What causes crazy-high prices on Wayfair and Amazon?
Cabinets priced as high as $14,500 through online furniture seller Wayfair recently set off the alarm bells for some shoppers. Were they really worth that much when other cabinets cost so much less?
The curious cabinets became the subject of a bizarre conspiracy theory started by an anonymous Reddit user. The poster baselessly speculated that the cabinets were evidence of child trafficking, in part because some of the cabinets shared names with missing children.
Wayfair denied the allegations, saying in a statement that “there is, of course, no truth to these claims.”
But this is not the first time a high-priced listing from an online retailer has made headlines and drawn suspicion. After all, Amazon really does offer a pillow that costs more than $10,000, and in the past had a textbook about flies listed for $24 million.
So what exactly is behind these strange prices? Here are four likely reasons, according to pricing experts.
Algorithms gone wild
One explanation for some of the crazy prices you’ll see online is that when computers are programmed to compete with each other, things can get strange.
That’s how Amazon wound up offering a $24 million textbook in 2011. Two third-party sellers, both apparently using automated pricing technology, were offering the book. The two programs responded to each other’s pricing changes, both steadily adjusting prices upwards. Someone eventually noticed, but if the person hadn’t, the algorithms could have kept at it until the book was priced in the billions of dollars.
Not all algorithms are simply competitive, though. Sometimes they’re influenced by other factors, including inventory levels. According to Patrick Campbell, cofounder of pricing consultancy ProfitWell, algorithmic prices for particular products can “go a little nutty” thanks to factors including low stock at a supplier.
All of which is a good reminder that, as fancy as they sound, a lot of algorithms just aren’t very smart. And they may be making humans a little bit dimmer too. “The push toward increased digitalization and algorithmic decision-making means that the spectrum of human decisions is shrinking,” researcher Dionysios Demetis of the Hull University Business School told Fortune.
The Internet has, broadly, two different types of online retailers. Some, like Wayfair, manage their own product offerings, listings, and pricing. But many, including Amazon and Walmart.com, allow third-party sellers to operate on the site.
On those open marketplaces, at least some strange prices have a very boring explanation: They’re an easy way for sellers to effectively “deactivate” a product when they’re out of stock. For small-scale sellers, changing an item’s price to something outrageous is faster and easier than taking it offline entirely. According to Campbell, even larger brands with particular items that aren’t “behaving properly” in an e-commerce system will sometimes deliberately hide items by giving them absurdly inflated prices.
“When there’s essentially a bug [with an item listing], it’s easier to make the item throw up a flag, but still remain listed,” Campbell says.
Some things are actually expensive
At least in the case of the cabinets flagged by our initial Reddit conspiracy theorist, the actual explanation turned out to be the most boring of all: They’re just really expensive cabinets.
Wayfair, in a statement to Newsweek about the recent unproven scandal, said that “the products in question are industrial-grade cabinets that are accurately priced. Recognizing that the photos and descriptions provided by the supplier did not adequately explain the high price point, we have temporarily removed the products from the site to rename them and to provide a more in-depth description and photos that accurately depict the product to clarify the price point.” Wayfair did not respond to a request for comment by Fortune.
It’s hard to know exactly what features, materials, or specifications may make any particular item seemingly hyper-expensive compared to superficially similar products. But the world is wide and full of wonders: After all, some people will pay $1,000 for an ice cream sundae.
The high-price halo effect
Sometimes absurdly high prices are real—but they’re mostly designed to shift your perception of other products.
“When you have a high anchor price, it can be used to make other prices look very reasonable,” says Rafi Mohammed, an economist and pricing consultant. Mohammed points to one well-known case in which Williams Sonoma introduced a bread machine priced at $429. That model flopped, but sales of a cheaper $279 model boomed. Shoppers, surveys later found, thought the $279 model was a better deal when it was sitting next to an even more expensive machine.
Some retailers may be doing the same thing online, inflating the price of one item to make others more appealing by comparison. If conspiracy theorists are looking for questionable retailer behavior, they might consider redirecting their energies to this real-world Jedi mind trick.