Amazon’s algorithm has allegedly been raising the price of fire safety equipment in response to increased demand during the California wildfires. The practice, known as surge pricing, has caused products including fire extinguishers and escape ladders to fluctuate significantly on Amazon, seemingly as a result of the retailer’s pricing system responding to increased demand.
An industry source with knowledge of the firm’s operations claims a similar price surge was triggered by the Grenfell Tower fire. A number of recent price rises coincide directly with the outbreak of the Camp Fire, which has been the deadliest in California’s history and resulted in at least 83 deaths.
At the time of the Grenfell tragedy, the source claims an Amazon manager noticed the algorithm attempting to change prices of fire safety equipment and prevented a price surge from happening. The same source described how Amazon has tasked managers to guard against such algorithmic missteps.
Despite these apparent safeguards, the prices of a number of fire safety devices have surged in the wake of the Camp Fire. The price of a First Alert fire extinguisher, which was being sold directly by Amazon.com, changed at least five times on November 8, the day Camp Fire broke out. Its price peaked the following day at $25.32, up 18.3 per cent on the price it was retailing for at the beginning of the month, according to data from price tracker Keepa. Fellow price tracking app CamelCamelCamel reveals a third party seller has kept its price for the same extinguisher consistent at $19.92 throughout November.
A 12-foot long ResQLadder fire escape ladder sold by Amazon jumped in price 22 per cent from $96.49 to $118.06 on November 8. Price rises have varied significantly in size with some only relatively modest.
A fire extinguishing aerosol spray made by First Alert and sold by Amazon increased in price from $12.77 to $13.79, an increase of $1.02 (7.98 per cent) on the day Camp Fire began. The prices of some fire safety equipment being sold directly by Amazon have remained unchanged.
A retail industry source has claimed the erratic price fluctuations are a result of surge pricing, with Amazon’s pricing algorithm automatically responding to increased demand and interest in certain products. The price hikes happened on Amazon.com, with similar products listed on Amazon.co.uk not experiencing the same fluctuations. A spokesperson for Amazon said the firm “does not engage in surge pricing”.
So-called surge pricing – which is not illegal – is known within the retail industry as “dynamic pricing”. Amazon has historically had a pricing model that varied depending on how the product is categorised, according to the industry source. Some non-perishable products have been priced continuously through an A/B testing model, which pushes the cost of a product up and down until the algorithm finds the most profitable point based on price and conversion rates. Under this model a sudden surge in demand could cause the algorithm to suggest an increase in prices in order to maximise profit, the source explains.
Those fluctuations in price – and an apparent surge at the time of the Camp Fire – are noticeable across a range of products available on Amazon. A Kidde-branded fire extinguisher was being incrementally dropped in price in the lead up to November 8, but jumped back up in price from $34.67 to $39.97 (a 15.3 per cent increase) shortly after midnight on November 9.
Meanwhile, a Kidde brand fire escape ladder has recorded multiple surges in price in November. Prices have been oscillating between $32.49 and $34.97 since November 17. A fire and rescue axe is another product that has recorded numerous spikes in value in November before reducing back down.
The Keepa price trackers shows prices for the axe rising roughly $4 at a time on four occasions across the same number of days, each time gradually reducing in price to the base level before the next surge.
Oli Freestone, principal at consultancy Elixirr, says clothing retailer Asos and DIY retailer B&Q are also experimenting with dynamic pricing mechanisms. “Dynamic pricing is the ultimate capitalist market play,” says Freestone. “It is the economics of supply and demand in action.”
Freestone believes dynamic pricing makes sense for more discretionary purchases, but is troubling when the practice creeps into commodity items such as fire extinguishers. “You have unleashed the beast of the algorithm and it is very effectively doing what it does in setting a price according to supply and demand,” says Freestone. “But at some point you are going to need to muzzle these algorithms.”
Nicos Savva, associate professor at London Business School, has written on the subject of ethics in algorithms, and believes the Amazon’s alleged dynamic pricing is most likely an attempt to maximise profits for its sellers.
“If you think a firm’s responsibility is larger than just the shareholders then you can make the argument that surge pricing is exploitative and not the best practice,” says Savva. “If anything, one might argue that a company like Amazon should have the responsibility to help people at their time of need and reduce the price rather than trying to profit from it.”
One option to prevent any unintended malign consequences of an algorithm pricing products is to ensure a layer of human oversight, but it is a substantial undertaking. “A company as big as Amazon could support a model where they have people intervening,” says Freestone. “If you have hundreds of millions of products that are changing prices dynamically every five or ten minutes that is a lot to monitor.”
Freestone suggests a technical solution would also help, including writing additional elements into an algorithm such as overriding prices hikes in the event of a wildfire or other disaster.
Raj Balasundaram, vice president of solutions and strategic services at marketing software firm Emarsys, agrees that fail-safes can be built into algorithms. He suggests a dual system whereby dynamic pricing is allowed on “luxury” items, whereas restrictions are placed on other products that protect their margin and prevent their prices surging in the event of high demand.
He adds that companies should also be able to switch off surge pricing in the event of civil emergencies or risk algorithms lacking enough information to make sensitive pricing decisions.
“Dynamic pricing sometimes has a negative impact where the machine does not have a context about what is actually happening out there,” says Balasundaram. “The system will not be able to differentiate if it is a luxury or a fire extinguisher.”
This article was originally published by WIRED UK
