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Comment by siegler | Hacker News Reader

A similar thing happened to me as a seller. I saw that one of my old textbooks was selling for a nice price, so I listed it along with two other used copies. I priced it $1 cheaper than the lowest price offered, but within an hour both sellers had changed their prices to $.01 and $.02 cheaper than mine. I reduced it two times more by $1, and each time they beat my price by a cent or two. So what I did was reduce my price by a few dollars every hour for one day until everybody was priced under $5. Then I bought their books and changed my price back.

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The opposite scenario (sort of), from Michael Lewis' Liar's Poker:

One day earlier in his career Dall was in the market to buy (borrow) 50 million dollars. He checked around and found the money market was 4 per cent-4.25 per cent, which meant he could buy (borrow) at 4.25 per cent or sell (lend) at 4 per cent. When he actually tried to buy 50 million dollars at 4.25 per cent, however, the market moved to 4.25 per cent-4.5 per cent. The sellers were scared off by a large buyer. Dall bid 4.5. The market moved again, to 4.5p per cent-4.75 per cent. He raised his bid several more times with the same result, then went to Bill Simon’s ofﬁce to tell him he couldn’t buy money. All the sellers were running like chickens.

“Then you be the seller,” said Simon.

So Dall became the seller, although he actually needed to buy. He sold 50 million dollars at 5.5 per cent. He sold another 50 million dollars at 5.5 per cent. Then, as Simon had guessed, the market collapsed. Everyone wanted to sell. There were no buyers. “Buy them back now,” said Simon when the market reached 4 per cent. So Dall not only got his 50 million dollars at 4 per cent but took a proﬁt on the money he had sold at higher rates. That was how a Salomon bond trader thought: He forgot whatever it was that he wanted to do for a minute and put his ﬁnger on the pulse of the market. If the market felt ﬁdgety, if people were scared or desperate, he herded them like sheep into a corner, then made them pay for their uncertainty. He sat on the market until it puked gold coins. Then he worried about what he wanted to do.

I imagine there is a lot of money to be made on Amazon using this Salomon bond trader technique of simply putting a finger on the pulse of the market.

In calculus terms, it would be like taking a derivative of the Amazon marketplace and operating on different rules than most or all buyers and sellers on the marketplace.

The trick is minimizing your risk and making sure to adhere to Amazon's terms. [Does the scenario in the grandparent comment go against Amazon's terms I wonder?]

If you play World of Warcraft this is a solid Auction House technique. I find it humorous to see it applied to the 'real' world (not that WoW economics aren't just as 'real').

The ability to push the price down gives informed actors some pricing control on the market, and the subtext is that it allows for folks to push around pricing to understand the elasticity for any product. Now if you can get them to buy a 'put' of your product :-)

And (from what I understand) this is just the kind of thing that High Frequency Trading algorithms are doing.

Some but it's a pretty small minority if HFT algos.

Sources? Examples? Grammar?

> And (from what I understand) this is just the kind of thing that High Frequency Trading algorithms are doing.

In stocks, there's almost always someone willing to buy and someone else willing to sell at any given price, so how are you going to drive the price down without selling stock?

How is that so?

...always like there's always people willing to buy books at amazon?

not quite. What OP described would not work in automated finance, where once the book approaches $5 an army of computers would try to buy it before him.

I'd imagine that's only so if some human has intervened and told the "actual value" of something.

However, I'd imagine that in just as many cases, if not more, there is no real "actual value" -- only computers playing with each other.

That is the most fascinating myth I continue to hear about the market. As a non-seat owner, you see three prices: The price of the last trade OVER 15 minutes ago, where a buyer and a seller agreed to buy. The highest price someone offered to buy the stock 15 minutes ago, and the lowest price someone offered to sell the stock 15 minutes ago. When you actually buy or sell a stock, you often do not buy from or sell to a long term owner. Instead, the transaction happens with a "market maker" an entity that is a seat owner, knows the current offers right now as opposed to 15 minutes ago, and trades with you. There is almost NEVER a "meeting of the minds" on price between a buyer and a seller. In fact, there does not have to BE a buyer if a market maker decides the value of the stock makes it worth acquiring or selling at your offer price. (If you check "Market" for your offer price, I suggest you read almost anyone who writes about trading, but plug your ears because they start shouting "no" really loudly). So, to finish (sorry about the length of this), a huge or in some cases a simply mis-priced offer to buy or sell may unnerve the market makers. They may hesitate. The lack of quick sales at a given price to the market makers causes repricing by the sellers, which causes the price of the stock to fall. Try pricing a limit bid between the buy and sell price on your electronic brokerage. You'll see. Sometime it will sell right away, and sometimes it won't. If you want to sell right away, you'll drop the price. And, if you happen to find a stock in "free fall", you'll never sell, because the price you see is 15 minutes old.

Please update your facts. Almost every online broker offers real time pricing for US equities and some even provide the depth of book. What you say above (15minute delayed quotes) was true several years ago but things have changed.

Offering to sell stocks at a below-market price without an intention to complete the deal is market manipulation and illegal in most countries.

Er...why was this downvoted ?

I'm not a lawyer, but I've worked in the financial sector and undergone FSA mandated training courses on what you can and can't legally do with equity pricing. What the OP was suggesting is an illegal practice in most equity markets.

The reason it's "liar's poker," not "outright fraud," is that if someone calls your bluff, you lose that hand. The successful traders were just good or lucky enough to be able to bluff the entire market.

How do you know it's downvoted? I sort of miss the karma number next to each post :(

You can see your own Karma

Oh... That was really stupid of me! I didn't notice the responder (you) was the same person!

Thanks.

This is possible because the algorithms running are still immature and the creators either didn't setup any sanity limits because they are inexperienced or maybe lazy.

I wouldn't expect this to last very long, but you could potentially take advantage of it while it does by simply identifying seller's who lack limits and posting products within their categories at super low prices then buying them out and re-listing.

Eventually all of these scripts will have guards in them for upper and lower and probably limits on the percentage change over time.

I love that. It's a great lesson to programmers that we should think about the extreme cases and have set lower and upper bounds on our algorithms. Sanity checks should be in your code for most applications and inputs.

Amazon should put an upper bound on the maximum price a product can be. Can credit card companies even process a transaction in the tens of millions of dollars?

I remember hearing about someone buying a multi-million dollar artwork with their platinum amex once, so it would seem so.

Platinum Amex I doubt. Maybe with a Centurion card.

The so-called "Black Amex" card has been used to purchase a ~$30 million aircraft, according to American Express.

Mark Cuban bought a Gulfstream V over the internet with his American Express card.

Only yahoo to create basement dweller millionaires

So they make it $10k, and the post is about the $10k book instead.

You could turn this into a book business. List books for sale that you don't own and this other publisher does own. Reduce the price over time until it is super cheap. Buy while it is low and resell it without the competition.

Risky. What if someone buys it? I mean, you could at least have a few books ready to ship out just in case.

I was mostly joking but if you were really going to do this you'd have to develop strategies to reduce the chances of this happening and mitigate it when it does.

Maybe if you have a slightly bad reputation on Amazon that will keep people from buying your book. Maybe you can purchase the book locally and send it to the buyer in a pinch. Maybe you can purchase the book from the actual seller and just use the buyer's shipping address. Etc.

Not really that risky. If it was a naked call like in markets, then it would be really risky, but in this case you risk very little since there is no contractual obligation to send the actual book if you can't get it. You can reimburse and call it a day.

The calculations would have to consider the probability of not getting the book under the price of sale, the probability of not getting it over price of sale (investing the difference in avoiding a bad rating), and the chance that you won't receive a bad rating just for reimbursing it under whatever excuse. You can also ponder taking a bad rate eventually.

In other markets you'd have to basically get the book at any cost, which would make it really risky.

And in fact, in used book "arbitrage", the seller always has a very, very good excuse, which is that s/he "sold the book already" to someone in s/her imaginary brick-and-mortar store.

My wife has experimented with that, sort of. She wouldn't not try to force the market down, but she'd occasionally find arbitrage situations on Amazon and exploit them. Buy a book placed at far too low of a price and then simply re-list it at a correct price.

The thing is that while these automatic pricing scripts exist, they aren't in enough widespread use to do what you're suggesting.

That's unethical business behaviour - it a microcosm of monopolies: buy up all the supply, then sell at a higher price than the previously going rate. It's common in business, obviously, but it's still unethical.

Not to mention that in order to make money over normal practices, you have to a) find books that are being sold at less than wholesale price (~60%ish RRP), and b) find a book that no-one wants to buy at your competitor's super-cheap rate that they will buy at your more expensive one - you're going to have to be in for the long haul to do this.

I don't think this strategy is unethical; it is really risky... probably so risky that it's naive for the long term.

It's not unethical because the buyer in this case can't really buy up all of the supply and therefore is just looking for arbitrage opportunities or opportunities to exploit weaknesses in a competitors business model.

The opportunities, over time, are very limited though:

1) You can't actually buy up all of the supply. If you were able to buy all of the listed supply and then reset the price you'd soon attract other sellers who had previously unlisted supply.

2) If there was real demand for an extremely high priced book I'd guess the author or publisher would be releasing a new version to meet the demand.

3) Although some printing of books are considered to be collectible, that market is limited. Generally the value of the book is the information it provides, which means that as the price rises the (perhaps less informative) substitutes become more appealing to buyers.

4) If you exploit a competitor's pricing algorithm enough to make them notice, they'll just change their algorithm. In this case, perhaps they don't sell you the books or they don't respond to your prices.

You might be able to make a few bucks on this strategy, maybe a few people could even eke out a living, but it would be risky... they'd earn it.

isn't that how options work? selling something you don't own..

Not really. But it can be how futures work.

It is in fact how naked puts work

http://en.wikipedia.org/wiki/Naked_put

Aren't you talking about naked calls (http://en.wikipedia.org/wiki/Naked_call)?

Them too. Both involve "selling something you don't own" (the underlying security), a point disputed in the post I was replying to.

I don't see how writing naked puts involves selling. They involve buying, only.

All buying involve the counterpart selling. How can you buy something that isn't sold?

Oh, but in naked puts the seller of the underlying assets (i.e. the buyer of the put) calls the shots. If they don't want to sell, they don't have to sell. And the writer of the put only ever has to put up at most the strike price of the put.

So no unlimited risks there.

It is left as an exercise for the reader to show how to determine whether the other publisher actually does have a copy, or is indulging in similar behaviour.

This reminds me of a similarly unethical behaviour I've encountered recently: I tried to buy a certain rare electronics component, and found it listed by a bunch of people. There were lots of bait-and-switchers in the Google results, who only had the part listed for the googlebot to pick up, but as soon as I actually tried to order the part, their site told me they didn't actually have it and suggested I buy something else from them.

It gets worse: When I finally did find a seller who allowed me to order the part, they accepted my order -- and then came back later saying that, oh no, actually they didn't have it either, but would I like to convert my order into an order for something else? (Fuck off.)

I still don't have the part.

And that's how the American economy "works".

Genius :)

Why go to that effort? Did you really save any money, or more importantly time/effort? Paying for the shipping on the other books alone would seem to negate any higher profit margin that resulted in not having to compete with their prices.

Probably because hacking systems like this just to see how they work is inherently fascinating.

Except now he has five copies to sell instead of three, and he can sell them for much more than he paid for the two from the automated sellers.

He's cornered the [Amazon] market in old textbooks :-)

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