Amazon – A Big Field Of Competition
This past May I interned for a company called Graywall Marketing which is an Amazon company, not a company owned by Amazon but one that sells products through this online market place. Throughout my month with Graywall I got to see a whole different side of Amazon that most shoppers don’t normally get to see. Daily, I would have to analyze statistics of products to see if that they were making any profit for the company or if the company was losing money. Along with this I was also tasked with marketing a few products for the company on the Amazon website and I didn’t know it at the time, but I was dealing with a lot of game theory.
The way Amazon works is that if you want your product to show up in a search you have to assign certain key words to the product that are similar to the product name. For example, if I was trying to market a No Drip Honey Dispenser I would add words such as honey and container – its relatively straight forward. But for each word there was a price you would attach to it. This price, known as a pay per click, would be charged to the company every time someone searched for the product using the keyword and then clicked on the product. One’s immediate reaction to this would probably be to just put a cheap price tag on the product, however, the bigger the price tag you put on the pay per click the higher up in the search results your product would show up.
The game theory behind all of this is very straight forward – by having a large pay per click the business is susceptible to losing money but also has a better chance of selling more product whereas by having a small pay per click the business won’t lose as much money but might miss out on opportunities to sell the products. In the case where you are competing with another company to sell the same product, the Nash Equilibrium would entail both companies having a larger pay per click thus bringing about more opportunity to sell the products with minimal loss in losing in sales. Pay per click is just a taste of the game theory behind trying to sell multiple products on Amazon, there are much more variables that go into a products success whether it’s the price that the business places the product at, the product description or even whether the product is on Amazon Prime or not.
In my search to find more about all of the game theory within Amazon, I struggled to find any online source, however, I did find a very interesting interview from the India Times about the game theory that the Amazon company uses as a whole. Similar to selling products on the Amazon website, Amazon has competition with other companies that are selling similar business services. Amazon, like many big companies, has invested and bought other companies and businesses. Sometimes, however, when investing in these companies there are other investors that hold shares in the companies. Amazon in these situations are posed with many different options to assume dominance ownership over the company but seems to consistently use the strategy of starving the competition out with a steady flow of wealth and then in the end buying out the business in its entirety. Amazon along with this is expanding there company into every field possible, as seen in the purchases of Whole Foods and Audible, to boost the company as whole and drive away competition.