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/).

 

 

 

 

Advertisements

11 thoughts on “Ethical Issues with Amazon’s Pricing Algorithm

  1. As a consumer and Amazon-user this is surprising to me! I’ve always been under the impression that Amazon aims to offer the lowest prices. Perhaps they are re-positioning themselves and trying to focus on their shipping/delivery services.

    One question I suppose we must consider is this: Are business ethically obliged to offer us the lowest prices? Perhaps a company can exercise ethics while also offering products at a higher price. Perhaps a company charges a higher cost because they believe they also offer superior service. Perhaps a company could offer the product at a lower price, but it would begin to cut into profits. Where do we draw the line between customer-orientation and business-orientation?

    That being said.. It does seem unethical to purposely push pricier products.

    Like

    • I completely agree with you! I have been buying things from Amazon for years now and I have never thought that things that show up on my feed might be somehow manipulated to gain more profit. I guess from now I’ll think twice before I make my purchase and see if it’s actually a good quality product. I would hate to buy something for a higher price just so Amazon can make some extra money.
      And your question is very interesting… Are the businesses obligated to give us the lowest price? I don’t think so. But I the fact that Amazon gets some sorts of profit of off it and does not let the consumer know about it seems pretty unethical.

      Like

  2. Personally as an avid Amazon user, I have seen this where an item is supposed to be listed as the lowest price, yet through further searching I find lower prices. Granted, there also needs to be a level of trust with the seller and the price comparatively.

    Do you think Amazon does this purposefully to steer people towards more reliable companies, while also allowing them a larger profit margin? Or could this just be about Amazon making more money and scamming people or a cheaper priced product?

    Like

    • Interesting questions! It might be that in some cases Amazon steers people to buy from more reliable companies, but according to the authors of the article that have read, Amazon was charging people more for the same exact product (that you could have gotten at a cheaper price) just to get some profit off of it.
      In my further blog posts I will try to explore this issue more in-depth and hopefully I can make this issue more clear for you.
      Thanks!

      Like

  3. I am not a huge user of Amazon. I bet I use it maybe twice a year to get college textbooks. Since I dread having to get textbooks, I usually just click on the first listing that comes up. Usually it is the cheapest, but the price is still pretty comparable to the prices of the other listings that follow.

    After reading this post, I’m beginning to wonder if I really did get the lowest price available for my textbooks. I mean, I said above that the first listing is usually the cheapest but I don’t think I have ever looked at any listings beyond the first two or three. I think I’ve been making the assumption that the first one is the cheapest because of Amazon’s reputation.

    Is Amazon using their good reputation to take advantage of their customers? Maybe, or maybe they made changes within their business and failed to inform their customers. Maybe they didn’t think something like that was of great importance. Whatever the case may be, it is something I will be paying close attention to when purchasing from Amazon in the future.

    Like

    • Interesting point of view! I personally use Amazon pretty often, so after reading this article I really started to pay attention to what price I am paying for what kind of products. But you’re exactly right! Doesn’t it make you wonder if Amazon is taking advantage of their consumers- especially the ones that want just a convenient and quick purchase of something like a textbook? Of course there are people out there who actually do their “research” and make sure that they are getting the lowest price for their product, but people like you and I might not do that.

      Like

  4. I think what the pricing algorithm that amazon has could use improvements, but I understand why amazon’s more expensive product is displayed. Google, for example, doesn’t use the most accurate search when using their search engine, the top searches that come up are the companies that pay more and sites with more online traffic. Not to say that not listing shipping price is kind of wrong, I understand though why Amazon prioritizes the way they do.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s