Wednesday, November 28, 2012
This guy, on an NYT comments thread, speaks my language:

"Amazon pricing is based on analytics and not set individually. The base is a percentage of retail with additional math based on margin from individual publishers. Pricing is also dependent on metadata and has been subject to major errors such as 2010's comic fiasco ( On top of that you have publisher initiated price promotions funded by coop. Lastly and the Octavio Paz example may also have been impacted by some stock balancing by in place markdown.

Amazon is pricing to manage the cash flow of its book sales as a total aggregate rather than individual sales. On average Amazon purchases are more than one book. If they sell an Octavio Paz book for less than cost the likelihood that that same reader will add a second title and a better higher retail and better margin that they wouldn't have bought otherwise. Looking at individual titles cost or discount means little here. Amazon is looking at the total volume of transactions and constantly tweaking the formula to manipulate transaction completion rates and average skus per order. Individual book margin is a print publishing metric and not really pertinent to high volume online retailing.

Pricing to Amazon is like mortgage derivatives to a Hedge Fund manager."

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