The Impact of Amazon's Dynamic Pricing on School Costs

The ease of shopping on Amazon has set a new standard for convenience. This isn't just true for personal shopping but also for many school districts using public funds to procure supplies. Recently, the Institute for Local Self-Reliance (ILSR) released a study highlighting the unforeseen expenses of these purchases, indicating that Amazon’s variable pricing system is leading to significant overpayments by schools and other local bodies.

Traditional vs. Amazon Procurement Methods

Historically, schools and local governments have acquired supplies through competitive bidding processes, where suppliers submit fixed price proposals. This transparency fosters fair pricing and accountability. Amazon, on the other hand, while seemingly offering competitive rates due to the presence of numerous third-party sellers, complicates the matter with its dynamic pricing model, which reacts to market conditions and remains opaque.

Opaque Pricing Structures

According to the ILSR report, Amazon's contracts with public entities contain no fixed prices, relying instead on fluctuating market-driven rates. For example, Amazon's contract with Utah specifies this inconsistency by noting that their pricing requires no amendment for price changes. Below are some striking examples of price differences experienced by districts purchasing from Amazon Business in 2023.

Disparities in Costs

In Boulder, CO, an employee bought a 12-pack of Sharpie markers for $8.99 via Amazon Business, whereas on the same day, a Denver Public Schools staff member paid $28.63 for identical markers.

Clark County, WA, faced a charge of $146,000 for 610 monitors, with potential savings of $24,000 on a different day for the same order.

Pittsburgh Schools acquired two Kleenex cases at $57.99 each, while Denver Schools managed a purchase of a single case for $36.91 on the same day.

Similarly, a single day's procurement by Denver Schools for bulk dry-erase markers saw one batch costing $114.52 and another $149.07.

In March 2023, a Swingline stapler fetched $15.39 for Denver Schools, yet later, they paid $61.87 for the same item from a third-party seller.

Algorithmic Influence and Implications

The study points out that while sellers may be blamed for inflated prices or employees for overlooking them, it's Amazon’s algorithms that manipulate user experience. These algorithms prioritize certain products and suggest repeat purchases, often disassociating users from price changes, which can harm budget-conscious institutions like schools.

Potential Cost Savings

Examining recurring orders of 2,500 commonly purchased items such as Amazon’s own copy paper, BIC pens, and other staples revealed that a total of $3 million was spent. If districts had consistently been offered the lowest available Amazon prices, they would have spent $2.5 million. One district alone could have saved around $1 million, equivalent to 17%, if these lower prices were accessed repeatedly.

Determining fair market value is challenging because of the covert influence of algorithms, and a deeper investigation into traditional procurement's cost-effectiveness versus Amazon's system is necessary.

Economic Consequences on Local Markets

Shifting procurement to Amazon inadvertently channels public funds away from local vendors, sometimes directly to overseas sellers, including Amazon. For example, Berkeley County, WV, spent $1.3 million on Amazon purchases in 2023, yet only $142 of that benefited in-state sellers.

This shift undermines local economies, as the diminishing presence of small and medium-sized suppliers weakens economic vitality and tax revenue bases, creating a dependency on Amazon.

Amazon's Response and the Wider Study

In rebuttal, Amazon criticized the study's findings, arguing that price research is inherently complex and often flawed by inaccuracies such as selective sampling and incorrect product comparisons.

The ILSR collected data from 128 local governments and 122 state entities, combining it with interviews and contractual document reviews, presenting a comprehensive view of procurement trends and Amazon's influence on them.