Price Compression tracks whether the spread of competitive seller prices (measured by interquartile range, or IQR) is getting narrower or wider over time. When sellers converge on the same price, margins can get squeezed.
What It Measures
This metric looks at the interquartile range (IQR) of competitive seller prices on the listing over time. IQR is more robust than a simple min-max spread because it ignores outlier prices. A "compressing" spread means sellers are moving toward the same price point. An "expanding" spread means there is more price differentiation among sellers.
Why It Matters for Resellers
Price compression is an early warning signal for margin pressure:
- Compressing prices mean sellers are undercutting each other until they converge on a narrow range. This leaves little room for price differentiation and can lead to razor-thin margins.
- Expanding prices suggest some sellers are holding higher prices (perhaps offering different conditions or bundling) while others compete on price. There may be room to differentiate.
- Stable spread means the competitive pricing dynamics are not changing — a predictable environment for planning.
How We Calculate It
- We collect the interquartile range (IQR) of competitive seller prices each week, deduplicated to one price per seller per week (last observation wins).
- We fit a trend line through the IQR values over time.
- If the spread is narrowing meaningfully, we classify it as "compressing." If widening, "expanding." If neither, "stable."
- We also report the current spread amount and how it compares to the average.
How to Read the Results
| Classification | What It Means | |---------------|---------------| | Compressing | The price gap between sellers is shrinking. Margins may tighten as sellers converge on a similar price. | | Expanding | The price gap between sellers is growing. Some sellers are pricing significantly higher or lower, which may create opportunities for differentiation. | | Stable | The price spread between sellers has been consistent. No unusual margin pressure from price convergence. |
Limitations & Caveats
- Requires multiple weeks of multi-seller price data. Listings with very few sellers or short histories will not have enough data for analysis.
- Compression can be temporary. Sellers may converge during a competitive period and then spread back out when one exits or raises prices.
- Does not account for fulfillment differences. An FBA seller at $25 and an FBM seller at $22 might both be competitive, but they serve different buyer preferences.
- New seller entry can distort the metric. A new seller entering at a very low price temporarily expands the spread, even if it is not sustainable.
Related Metrics
- Price Trend — Are prices compressing toward a lower or higher level?
- Race to Bottom — Compression combined with a falling price trend may signal a price war.
- Effective Competition — How many sellers are priced within buy box range?