Ethical Issues with Amazon’s Pricing Algorithm

(Blog post #1- Identify an ethical dilemma in business that is currently being discussed or reported in the media and describe the ethical situation and dilemma.)

While searching through news the other day I came across an article that discussed the ethical issues connected with Amazon’s Pricing Algorithm. Let me start with saying that I am not very “technology smart” so the title itself seemed very confusing to me. But I gave it a chance and I decided to share this story today to hopefully help other “technology dummies” and discribe the ethical dilemma that Amazon’s customers are facing.

So in simple words- when going on the Amazon webpage, the customer is supposed to see the best deals (essentially products that have the lowest price but are also ranked the highest by previous customers). As the authors (Julia Angwin and Surya Mattu) mention they were searching for Loctite super glue. Amazon’s software took them through multiple combinations of price and shipping, some of which were cheaper than a customer could find at a local Walmart. “TheHardwareCity.com, an online retailer from Farmers Branch, Texas, with a 95 percent customer satisfaction rating, was selling Loctite for $6.75 with free shipping. Fat Boy Tools of Massillon, Ohio, a competitor with a similar customer rating was nearly as cheap: $7.27 with free shipping”.

Amazon’s webpage “threw aside” those offers, instead showing the product sold by Amazon itself for slightly more, $7.80. “This seemed like a plausible choice until another click of the mouse revealed shipping costs of $6.51. That brought the total cost, before taxes, to $14.31, or nearly double the price Amazon had listed on the initial page”. Why did this algorithm, which was supposed show the best offers, would push the customer towards a more expensive option? It came to find out that, about 75% of the time, Amazon “placed its own products and those of companies that pay for its services in that position even when there were substantially cheaper offers available from others”.

So in even simpler words- Amazon creates this fake illusion that a certain retailer of THE SAME PRODUCT is better just because they get a profit out of selling their products. So the customers end up spending more money on THE SAME PRODUCT, thinking that they are paying a higher price for better quality, where in reality they are just helping Amazon make more profit… Which is simply- unethical.

Customers are not sure why Amazon’s algorithm puts its own products ahead of better deals offered by others. “Perhaps Amazon is taking the view that its widely admired shipping and delivery offers the best possible satisfaction for customers, even if it costs more”.

Word Cloud Business Ethics“Another possibility is that the company is trying to encourage shoppers to join the Prime program, which offers free shipping on many items (including the Loctite super glue). When non-Prime customers initially view Amazon products, they are offered “FREE Shipping on eligible orders.” When they finally try to pay, the shipping fees are revealed along with an advertisement to avoid such fees by joining Prime.

But at the end of the day, customers are still under this impression that they are buying products at the lowest costs, when in reality they might be lied to.

Stay tuned to learn about Amazon’s background and their previous actions in my next post!

All quotes come from the “Amazon Says It Puts Customers First. But Its Pricing Algorithm Doesn’t” article written by Julia Angwin and Surya Mattu for the Business Ethics The Magazine of Corporate Responsibility on September 20th, 2016 (http://business-ethics.com/2016/09/20/12675-amazon-says-it-puts-customers-first-but-its-pricing-algorithm-doesnt/).