I was buying stuff on Amazon yesterday. Specifically, I bought the paperback version of Bob Dylan's Chronicles, Vol. 1 and a copy of Rise Up Singing: The Group Singing Songbook. I've wanted to read the Dylan book for a while (though I bet you it'll be flight-reading fodder when I fly home to Wisconsin next month). The other one I just heard about randomly, reading an invite to a group singalong. I'm not going, but the book seems like a great thing to have around.

Note that the prices of the two books ($15.61 and $9.80) add up to $25.41, just enough to put me into the "super saver free shipping" zone.

I love the songbook name, though ("Rise Up Singing"). It contains a forward by our communist friend Pete Seeger and the description mentions "songs about peace, freedom, labor, and the environment."

Amazon, however, is a darling product of free-market forces. Prices, products, and raw processing power run the system. Taking advantage of economies of scale, the company can offer more books (and thousands of other things) at lower prices than brick-and-mortar stores I can stop by on the way home. And with the mountains of purchase and page-view data they're sitting on, I'm sure the computers are constantly setting prices based on calculated demand elasticities, inventory, and the prices offered by other retailers. Even Amazon's abandoned experiments in differential pricing, though a big PR slip up, were a novel way to get valuable information about demand elasticities.

Really, if it wanted to, Amazon could use its knowledge of your interests and past purchases to price discriminate on the individual level (which, as long as it doesn't discriminate against a protected category like race, religion, or gender, is perfectly legal). It's just a logical extension of senior-citizen discounts, ladies' nights, or Saturday-night stay airline tickets.

This is all simultaneously fascinating and frightening.

Anyway, while checking out, something about my history and information triggered the Amazon system to offer me four free months of Amazon Prime (normally, it's $79 a year for free two-day shipping). A bit of Google blog searching seems to indicate that some people, but not all people are getting this offer. I theorize I got the offer for two reasons. First, I'm a fairly frequent user of Amazon, so they probably see me as somebody might get hooked on Amazon Prime. Second, I bet my location in the Bay Area (I have most of my packages sent to the Googleplex) is probably rather cheap to ship to, as I bet there's a distribution center nearby. This makes providing the Amazon Prime service much cheaper for them than if I was living in northern Wisconsin, so they'll make more money off of me. Geography has a lot to do in this business. Barnes and Noble still does the same-day delivery in Manhattan. Distribution centers are like Akamai for real stuff.

There are two things that make online sales less convenient than traditional stores: shipping cost and shipping speed. Of course, those are two competing goals. Higher shipping costs make the lower prices less attractive, while shipping time really puts the damper on "impulse buy" items. I'll often buy something at Target (hey, I'm a Midwesterner--like I'd shop at Macy's) because I see it, like it, and want it now, even though, if I waited and shipped it, I'd pay less. If they can eliminate (or at least minimize) the apparent shipping cost and time for consumers, consumers are more likely to buy things on a whim. For example, after watching Walk the Line last night (did you catch all the Dylan references?), I bought Dylan's Nashville Skyline off of Amazon. I never would have done that if I knew I had to wait for a week or two to get it.

Additionally, Amazon Prime is similar to Costco and Sam's Club pricing models. Both of those stores require a "membership fee" to shop there, and then have (due to the bulk, wholesale nature of their stores) lower prices than you could get elsewhere. This has the effect of creating a consumer "sunk cost." The membership fee is unrecoverable, so after paying the fee, the consumer's lowest prices will be at that particular store. This reinforces store loyalty. Similarly, since the membership fee is a flat rate, the more you spend at such stores, the better your "bang for your buck" on the membership fee.

In Amazon's case, Amazon Prime is a way to "sink" the shipping costs for the consumer up front. I'm sure they believe this should increase the amount Prime customers end up purchasing--it encourages loyalty. Even if you abuse the system and order massive amounts of stuff, it's still doesn't hurt Amazon very much--that's all business they wouldn't have gotten otherwise. Additionally, it makes all the prices on Amazon that much more attractive as compared to other merchants, as shipping costs (though paid) are zero for every additional item you buy (the marginal shipping cost to the consumer is zero, and the average cost keeps on dropping).

Amazon is smart to do this. For me, it now makes Amazon more convenient than Target (consider the additional time and opportunity costs involved with driving to Target, parking, shopping, checking out, and driving back home). I'm not sure if I'll be paying the $79 in four months, but, of course, I haven't made a decision, and Amazon's doing this to try to change my mind.

Update: Hey Dana, look: They have toothpaste and shampoo. I may never have to go to Target again.