Tim O'Reilly on Algorithmic Tuning for Exploitation
fliptop writes:
Tim O'Reilly, Mariana Mazzucato, and Ilan Strauss have three working papers focusing on Amazon's ability to extract unusual profits from its customers nowadays:
The papers are:
- Algorithmic Attention Rents: A theory of digital platform market power
- Amazon's Algorithmic Rents: The economics of information on Amazon
- Behind the Clicks: Can Amazon allocate user attention as it pleases?
The core idea in all three is that Amazon has become the default place to shop online for many. So, when Amazon changes their site in ways that make Amazon higher profits but hurt consumers, it takes work for people to figure that out and shop elsewhere.
The papers criticize the common assumption that people will quickly switch to shopping elsewhere if the Amazon customer experience deteriorates. Realistically, people are busy. People have imperfect information, limited time, and it is effortful to find another place to shop. At least up to some limit, people may tolerate a familiar but substantially deteroriated experience for some time.
[...] I think one model of customer attrition is that every time customers notice a bad experience, they have some probability of using Amazon less in the future. The more bad experiences they have, the faster the damage to long-term revenue. Under this model, even the level of ads Amazon has now is causing slow damage to Amazon. Amazon execs may not notice because the damage is over long periods of time and hard to attribute directly back to the poor quality search results, but the damage is there. This is the model I've seen used by some others, such as Google Research in their "Focus on the Long-term" paper.
Another model might be that consumers are captured by dominant companies such as Amazon and will not pay the costs to switch until they hit some threshold. That is, most customers will refuse to try alternatives until it is completely obvious that it is worth the effort. This assumes that Amazon can exploit customers for a very long time, and that customers will not stop using Amazon no matter what they do. There is some extreme where that breaks, but only at the threshold, not before.
The difference between these two models matters a lot. If Amazon is experiencing substantial but slow costs from what they are doing right now, there's much more hope for them changing their behavior on their own than if Amazon is experiencing no costs from their bad behavior unless regulators impose costs externally. The solutions you get in the two scenarios are likely to be different.
Related:
- Amazon And Meta To Stop Using Third-Party Data From Rivals
- Amazon's Smart Speakers Collecting Kids Data May Lead to Government Lawsuit
- Amazon Offering Customers $2 Per Month for Letting the Company Monitor the Traffic on Their Phone
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