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Bubble economy gurus rate Amazon's pricing wheeze

Shapiro and Varian talk dirty.

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Since Amazon.com hasn't been returning calls to The Register this week - maybe it was peeved about our Tom's earlier skittling of its Privacy Policy - we instead turned to the most influential economists of the new economy, Hal Varian and Carl Shapiro of the University of California Berkeley's Haas Business School and authors of the bubble economy marketing bible, Information Rules.

Earlier in the week Amazon angered both long-standing customers and its own business partners by playing games with its prices. The result, whether intended or not, discriminated against loyal customers as shoppers discovered they could gain bargains by deleting their cookies or switching to another browser. Amazon claimed it was a temporary experiment.

Describedby the San Francisco Chronicle as "a series of prescriptions for how to wage a standards war with competitors and how to lock in customers with technical tricks so they stick with you instead of flirting with Brand X" Information Rules is highly commended. Amazon's CEO himself Jeff Bezos says "Anyone interested in participating in this new economy will stand a far greater chance of success if they follow the rules put forth in this book" and Andy Grove (who he?-Ed.) also commends it as "an excellent book!"

But before you make moral judgements about economists (Galbraith excluded, who tended to get in there first with his) you should note that both have given their time equally to both sides of the Chip/Chimp divide.

Shapiro is a former Department of Justice anti-trust attorney who lent his weight to Judge Jackson's two-way split of Microsoft earlier this year. He's advised Sega, Borland and others on dealing with monopolists when each was the underdog. So put that loose masonry away for just a second.

Regrettably we caught him only fleetingly on Friday: "I'm late for meeting and then I'm going home," he said, but he expressed delight that Amazon was being adventurous with its pricing:-

"It's good that they're experimenting. Now they can see their demand curve!"

"If it's deceptive or illegal, then naughty naughty," he continued, "but you're not going to have me up in arms about it." And no, he said, he didn't characterise it as a Stupidity Tax.

But we found Hal Varian, the Dean of the Haas School, much more generous with his time and it turned out, as intrigued as we were by the fun and games over at Amazon.

Varian doesn't think it varies from the catalog shopping marketing practices, and similar trial
marketing schemes.

For example, he relates an anecdote where several years ago on a flight from Detroit to Japan, airline staff were offering movie headsets to passengers for $6. On the return leg, they were $4, and after he enquired about the discrepency, he discovered the staff had a spinner which produced a random price each time. The marketing department could then plot the optimum return accordingly.

Catalogs do this all the time he says, by slipping in special offers based on demographics or hunches in some editions. Only the difference is that off-line, pricing differences are far harder for the punter to discern than on the Internet: "I don't go looking into my neighbor's catalogs to check their prices, so I don't know they're there." But in essence says Varian, it's no different to standard penetration pricing tactics.

Or is it? That seems to be the point - is there one price on offer, or is that price one of several?

What DVD buyers seem to have objected in the past few days is the random, and therefore apparently discriminatory nature of Amazon's DVD prices. But if an offer, or rebate is clearly labelled as such - and you know exactly what your eligiblity is - than there's little to argue about. That's what UK consumer law demands, and it'll be intriguing to see if Internet law follows suit.

Admittedly, says Varian, "if customers don't like this policy and some other seller guarantees it then Amzon would change their behaviour."

What prospective Amazon DVD shoppers have noticed this week is that they have a little too much knowledge for the marketeers liking. Or just enough, at any rate, to realise that they're being monkeyed around with.

So it will be intriguing to see how this plays out. If consumers are sufficiently apathetic, or driven by considerations other than price, then they'll ignore the price-comparison tools the Internet can theoretically provide. In which case such random pricing tactics could well become the norm. On the other hand, if there are enough consumers who resent being guinea pigs in this way, they'll soon enough tell the marketeers to stick their Demand Curves where the sun don't shine. We shall see. &reg.

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