What we're seeing is a widespread use of "fractional fraud".
Transactions and business lines that are 1%-5% fraudulent are unlikely to be challenged, but have a huge effect on profitability.
The best example I've seen is Bunnie Huang's deep dive on counterfeit SD cards [1]. Margins on SD cards are like 1%, so blending in defective cards at a 1% rate can double your profit. Another example is retail trade payment for order flow. A major broker-dealer was just sanctioned for front-running its clients.
As long as your defect ("mistake") rate stays below your customer's response threshold, you can keep doing it. It is impossible to overstate how important social norms are for policing this kind of misconduct.
> A city boy, Kenny, moved to the country and bought a donkey from an old farmer for $100. The farmer agreed to deliver the donkey the next day.
> The next day the farmer drove up and said: “Sorry son, but I have some bad news. The donkey died.”
> Kenny replied, “Well then, just give me my money back.”
> The farmer said, “Can’t do that. I went and spent it already.”
> Kenny said, “OK, then just unload the donkey.”
> The farmer asked, “What ya gonna do with him?”
> Kenny: “I’m going to raffle him off.”
> Farmer: “You can’t raffle off a dead donkey!”
> Kenny: “Sure I can. Watch me. I just won’t tell anybody he is dead.”
> A month later the farmer met up with Kenny and asked, “What happened with that dead donkey?”
> Kenny: “I raffled him off. I sold 500 tickets at $2 a piece and made a profit of $998.00.”
> Farmer: “Didn’t anyone complain?”
> Kenny: “Just the guy who won. So I gave him his $2 back.”
> Kenny grew up and eventually became the chairman of [company you want to mock]
Typically a lottery runs in one of two ways: with pre-decided winning tickets, or a number that's drawn after the tickets are distributed to decide which ticket (if any) is the winner. In this way, the odds of winning are mostly independent of the number of tickets sold. The prize is usually money.
A raffle works by selling tickets, and then picking exactly one of those tickets to be the winner, making the odds directly dependent on the number of tickets sold. The prize is usually a physical object, and not money (though there are exceptions, e.g., a 50/50 raffle).
Often raffles are sold significantly below expected value. A popular raffle to support a charity is called a 50/50 raffle. This is where the winner of the raffle receives 50% of $YN, and the charity receives the other 50%. Buying a ticket isn't a good financial decision, but it's for a charity, and you can end up winning, so they are popular.
The technical difference, vs a lottery, is that a raffle always has exactly one winner, drawn from all of the entries. In most lotteries, it’s possible for no one to win or several people to share the prize.
Raffle also implies that the event is a smaller, one-off event, usually with non-cash prizes and often for charity. A church might have a raffle to raise money for a new roof, using prizes donated by the parishioners. This is in contrast to lotteries, which are usually run by the government, feature cash prizes, and occur on a fixed schedule.
It's not really about "disposing" the donkey it is about giving other people the chance to win the donkey...that is dead
You can say Robinhood. Their agreement says that they can't do anything to imply that it was incorrect, like threatening to sue people for talking about what got them sanctioned.
Payment for order flow is not only legal, but good for retail investors. It, and practices like it, are the only reason joe schmoes can go buy 2 shares of TSLA in their robinhood account (actual traders deal in round lots - 100 shares. Price levels featuring less than 100 shares aren't even protected price levels!).
There's also the technicality of the wholesalers technically providing a very small (<=1 cent) price improvement, but retail investors don't care about that.
I really object to the frankly callous and irresponsible bandying about of financial stuff like this. It damages trust in what is potentially one of the best-regulated and most efficient systems in the world.
I also want to note that, assuming you're referring to Citadel's 700k fine, 1) the SEC's description of what happened is too vague to really infer what's going on, 2) my guess based on their description is that they essentially had a bug that technically constituted trading ahead of a small, small % of client orders (though it does not seem like it was actually getting an advantage by doing so, since it was a bug) and 3) this is all corroborated by it being only a 700k USD fine, which is comically small for a fine from both the SEC and for a firm as large as Citadel. This was the lightest of slaps on the wrist from a regulator who will absolutely destroy firms with fines when they have hard evidence.
If anyone wants to look deeper into this, Matt Levine has written extensively at this point on the subject of the payment-for-order-flow boogieman.
If you have a 10% defect rate for unavoidable causes, that sucks. If you have a 10% defect rate because you chose to cut all corners and cheap out on every aspect of your manufacturing and testing, that sucks but it's legal. However, if you have a 5% defect rate and intentionally choose to mix in extra 5% of known defective units - that's fraud.
I hope you're not under the impression that this is another SV "innovation," because it's been a saying since at least the 1600's.
So far, no amount of fines, or laws, has actually changed anything as far as Facebook, Apple, Amazon, Google or Microsoft are concerned. They're still in dominant positions, where AI or computer made decisions can devastate the "little guys" like being wiped off Google (or the play store removing your app), or the horror stories of businesses on Amazon.
Truth is, they're too big, and at this point, can't be stopped. Laws won't work, fines won't work. They haven't so far, and I doubt they will in the future.
Do you really want to live in a world where bureaucrats can issue fines without recourse?
That seems like hyperbole. E.g. all the three big EU-Google anti-trust cases (Shopping, AdSense, Android) resulted in Google changing their practices on the issues in question.
(Shopping, Android: https://en.wikipedia.org/wiki/European_Union_vs._Google, AdSense: https://ec.europa.eu/commission/presscorner/detail/en/IP_19_...)
> Truth is, they're too big, and at this point, can't be stopped. Laws won't work, fines won't work. They haven't so far, and I doubt they will in the future.
First of all, Google has paid their EU fines. Secondly, I think you misunderstand the nature of what's going on with these fines. A combination of strong trade agreements and savvy tax jurisdiction selection has left most EU countries with little capacity to tax US tech companies, so they have resorted to fines. The play is old hat at this point. Pass a piece of vague legislation that probably applies to the target company's activities, then fine them before clarifying the law to the extent that the company can actually avoid breaking it. Rinse and repeat. The EU fined Google a few billion dollars last year, and the year before, and now this year, and they will surely do it again next year and the year after that. This is just a roundabout means of taxing Google. It will of course never change anything about Google, except that each year once the law is clarified Google's lawyers will make sure that they are scrupulously no longer violating this year's new regulation, but the extent of the regulation and the value of the fines is calibrated to not be so high that it would actually drive Google to extract itself from EU jurisdiction.
Now that it's clear they've lost their tax battle with Apple I expect the EU will begin fining them as well.
I know it hurts when amazon relies on real customers to do their deep inspection, but it's all about costs. I don't expect this to change.
I would love to stop using amazon for a million reasons, but this is not one of them.
You hit the head of the nail though, it's a calculated loss / cost. With retail they dealt with physical theft way more than this and anticipated up to 10% of inventory loss for a plethora of reasons. It's not surprising the thieves have transitioned here. I would expect that between this and mixed inventory, these issues are far more common that people would think.
While amazon is at fault for passing it back on, I imagine they make it right. They have always fixed issues for me with no hesitation. It sucks, but I wouldn't get out a pitchfork unless they denied it. And like I mentioned above, Amazon isn't unique, any company has this happen.
The question is where does the discount from my doing their inspection for them go? It doesn't go to the prices, they're the same everywhere. It doesn't go to the shipping, that's my Prime account.
I would argue that just like they bake in issues, you as a consumer have to account for that in your purchase decision.
There's no perfect answer, but i'm not sure you would be entitled to anything beyond them fixing the issue in a responsible manner. If you want something beyond, it's within your right to request that from them and theirs if they accept it. I will say, often if you have issues on individual packages with delays, they extend your prime by X days.
I don't buy on amazon very much, and I'm in Canada. But I don't see prices lower than Amazon frequently. Usually on other huge companies like best-buy or walmart. But they usually offer the same return policy and I'm pretty sure they face the same kind of scams.
But hey, that's my experience. You might have experienced something very different.
Imagine that mister Bezos start spending millions of dollars and employing an army to do deep-check into every item returned. Who's paying that bill? Amazon's stockholders won't. You will. I will.
But, as I said in a previous post, I'm not defending Amazon's behavior. I'm just pointing out that it's all about cost and the vast majority of users benefit from this as well (with lower prices and no-question-asked-return-policy), while a tiny-tiny minority of them might face an inconvenience of returning an used item from time to time.
Repackaging, or even directly steering imperfect merchandise to online orders is happening all of the time.
“Model” or perfect versions are sent to retailers where consumers will interact with the product is purchased.
Online, photos and videos show the same “perfect” products.
I’ve seen clear examples of this by Fossil and Pendleton. I believe Apple does this in some cases, at least in repackaging.
There are rational reasons to do this as a business but it can be a bad thing for consumers.
Fwiw, Amazon has among the best return policies and the least friction in completing a return.
Return friction is where a company‘s selective inventory quality steering borders on anti-customer.
What appears to be Walmart getting factory seconds is usually Walmart demanding a custom variant of a product. Walmart uses their own consumer research and sales (and just as importantly, returns) data to form strong opinions on optimal price points, margins, feature requirements, warranty periods, materials, etc for a given product/category, and they'll use their volume to get a manufacturer to create a custom variant of a product with what Walmart considers an optimized design/bill of materials.
It's true the "Walmart version" of a product is likely less robust than the non-Walmart version, but that is the result of explicit and precise demands formed from actual consumer behavior. Manufacturers then have to consistently and reliably fulfill Walmart's orders to those exacting demands; that's rarely achievable by binning seconds to Walmart. Especially so for product variants that require actual BOM changes. Rather, it usually entails dedicated production runs, with all of the level of care and QC as the original product's manufacturing.
Where a generic product like a selfie light ring smartphone holder is improved by various merchants until a winning design and price point is clear.
THEN Amazon selectively considers making their own version and pricing it. Or Amazon just keeps pulling their fees.
If IP protection prevents an Amazon Basics version, Amazon doesn’t have to create a version in cooperation with the brand—-it just promotes it to compete with the brand’s own e-commerce.
With Nike, it is only recently the checkout and delivery came anywhere near what Amazon would do for the same shoes, same price.
There's the type of generic/private label stuff you mentioned, which both Amazon and Walmart do. Amazon originally had a major competitive advantage here in that they could leverage insights from their own sales and third party sellers in order to inform decisions for AmazonBasics (and their other private label brands). But Walmart also introduced third-party sellers to their ecommerce platform. Amazon's sheer volume of third party sales still gives them a leg up over Walmart in this area, but the type of risk-free consumer intelligence Amazon gets from third-party sales data is no longer something only they have.
Then there's retailer-specific SKUs of branded products, which is what I was referring to before. Amazon does this as well, but they take a fundamentally different approach to it that doesn't really impact the effectiveness of Walmart's approach. Amazon-specific SKU variants will likely have the "same" product as the standard SKU, but have unique packaging that's optimized for shipping. Walmart-specific SKU variants are optimized to sell the greatest volume possible while being considered "good enough" by consumers, and usually result in actual product changes in order to meet the price point, reliability, and feature set Walmart deems necessary to do so.
Because they have different optimization functions in their approach to retailer-specific SKUs of branded products, Walmart's approach is likely to continue working for Walmart, at least for their B&M sales. They'll start to have some of the same optimization concerns as Amazon as their ecommerce sales grow, but will be able to benefit from all the experience manufacturers and packaging companies are currently gaining from their current work with Amazon.
That's different from secondhand items, which are items that had been previously sold, used, and then refurbished to be sold again.
The idea is to short circuit the price match guarantees that they heavily promote.
If the SKU is the same, wouldn't this open everyone up to the problem in which a buyer buys one item from the expensive retailer (better product) and one from the cheap retailer (inferior product), then returns the inferior product to the more expensive retailer (keeping the better product at the cheaper price)?
Consider this from Walmart [1]. Mobile 1 5W-30. Something I buy frequently, but not from walmart. Walmart's site doesn't list a SKU, but you can see the UPC code from one of the pictures.
Same exact SKU as Advance Auto [2]. The problem? I know for absolute fact that the containers that hold the oil look totally different (and Walmart's online photo does not reflect reality). I don't buy motor oil from Walmart because this is the crap they pull. And it's not like this just recently happened or the manufacturer recently switched. I've compared the containers across years and several states now.
Maybe the packaging is just different but it really is the same oil on the inside. I don't trust Walmart enough to find out.
1: https://www.walmart.com/ip/Mobil-1-Advanced-Full-Synthetic-M...
2: https://shop.advanceautoparts.com/p/mobil1-advanced-5w-30-fu...
I’ve seen Camelbak use cheaper parts on the “same” backpack, for example.
This happens on Amazon a lot, you see reviews saying “I bought this three years ago it was great, new one uses cheap xyz.”
I think you largely are going to see every business, Amazon merchants, brands, etc get away with whatever they can to cut costs, so long as it doesn’t have widespread effect on brand perception.
A mom and pop shop would be hit much harder by a scam like this, I think.
In general I agree that this is a problem. But I don't see how this is an instance of that. I mean, how are they supposed to respond? "We will find the customer that scammed us and sue him. We will find the employee that checked this item and fire him."
- In Amazon's case, it is only Amazon that is that victim of its mistakes: if they decide it's more efficient to give money to scammers than to avoid getting scammed, I couldn't care less.
- In the case of Google and Facebook, they're not the victims for disrespecting their user's privacy, their users are. So, regulators should keep making the fines larger until it really really hurts them.
Now if Amazon included a guide with returned products, instructing customers what to evidence of fraud or tampering to look for? That would be a different story.
Not saying that I'd want this to happen to me, but assuming Amazon made it right I'd say that I was just inconvenienced and they were the victim.
Plenty of people have been scammed on microSD cards, a common target for this fraud, because they didn't know how to properly test them and never pushed the capacity until after the return period.
It's a mild inconvenience, the customer is hardly the victim. I'm for regulation of bad corporate actors, but punishing for mediocre customer service is going too far.
When I bought a new NZXT AOI cooler Amazon sent me the original box with a fake seal sticker on it. The original contents were taken out and the box was filled with an old used Corsair cooler and some random electronics. Even the manual was replaced with one for a pull up bar.
Amazon could have known the sticker was fake because it was just a blank sticker without a logo and the box should be completely sealed in plastic when new.
If this is a "mild inconvenience" to the individual who has to deal with identifying that their product is not what they ordered and returning it, are you suggesting that Amazon--a company with a $1.4 TRILLION market cap--is somehow the real victim?
And Amazon customer support is awesome. Your bullet 2 is false.
e.g.
- the "fines" Google and Facebook keep getting for breaking privacy and other laws which are laughably small.
- customer support teams not dealing with serious customer issues until they get attention (viral tweet, front page HN etc)
- monopolies in most forms: e.g. the big-tech anti-poaching agreements
Generally I'm all for "it's easier to ask for forgiveness than permission" but that assumes that you are acting in good faith but still sometimes screw up. It seems like "screwing up" has become a good way to ensure short-term profits and as everyone is obsessed with KPIs and OKRs at a 1-week to 3-month time frame, the incentives are all wrong.
And "mission statements" and "cultural values" are too synthetic to come close to fixing this.