21st Century

Catching the 21st Century Bus

By Andrej Mrevlje |

In the 19th century, the French sociologist Gabriel Tarde defined the marketplace as a war between buyers and sellers. He called price “a truce” obtained by haggling. In his Selected Papers, Tarde also explained that in the mid-19th century, Europe fixed the prices of goods and services to enable the end of continued hostility between the buyers and sellers.

If Tarde is right, I spent most of my life like a 19th-century man. Until a few years ago, when I walked into Sephora, a drugstore on Broadway in Manhattan, I evidently experienced a truce that was established in 19th century Europe. Armed with a two-hundred-year-old mindset, I noticed that the product I was using for many years and was now purchasing had no price tag on it. When the cashier scanned my cream, I had to bargain, fighting to reduce the extremely high and exaggerated price I was asked to pay. I won the battle, without understanding the reasoning behind this arbitrary pricing because, as I said, I came from a time when even an artichoke on a street market in Rome has to have a price tag. Ascribing the whole event to the ignorance and menefreghismo of the personnel in the shop, I did not know that in fact, I was the ignorant party, using a dusty, 19th-century logic, and the shopkeepers were following a modern textbook.

To this day, though, I do not know how I managed to win that little dispute. Persuasion? Was it the old habits of a man who remembers the general strike in Italy, organized by national unions, when the government decided to increase the price of milk to 10 liras ($ 0.0005529) per liter? It was the late 80’s, and within walking distance from my apartment in Rome I counted nine butcher shops, I forget how many delis, bars, a greenmarket, two wine shops, three barbers, and no supermarkets or shopping malls. We were buying papers at newsstands (no home delivery) and watched the TV news once a day. I remember I had a passion for going to Via Veneto at one o’clock in the morning to buy the first edition of La Repubblica and Corriere della Sera. Looking back, it does feel like the 19th century. It was just 30 years ago.

Then, only a few years later, The Atlantic recalled: “But in the 1990s, the internet began to erode the terms of the long peace. Savvy consumers could visit a Best Buy to eyeball merchandise they intended to buy elsewhere for a cheaper price, an exercise that became known as “showrooming.” In 1999, a Seattle-based digital bookseller called Amazon.com started expanding into a Grand Depot of its own. The era of internet retailing had arrived, and with it, the resumption of hostilities.”

This at least is what was happening in America. While my Rome neighborhood started to cut down the number of butcher shops and some supermarkets finally appeared, the new generation of sellers began to acquire original new data on customers with checkout scanners. By the early 2000s, the amount of data collected on retailers’ internet servers had become so massive that it started exerting a gravitational pull. That’s what triggered the second development: “the arrival, en masse, of the practitioners of the dismal science,” The Atlantic reports. Then, according to the magazine, something decisive happened. “In 2001 the Berkeley economist Hal Varian—highly regarded for the 1999 book Information Rules—ran into Eric Schmidt. Varian agreed to spend a sabbatical year at Google, figuring he’d write a book about the start-up experience.

Varian, however, was immediately invited to look at a Google project that (he recalls Schmidt telling him) “might make us a little money”: the auction system that became Google AdWords. Varian never left.”

Other similar companies joined Google in mining data. EBay Inc., for instance, used a log of buyer clicks to estimate how much money one hour of bargain-hunting saved shoppers.(Roughly $15 was the answer.) Economists soon realized that they could go a step further and design experiments that produced data, determining whether Big Data could discern every individual’s demand curve and calibrate the price precisely to the maximum that one would pay for a product. This created some skepticism about online shopping in particular after some cases created suspicion; customers feared rip off. “In 2007, a California man named Marc Ecenbarger thought he had scored when he found a patio set—list price $999—selling on Overstock.com for $449.99. He bought two, unpacked them, then discovered—courtesy of a price tag left on the packaging—that Walmart’s standard price for the set was $247. His fury was profound. He complained to Overstock, which offered to refund him the cost of the furniture,” reports The Atlantic, marking the end of the golden era of online shopping:

This could be seen as the final stage of decay of the old one-price system. What’s replacing it is something that most closely resembles high-frequency trading on Wall Street. Prices are never “set” to begin with in this new world. They can fluctuate hour to hour and even minute to minute—a phenomenon familiar to anyone who has put something in his Amazon cart and been alerted to price changes while it sat there. A website called camelcamelcamel.com even tracks Amazon prices for specific products and alerts consumers when a price drops below a preset threshold. The price history for any given item—Classic Twister, for example—looks almost exactly like a stock chart. And as with financial markets, flash glitches happen. In 2011, Peter A. Lawrence’s The Making of a Fly (paperback edition) was briefly available on Amazon for $23,698,655.93, thanks to an algorithmic price war between two third-party sellers that had run amok. To understand what happened, it seemed sensible to talk to the man who helped develop the software they were using.

Guru Hariharan uncapped a dry-erase marker in a conference room at Boomerang’s headquarters in Mountain View, California. He was talking about what had led retailers to this desperate place where it’s necessary to change prices multiple times a day. On a whiteboard, he drew a series of lines representing the rising share of online sales for various kinds of products (books, DVDs, electronics) over time, then marked the years that major brick-and-mortar players (Borders, Blockbuster, Circuit City and RadioShack) went bankrupt. At first, the years looked random. But the bankruptcies all clustered within a band where online sales hit between 20 and 25 percent. “In this range, there’s a crushing point,” Hariharan said, clapping his hands together for emphasis. “There’s a bloodbath happening.”

The rest is present day history. Shopping malls are closing; bookshops are disappearing, we are spending hours online in search of the best price or the most convenient delivery. We are regularly targeted by micro advertising. And since many jobs are lost every day, humanity is transforming into jobless consumers.  

In retrospect, when this new consumer world was coming into play, the retailers were slow to mobilize. “It didn’t have to be that way,” Hariharan said. Now he’s helping retailers fight back.

We can’t process every piece of price information thrown our way. So we judge a store’s prices based on a handful of products we know well. Or we stop shopping like Bonnie Patten of TruthinAdvertising.org did in The Atlantic article:

It’s already “so complicated,” she told [reporter Jerry Useem]. “Everything is 50 percent off, but they have all these exclusions where it doesn’t count, and then everyone is trying to calculate 20 percent of 50 percent in their heads.” She already has a full-time job, was her point. And three kids.

“As a general matter,” she went on, “I find it so difficult to determine the actual price of the product that when I’m shopping for my kids, my new technique is to make all my decisions at the cashier. I pick up lots of clothes. I completely ignore all pricing until I get to the register. And then if something is too much, I say, ‘I don’t want it.’

You can opt for Patten’s choice if you have shops available in the area you live or work. My argument is different. I am focused on the social impact in the time of predominant online shopping. To me, it matters less how long one spends researching the best price before she clicks to purchase. I am convinced that shopping, or bettering the act of consuming, should help to build a community in the area that you live. In every place I have lived  I was able to create a minimum of community that allowed me to feel the pulse of the place. But, as I said, I am a man of the 19th century, and just beginning to contemplate how this madness may end. Some people have already started to resist.   

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