Shopping is part of basic human nature, and I will briefly describe how it evolved in the recent past.

Imagine back in the day before ecommerce. People shopped around, but they only went to stores within their own mall, or within a reasonable driving distance. If a company had a unique product that they knew that on one else had, then they would be able to charge this premium.

Then eCommerce emerged, and started to grow. Abandoning the traditional brick and mortar stores, consumers were now able to shop whenever, and essentially where ever. If a product was cheaper in California then it was in NYC, then people have no problem ordering the product from across the country. People searched for products by google, or using website that they were familiar with (I,e bestbuy vs. circuit city).

Now, the next generation of shopping has evolved, where a consumer could go to a third party company, and this company will do the searching for them - no need to search many different webpages, since the pricing bot will do all the work for you. The products apply mathematical algorithms to sales and inventory data to suggest price changes to meet specific goals such as maximizing profit or minimizing markdowns.

Some people like it, but others feel skeptical, that these price bots might not always give you the cheapest price. For example, I have been on a pricing bot for flights, and discovered that when I went to the website directly, the prices were cheaper. This makes intuitive sense, because for each person that buys a product through the bot, the company will have to pay a commission which drives up the price. Another concern is the integrity of the websites that the bot brings you to. Most people would rather shop on national, well know websites rather then "stan's electronics".

Now on to pricing. Companies have the right to set what every price they want, and if they want to undercut the competition that is there prerogative. It creates a wonderful situation for the customer, since they can get a very cheap price, and it becomes a buyers market. However, it might frustrate some customers to know that after the fact, they could have gotten a cheap price on bn.com rather then on amazon.com. As well for a customer's point of view, it only works well for a reputable and well established company like bm. If stan's electronics would be 10% cheaper then bestbuy.com, then customers would get suspicious. In other words, the brand reputation also plays a role in the consumer's acceptance of pricing.

For the sellers on the other hand, it is a disastrous situation. If bn continues to undercut amazon, then amazon will also have to lower their pricing to compete. This means that many products might end up being priced below retail, and will become lost leader for the companies. Company's can't continue to undercut themselves and in the long run, this will bring on financial problems.

2) the pricing strategy is called: dynamic pricing model. This is where company's deliberately price their product below the competition, using a mathematical formula which searches other websites, and then adjusts (the dynamic term) the company's prices. This could traditionally be compared to a more traditional pricing strategy called penetrations pricing. This was done to entice the customer to come shop there, and make them loyal to that brand or store. Traditionally, this pricing strategy is not supposed to continue into the long run, its goal is to wipe out competitors, and then to increase their prices one they are a monopoly.

In the world of e-commerce, it is unlikely that bm.com will put amazon.com out of business, but this strategy will attract people to the bm.com website. There are however some other factors to consider - selection of books, selection of other products, delivery prices, delivery options... so this pricing strategy alone wont cause an e-business to fold.

Interestingly, this dynamic pricing model is being used within websites as well. Amazon was accused of using this model for its own customers. Depending on a customer's purchase history, their geographical region and other criteria, the price for DVDs differed. So someone in NYC who buys a lot of high end products might end up seeing the price of the DVD for 15$ while someone in the Midwest who shops for low end products might see the price at $10. Some coca-cola vending machines are using this model as well - as temperatures increase, so do the price of the drinks. So this model which is still in its infancy may have many applications as it grows.