says that it's actually a three way battle. There's the consumers, 0:08:02.800 --> 0:08:07.240 there's the retailer, and there's Amazon. Amazon just has so 0:08:07.320 --> 0:08:11.840 much data at their disposal, and with that data, it 0:08:12.080 --> 0:08:15.679 exerts a gravitational pull of all this talent. These really 0:08:15.880 --> 0:08:19.760 really top level economists are going there and not only 0:08:20.080 --> 0:08:24.320 using the data to say, like what can we see about? Basically, 0:08:24.520 --> 0:08:27.080 you know where we should price things and when what hour. 0:08:27.560 --> 0:08:30.080 In some cases it seems like personalize it to your 0:08:30.080 --> 0:08:32.400 own shopping history. If you came from a bargain hunting 0:08:32.480 --> 0:08:34.920 website and they think you're sort of a bargain hunter, 0:08:35.160 --> 0:08:37.800 they will sometimes offer you a lower price. Some studies 0:08:37.960 --> 0:08:41.040 show Amazon says it doesn't do this. Well, that's what 0:08:41.080 --> 0:08:43.640 I wanted to push on. Amazon says that it's price 0:08:43.720 --> 0:08:46.640 changes are quote not attempts to gather data on customers 0:08:46.720 --> 0:08:49.560 vending habits, but rather they're just trying to give shoppers 0:08:49.559 --> 0:08:52.240 the lowest price out there. What do you think about that? 0:08:52.920 --> 0:08:57.599 A few years back they did admit to running price experiments. 0:08:58.080 --> 0:09:03.160 Price experiments. That's a scary phrase, yes, and so it's 0:09:03.200 --> 0:09:06.000 kind of weird to think that in buying you know, 0:09:06.040 --> 0:09:08.720 a seasonal pie ingredient, pumpkin spice, you might being part 0:09:08.760 --> 0:09:12.280 of a social experiment. And ECON one on one, if 0:09:12.040 --> 0:09:15.960 you go back, they had the concept of elasticity of demand. Basically, 0:09:16.080 --> 0:09:18.880 if you raise the price, how much to sales fall off? 0:09:19.400 --> 0:09:23.240 But retailers for most of existence have just been just 0:09:23.360 --> 0:09:25.920 kind of had to guess. Now they can actually, well, 0:09:26.000 --> 0:09:29.400 let's try at this level, what's measured of demands? What's 0:09:29.400 --> 0:09:32.719 the optimal? So we've moved from ECON one on one 0:09:32.720 --> 0:09:35.160 And I never took an ECON class to John Nash 0:09:35.240 --> 0:09:38.840 as a beautiful mind and game theory, right, Okay, that's 0:09:39.120 --> 0:09:41.200 that a way to think about it. Yes, they're literally 0:09:41.280 --> 0:09:43.520 using game theory and some of their and some of 0:09:43.559 --> 0:09:45.880 their models. Let's back up and go back to some 0:09:46.200 --> 0:09:49.400 pricing history, which you lay out in your story in 0:09:49.480 --> 0:09:51.520 such an interesting way. But how did the price take 0:09:51.600 --> 0:09:53.959 come into being in the first place? Well, this is 0:09:53.960 --> 0:09:56.640 an interesting question, and as I was reporting this story, 0:09:56.760 --> 0:09:59.240 I thought, well, prices have always been fixed, and I 0:09:59.240 --> 0:10:01.600 thought it was that true, And I went back and 0:10:01.640 --> 0:10:05.720 it turns out not true. Price tag was invented sometime 0:10:05.800 --> 0:10:10.520 in the eighteen sixties. Probably it's credited to John Wannamaker. 0:10:10.760 --> 0:10:13.880 Wannamakers in Philadelphia is one of the first big department stores, 0:10:14.720 --> 0:10:19.640 and he was a Presbyterian, but operating in a Quaker city, 0:10:19.880 --> 0:10:23.480 and Quakers, including another Quaker, was rolling h Macy of 0:10:23.640 --> 0:10:27.920 Macy's didn't believe in offering different prices to different people. 0:10:28.080 --> 0:10:29.880 They thought it would because they thought it was immoral. 0:10:29.960 --> 0:10:33.880 They thought it was immoral interesting, so Wannamaker opened his 0:10:34.000 --> 0:10:37.120 quote unquote Grand Depot onto the principle he called one 0:10:37.160 --> 0:10:41.000 price to all, no favoritism, and this was soon copied 0:10:41.360 --> 0:10:45.000 not for moral reasons, but for economic reasons by others. 0:10:45.480 --> 0:10:48.839 In the very beginning of department stores, basically they tried 0:10:48.880 --> 0:10:51.000 to train everyone in the art of haggling, which is 0:10:51.040 --> 0:10:54.240 how everything was done up to that point, and in 0:10:54.320 --> 0:10:57.720 fact there was no price tags on goods. Sometimes they 0:10:57.760 --> 0:11:01.920 would have cryptic symbols that would the salesman or saleswoman 0:11:02.080 --> 0:11:05.360 know what the cost of the good was and what 0:11:05.480 --> 0:11:08.560 should their sort of walk away point be, and only 0:11:08.600 --> 0:11:13.199 they could decipher these symbols. But as these stores they 0:11:13.240 --> 0:11:17.640 found it basically impossible to train thousands of people in 0:11:17.640 --> 0:11:20.080 the art of haggling. Just as they scaled up and 0:11:20.160 --> 0:11:24.360 became huger. It allowed them to advertise fixed prices, and 0:11:24.640 --> 0:11:29.360 newspapers allowed them to higher floor people. So price tag 0:11:29.440 --> 0:11:32.679 was a move toward a more efficient economy in a sense, 0:11:32.720 --> 0:11:35.520 at least at that time. You know, in doing that, 0:11:35.960 --> 0:11:38.920 retailers sort of gave up a little bit of their 0:11:38.960 --> 0:11:42.120 power to kind of extract the last farthing that a 0:11:42.160 --> 0:11:45.360 shopper might be willing to give up on a given day. Right, 0:11:45.440 --> 0:11:48.600 but maybe they made it back on the shopper who 0:11:48.640 --> 0:11:51.120 was not so intent or skilled at extracting the last 0:11:51.160 --> 0:11:54.439 farthing right right, right, which brings us back a little 0:11:54.440 --> 0:11:57.240 bit to where we are today. So what does this 0:11:57.360 --> 0:12:00.559 concept now from moving from the fixed price tag to 0:12:00.840 --> 0:12:04.800 personalized pricing? How would you explain that concept? I would 0:12:04.800 --> 0:12:07.520 explain it as there was a sort of a truce 0:12:07.800 --> 0:12:10.360 that reigned after the invention of the price tag that 0:12:10.480 --> 0:12:14.800 basically between the consumer and retailers. In fact, there was 0:12:14.800 --> 0:12:18.280 a French sociologist who had a theory that the marketplace 0:12:18.360 --> 0:12:21.319 was a battle and a price was the negotiated truce 0:12:21.440 --> 0:12:24.320 in the outcome. And there was a few sort of 0:12:24.400 --> 0:12:27.320 asterisks to this truce. So like you could clip coupons, 0:12:27.400 --> 0:12:29.480 you know, as a way, if you were more motivated, 0:12:29.840 --> 0:12:34.640 companies differentiated higher end things lower end things. But basically 0:12:35.320 --> 0:12:38.280 the people who broke the truth are us, the consumer shoppers. 0:12:38.960 --> 0:12:41.080 And I was at a shoe store the other day 0:12:41.080 --> 0:12:44.360 and a woman said, you know, yesterday someone was in 0:12:44.440 --> 0:12:46.960 here and they were trying on a shoe while they 0:12:46.960 --> 0:12:49.720 were sitting in there, went online and bought the shoes 0:12:49.840 --> 0:12:51.760 on AMTMS and just walked out of the store and 0:12:51.880 --> 0:12:53.800 walked out of the store that brazen. Did the person 0:12:53.840 --> 0:12:57.320 atly say sorry to waste No, not even apology. Oh man, 0:12:58.480 --> 0:13:01.520 I'm feeling sorry for retailers right now. So, I mean, 0:13:01.520 --> 0:13:04.520 this has a lot you know, just sort of what's 0:13:04.520 --> 0:13:08.199 going on in storefronts right now and what they call showrooming, 0:13:08.400 --> 0:13:12.200 walking around with armed with all this information basically sort 0:13:12.240 --> 0:13:16.440 of strips a lot of places of their pricing power 0:13:16.520 --> 0:13:19.440 to ask anything above what is the lowest rate out there. 0:13:19.760 --> 0:13:24.280 So you see retailer's response as having been driven by necessity. 0:13:24.360 --> 0:13:27.199 This breaking of the truth began with consumers, and now 0:13:27.280 --> 0:13:29.400 retailers are fighting back. Is that the right way to 0:13:29.440 --> 0:13:34.000 think about it? Essentially, yes, And that they're staring back 0:13:34.120 --> 0:13:37.760 through the screen and comparison shopping us and trying to 0:13:37.760 --> 0:13:41.000 figure out what is our walk away point? Because there's 0:13:41.040 --> 0:13:44.720 something also an economics called the consumer surplus. Consumer surplus 0:13:44.800 --> 0:13:48.080 is basically money you would have been willing to spend 0:13:48.280 --> 0:13:50.720 if the price had been higher, but you didn't have 0:13:50.720 --> 0:13:53.040 to spend it because the price was set at whatever, 0:13:53.160 --> 0:13:56.360 seven dollars. But the consumer surplus is like if you 0:13:56.360 --> 0:13:58.760 would have been willing to pay twelve dollars, that's five 0:13:58.800 --> 0:14:01.520 dollars right there. Does the surplus go to the consumer's 0:14:01.559 --> 0:14:04.280 wallet or does the surplus just get spent elsewhere because 0:14:04.280 --> 0:14:09.160 the consumer sees it as free money, just get spent elsewhere? Right? Yeah, 0:14:09.760 --> 0:14:12.800 how much of a surplus is it? Actually? Right exactly? 0:14:12.880 --> 0:14:15.600 Retailers are now trying to find ways to make more 0:14:15.600 --> 0:14:19.320 of the surplus their own. So one expert said this 0:14:19.600 --> 0:14:22.120 that in five to ten years, everything you buy will 0:14:22.160 --> 0:14:24.880 be based on personalized offers everything. Do you think that's 0:14:24.880 --> 0:14:27.400 true or do you think that's an overstatement? You know, 0:14:27.480 --> 0:14:31.720 as a great question, and I think in reporting this 0:14:32.280 --> 0:14:35.040 the issue of fairness, you know, this comes up. You know, 0:14:35.080 --> 0:14:38.440 if you're sitting on an airplane and the person next 0:14:38.440 --> 0:14:42.120 to you is paid less, there's an element in us 0:14:42.120 --> 0:14:45.720 that kind of objects to that. That said, someone pointed 0:14:45.720 --> 0:14:49.520 out fairness is sort of a social construct, and it's 0:14:49.560 --> 0:14:52.200 possible that our notions of this could change. I mean, 0:14:52.400 --> 0:14:55.960 for instance, with stocks, if someone bought Microsoft stock at 0:14:56.560 --> 0:14:59.320 forty and you bought it at ninety, you don't hold 0:14:59.320 --> 0:15:03.880 anything again, right, right, But going back to your pricing 0:15:04.160 --> 0:15:06.640 Macy right, who thought it was immoral? How do you 0:15:06.680 --> 0:15:09.000 think about that? Do you think it's immoral for consumers 0:15:09.000 --> 0:15:11.840 to pay different prices? For instance, if you buy a Mercedes, 0:15:11.880 --> 0:15:14.080 should the diapers you're buying for your kid costs more 0:15:14.120 --> 0:15:18.920 than the diapers somebody who drives Undai is paying. I 0:15:19.000 --> 0:15:23.120 don't know. I honestly don't know there is. I think 0:15:23.680 --> 0:15:27.840 if there's a degree of transparency what's going on, then 0:15:28.560 --> 0:15:31.480 I think maybe it's fair where I think some of 0:15:31.480 --> 0:15:35.240 the things that really raise my eyebrows, or where they're 0:15:35.280 --> 0:15:38.680 doing things and profiling you in ways based on the 0:15:38.720 --> 0:15:42.680 fact that you have been browsing elsewhere that some retailers 0:15:42.680 --> 0:15:45.800 have been accused of doing this. But can it be 0:15:45.880 --> 0:15:49.600 fair given that when we're talking about retailers manipulating prices, 0:15:49.800 --> 0:15:53.960 we're not really talking about human head buyers manipulating prices. 0:15:54.000 --> 0:15:58.400 We're talking about algorithms manipulating prices based on big data, right, 0:15:58.760 --> 0:16:01.440 So how transparent can it be? Doesn't that fly in 0:16:01.480 --> 0:16:08.080 the face of transparency? Yes, yes, and and yes, And 0:16:08.280 --> 0:16:11.200 actually what kind of troubles me is that when some 0:16:11.280 --> 0:16:15.800 of these sort of irregularities surface, Amazon and other places 0:16:16.000 --> 0:16:18.600 can very easily say we're sorry, there was flying on 0:16:18.720 --> 0:16:20.840 the oitment. There was something bad with the algorithm, the 0:16:20.880 --> 0:16:23.920 algorithms at fault. It was unintended, and we will never know. 0:16:24.280 --> 0:16:27.120 Maybe it was, maybe it wasn't, And it almost doesn't 0:16:27.200 --> 0:16:29.640 matter if it was unintentional. It's a little bit like 0:16:29.760 --> 0:16:33.240 the malfunctioning robot. Hell, right off, how is malfunctioning? Doesn't 0:16:33.280 --> 0:16:37.119 matter why exactly? When reading through this, I was fascinated 0:16:37.160 --> 0:16:40.520 to find that sometimes Yeaho's Finance did a piece on 0:16:40.560 --> 0:16:43.560 how clothing prices are affected by this too, and address 0:16:43.800 --> 0:16:46.200 that's available in a size small might cost more and 0:16:46.280 --> 0:16:49.520 a size large, And that seems maybe there's a lot 0:16:49.600 --> 0:16:52.400 of big data going into why that's happening. But doesn't 0:16:52.400 --> 0:16:56.280 that just seem wrong on the surface, or are we 0:16:56.320 --> 0:16:59.720 just are we just living in an old construct? Well, interestingly, 0:16:59.840 --> 0:17:04.320 the technical economics term for this is price discrimination, which 0:17:04.320 --> 0:17:06.840 economists use not in the way that you and I 0:17:06.880 --> 0:17:09.520 mean discrimination, but it's a great question, like is this 0:17:09.880 --> 0:17:15.280 basically discrimination? There was three researchers from Spain who did 0:17:15.280 --> 0:17:17.960 an interesting study where they set up three different sort 0:17:18.000 --> 0:17:22.240 of phony personas based in different places in the US. Basically, 0:17:22.280 --> 0:17:25.920 these were like dummy terminals where one of them just 0:17:26.080 --> 0:17:28.760 did a whole bunch of bargain shopping for you know, 0:17:28.800 --> 0:17:31.280 a couple of weeks, one of them looked at high 0:17:31.359 --> 0:17:34.560 end goods, and the third was somewhere in between. And 0:17:34.640 --> 0:17:38.800 they found indeed that these people got offered different prices 0:17:38.880 --> 0:17:41.560 even when they typed in on the search engine, like 0:17:41.640 --> 0:17:44.679 different products would be shown to them. Wow. So I 0:17:44.720 --> 0:17:46.520 think there is something kind of a haunting and spooky 0:17:46.560 --> 0:17:50.679 about the unknowability. It's almost sort of like Heisenberg's uncertainty. 0:17:50.720 --> 0:17:52.960 If you can't know where the electron is just by 0:17:52.960 --> 0:17:55.800 the very fact you're looking at it. In some cases, 0:17:55.840 --> 0:17:59.679 you know, the price could really not exist until you 0:17:59.760 --> 0:18:01.639 look at it, and the act of looking at it 0:18:01.680 --> 0:18:05.119 sort of creates the price. So I think there's going 0:18:05.200 --> 0:18:07.040 to be We're gonna have to think about this a 0:18:07.040 --> 0:18:10.960 lot that's actually fascinating because it all does once again. 0:18:11.000 --> 0:18:14.480 I mean, Heisenberg's uncertainty principle couldn't be more removed from 0:18:14.480 --> 0:18:17.800 your concept of transparency. Right, The price not existing until 0:18:17.880 --> 0:18:20.560 you look at it is again the opposite of transparent. 0:18:20.760 --> 0:18:22.680 And that's the thing we all feel like if we 0:18:22.720 --> 0:18:27.720 could just understand why right exactly? And here's the thing is, 0:18:28.000 --> 0:18:31.080 there's studies showing that even when people are shown their 0:18:31.080 --> 0:18:35.680 own irrational biases, that they still don't adjust, like we 0:18:35.720 --> 0:18:39.680 are just suckers for seeing twenty percent off thirty percent off. 0:18:40.359 --> 0:18:43.119 And you know the work by knomen In Tversky which 0:18:43.280 --> 0:18:47.119 has been heavily used in this field, that we hate 0:18:47.119 --> 0:18:50.639 the feeling of loss. We want to avoid that, and 0:18:51.000 --> 0:18:54.480 when we see the possibility of a deal going away, 0:18:54.800 --> 0:18:59.879 we experience that as a possible loss. And there's been 0:19:00.040 --> 0:19:03.800 he studies showing that we are hardwired to jump at 0:19:03.840 --> 0:19:06.760 the feeling that we've won, even if economically we end 0:19:06.840 --> 0:19:09.240 up with fewer dollars at the end. Well, that's part 0:19:09.240 --> 0:19:12.160 of what MADEI based so compelling, Right you won, which 0:19:12.160 --> 0:19:13.520 all that it meant was that you were willing to 0:19:13.560 --> 0:19:16.919 pay more than anybody else. Yes, but you won you 0:19:17.000 --> 0:19:19.840 write about another fascinating concept that existed in the old 0:19:19.880 --> 0:19:22.280 world of retail as well. So, but the left digit 0:19:22.320 --> 0:19:25.919 bias just touch on what that is, the left digit bias. 0:19:25.960 --> 0:19:29.800 So in the dark ages before there was any data available, 0:19:30.040 --> 0:19:32.520 I was talking to an economist used to teach at 0:19:32.600 --> 0:19:35.760 University of Chicago back in the early nineteen eighties, and 0:19:35.800 --> 0:19:40.360 they acquired data from the new scanners at the grocery 0:19:40.800 --> 0:19:43.520 chain Jewel, and he said it overturned a lot of 0:19:43.560 --> 0:19:46.040 what he'd been teaching in class. For instance, he'd been 0:19:46.040 --> 0:19:50.000 teaching that the notion that pricing something at two ninety 0:19:50.040 --> 0:19:52.640 nine or two ninety eight increased sales was a myth. 0:19:52.720 --> 0:19:54.800 He says, actually it was an artifact from the days 0:19:54.840 --> 0:19:59.080 when retailers were suspicious of cashiers taking something out of 0:19:59.240 --> 0:20:01.080 forced them to make changed so they wouldn't pocket any 0:20:01.119 --> 0:20:03.680 of money themselves. Well, he says, they got the data, 0:20:03.800 --> 0:20:06.360 and he says it turned out the effect was huge, 0:20:06.800 --> 0:20:10.800 that two ninety nine will sell a lot on especially 0:20:10.800 --> 0:20:14.080 on a car, you know, maybe not so, but on 0:20:14.080 --> 0:20:18.120 a can of tuna exactly. And that just basically gets 0:20:18.119 --> 0:20:21.280 to our kind of limited attention spanner or ability to 0:20:21.320 --> 0:20:24.640 process that much information where we can't function like a computer. 0:20:25.240 --> 0:20:27.399 We walk into a store, and so we pay the 0:20:27.400 --> 0:20:30.000 greatest attention to the most important digit, which is the 0:20:30.040 --> 0:20:32.800 one on the left and rose. For years have known that, 0:20:32.960 --> 0:20:37.560 which is why, for decade or for time, you know, 0:20:37.640 --> 0:20:39.960 time out of mind, they've known to set the price 0:20:40.600 --> 0:20:43.720 of milk and eggs quite low because they know that 0:20:43.880 --> 0:20:47.760 people have a pretty good fix on what that price 0:20:47.800 --> 0:20:50.840 should be, and so they use that to as a 0:20:50.880 --> 0:20:55.800 proxy to be like, is this place price well or not? 0:20:56.520 --> 0:20:59.359 And then knowing that they're not going to be as 0:20:59.440 --> 0:21:02.760 comparative scrutinizing numbers of other products as much. So. The 0:21:02.840 --> 0:21:06.000 interesting point there, too is that it's not like this 0:21:06.080 --> 0:21:09.200 old world was perfectly fair to consumers. We were getting 0:21:09.359 --> 0:21:12.640 We were getting scammed in the old world, perhaps just 0:21:12.720 --> 0:21:15.960 in a different way than we are in the new world. Yeah, 0:21:16.119 --> 0:21:20.000 but in a much smaller way, in a much smaller way. Yeah, Yeah, 0:21:20.080 --> 0:21:22.080 I guess I can see that paying to ninety nine 0:21:22.200 --> 0:21:25.800 or missing out on the slightly cheaper artichoke at the 0:21:26.119 --> 0:21:28.760 grocery store is a little bit different than having an 0:21:28.920 --> 0:21:32.600 entirely different price for an expensive dress presented to you online, 0:21:32.680 --> 0:21:35.440 right right, Yeah, that makes sense there was another piece 0:21:35.440 --> 0:21:37.840 of data, more proof that man is not a rational 0:21:37.880 --> 0:21:41.520 animal in your piece that Amazon would drop prices on 0:21:41.640 --> 0:21:44.720 expensive items like TVs on Black Friday, and then that 0:21:44.880 --> 0:21:49.000 hike the price of the less expensive stuff needed the cables, 0:21:49.080 --> 0:21:51.639 for instance, needed to connect the TV, knowing that we 0:21:51.680 --> 0:21:54.400 would not look as closely at we being the consumers, 0:21:54.400 --> 0:21:57.080 would not look as closely at that. Right Exactly, there's 0:21:57.200 --> 0:21:59.919 you bought the TV. Now you do the cheaper at all. 0:22:00.640 --> 0:22:03.919 But they're maybe the lost margin could be made up 0:22:04.040 --> 0:22:06.719 hugely just in the price of cables, so they can 0:22:06.760 --> 0:22:09.919 figure out ways to take advantage of how uneconomic we 0:22:10.000 --> 0:22:12.919 actually are, how irrational we can be, just on a 0:22:12.960 --> 0:22:16.040 whole new scale. Now then then the old world. I mean, 0:22:16.160 --> 0:22:18.199 it's made me think about my own shopping Happit's like 0:22:18.320 --> 0:22:20.520 when do I stop? I don't always like to think 0:22:20.520 --> 0:22:25.240 about that, but but when do we stop and actually 0:22:25.680 --> 0:22:27.560