I always found this statement to be rather wishful. Individual lowering of prices makes sense if and only if your competitor is capable of saturating the market. Otherwise, demand elasticity becomes very relevant. Sure, your competitor may take the larger share of the market, but then you can compensate with higher per item profit.
The common wisdom is that in properly functional markets there's enough supply with n-1 market participants, therefore given a market signal of one participant lowering their prices the last one standing without lowering prices gets kicked out of the market, making maintaining prices the losing move. Yet, if the rest of the market does not react to the signal, the one lowering their prices hurts their profits and possibly kicks themselves out of the market. Making price maintenance, and depending on elasticity maybe even jacking of prices, the winning move in the presence of this signal.
Turns out the probability of either move being the winning move is dependent on probability of other market participants colluding/defecting. However, since lowering the prices hurts the profit a rational market participant would conclude that the rest of the market is inclined, even if a little bit, not to lower their prices in reaction given price cutting signal and similarly a bit more inclined to raise the prices given price hike signal.
You often see a McDonalds or Wendy's outcompete lower price/higher quality alternatives, simply because it's a brand people can recall.
Economy of Scale is powerful.
I believe McDonalds is still somewhat independent in it's sourcing. IDK about wendy's. But Burger King is absolutely just another Sysco reseller at this point.
That means a lot of the smaller burger stands end up just selling the same stuff as every other burger stand. Food that tastes a lot like my high school cafeteria did (hint, also Sysco).
The only real lever any food business can pull is in facilities and staffing. The price of the food is fixed and there's no real competition to be had.
and: true across the board, not just restaurants...
This is also simply the natural end state of free market capitalism. Every one of these giant businesses knows that by swallowing up smaller competitors they can ultimately improve their revenue without improving quality or actually innovating/competing.
Companies like sysco should have never been allowed to merge with other distributors and they should absolutely be broken up.
Internally, these huge corporations behave exactly the same as a good old fashioned USSR bureaucracy:
endless meetings where no work gets done
a huge class of bureaucrats (manager, senior manager, VP, senior VP, director, senior director ... what's next? commissar? secretary?) who don't actually do any of the line work and instead exist only to perpetuate a process
huge amount of process that does nothing for the bottom line or indeed for anyone at all
random party lines that you must accept or be fired (new director came in. Now we're doing a 30 minute velocity retrospective every week. you must attend, comrade!)
party language determined from on high, that changes once every 5 years (blockchain is our five year plan! huh? blockchain? no no, AI is our five year plan!)
party princelings who rise not on merit but purely on positional signifiers alone (Comrade, I know you've been a party loyalist for 25 years, but your senior director position is being given to a new princeling. He's 26 years old. He came from Stanford, and was on the forbes 30 under 30. They say he was a protege of Peter Thiel!)
and, most importantly: everyone at the bottom, who pays for all of it, and must take it completely seriously.
As frustrating and corrupt as our market economy is, the oppression under regimes like the USSR and East Germany was unimaginably worse.
That being said, yes -- we badly need another round of legislative reform like the Sherman Antitrust Act of 1890 and all the regulatory actions that followed.
[1] https://www.the-independent.com/life-style/companies-control...
[2] https://en.wikipedia.org/wiki/List_of_Nestl%C3%A9_brands
If the market is a consumer need then yeah, these companies can coerce simply by being the only (or one of a few) options in town. Food, healthcare, and housing are all markets that appear to be narrowing which means increasing in their coercive abilities.
It's true that the USSR and East Germany were worse, but that had a lot more to do with the concentration of power into a strongman leader rather than the people. And, in fact, a major part of why West germany did so well wasn't really due to market forces, but rather due to the US spending ungodly amounts of money on rebuilding them (and Japan). The USSR was always pretty cash strapped. Especially since the only nations they could really interact with were nations under the USSR umbrella. Even other communist nations like China had pretty tense and often not friendly relations with the USSR.
In today's money, we dumped about $120B on West Germany. Just to put things in context.
There's not a private business on the planet that's super-efficient.
https://www.morningstar.com/company-reports/1327868-sysco-re...
If you start looking at the distribution centers of these companies and the competitors, you get a pretty clear picture of how concentrated things are.
The drop off for the distribution centers of the top 3 is stark. [1]
Lack of communication to outsiders and visitors about those that compete against such establishments is key. The larger organizations have more capital to advertise and help capture that economic arena.
Personally, when I travel, I go out of my way to find local establishments over large franchises because the former slowly siphons out the local economy to some CEO that gets paid millions. The latter helps keep the competition local economy health. I haven't given Starbucks a penny in over 7 years and plan to never fund their organization ever again.
In general though the ease at which the market can recall a brand has a direct connection to market share, loyalty and in turn pricing power.
One of the Behind the Bastards podcasts touched upon the fact that in the rental property market the 2 cloud vendors peddling software to manage properties could collude on behalf of landlords. Collusion by humans is fairly limited in scale, but when you're a "platform" every price can be set based on the prices of millions of listings -- what was once impossible for humans is now trivial.
When sales are still growing YoY (like the post covid market), but prices are up 30% or 40%, you understand your customer is still willing to pay the higher price
Its similar to a McDonalds or Starbucks situation where you just keep increasing prices dramatically until you get a first quarter of lower than expected sales, then you start adapting downwards
Most corporations still haven't hit that limit, see streaming companies increasing prices every few months, they still haven't hit the point where profits decrease YoY. When they do the streaming prices start decreasing
You won't die if you stop watching Netflix. We aren't talking food or medicine here. In fact your life would probably improve. But addiction is a real animal.
Screen addicts almost never stoop that low and the ones that do are addicted to a cam girl (e.g., Grant Amato), porn or gambling, not Netflix (or social media).
It would be smarter for them to raise the price of their membership another $10/yr to offset the losses than it would to raise the price of their hot dogs another $0.50 to make them profitable.
https://customerservice.costco.com/app/answers/answer_view/a...
The principles behind the free market are flawed. Copyright and patents are flawed. We're being played. But somehow the incumbents always get away with "but we have fair rules", when everybody who has ever entered a game of monopoly late knows this is not true.
Newtonian principles does a really good job for a huge number of use cases, but it isn't the end all.
When it comes to intertwining human taste, a doctrine of equal opportunity combined with private property, and scarce resources, I don't want to throw the baby out with the bathwater.
Usually the discussion of that kind of thing revolves around the near-elimination of profit via (hypothetical) too-perfect competition among producers and too-perfect information for consumers, but with the rise of automated mass-scale spying and automated finer-grained price discrimination (plus enormous consolidation of markets due to near-abandonment of anti-trust enforcement in the ‘70s), we’re kinda seeing the real deal play out the other direction: approaching-maximum extraction of profit from every transaction.
Which sucks, to put it mildly. You do not want markets that function “too well” in any direction.
Far more complicated theories get much closer to reality, but aren’t nearly as well known outside of economic circles.
It's also common practice to show the effect of something on an idealized free market, with the idea of being that even under supposedly ideal conditions, the something being analyzed is still problematic.
There are far fewer single family homes on the market and they are a lot harder to bring up in the market. However, multi-tenant facilities cost a lot less to bring to market but there are few owners of those buildings.
With a much smaller set of unit owners, it makes collusion a lot easier to pull off. Only a few facilities need to participate in order to raise the prices and once it goes up for the large owners the smaller owners will happily raise their prices because "it's competitive with market rates".
The part that's totally divorced is that the cost of these units has nothing to do with business expenses and everything to do with market availability. A new player can't really come in and disrupt things and even if one or a few actors start undercutting the others it doesn't matter because they only have so many units they can sell which will fill up quickly.
The whole thing has driven up housing prices to the extreme. My 15 year old home is worth 5x the price I purchased it at. That actually scares me. I couldn't afford my home today and I can't afford to really move into a nicer home in the future.
> Free markets as described by Econ 101 don’t apply.
They don't apply anywhere. It's a 101 class. It's over simplified. It looks accurate enough but a first order approximation isn't enough to operate effectively in the real world. It's like thinking you can code if you're able to read psuedocode. It's a great outline, but there's a lot of little things in between that ends up being >90% of the lines of code you need to make a working program
You're right, but I'd add that important thing here is that this is not a free market.
Can you go into specifics?
E.g. the model "use VC money to subsidize cost until all competitors are bankrupt then hike prices to recoup" is not really reflected in this "free market"
Can you give some examples of this happening in real life?
None of the examples I can think of where people criticised the companies for operating unprofitably, such as Amazon retail or Uber, were able to corner their markets.
Harvey Normans, Targets, Argos's, Walmarts, all still exist and compete with Amazon retail. Most towns still operate normal taxis services, Lyft, FreeNow, Bolt, all compete with Uber.
VC funding subsidising pricing, albeit temporarily, is still good for consumers. It doesn't seem to imply higher eventual prices. The opposite seems true, in fact.
Austin had a local rideshare app that entered the scene when Uber/Lyft left the area because the city passed a law it failed to propagandize against called RideAustin. Non-profit, worked really well and paid well. When Uber and Lyft came back, they heavily subsidized the cost of doing business in Austin by both arbitrarily lowering prices and heavily juicing rewards for drivers. Conveniently, when RideAustin shut down because most drivers and riders had moved onto either app, these rewards started getting clawed back and prices went way back up.
Uber is the canonical example of this, I guess.
> None of the examples I can think of where people criticised the companies for operating unprofitably, such as Amazon retail or Uber, were able to corner their markets.
It's not about people criticising this behavior or not. It's about being factored in the model. The free market model assumes that every participant in the market has the same access to capital, ensuring that every market participant can equally undercut everyone, making this particular strategy irrational, therefore not part of the model.
You should check the distinction between Bertrand and Cournot competition. Bertrand competition is price competition where the competitor can saturate the market, as you mention. Cournot competition, on the other hand, captures your intuition of competition on quantities rather than prices.
Hmmmm, I don't remember it that way. I remember the constant take was to build a moat (typically based on intellectual property), then optimize net profit and/or network effects. Quality never really came up unless it is so bad as to cause lawsuits.
Of course, right after teaching you how to exploit all the bad incentives created by capitalism they teach you that the government is to blame for all bad incentives because capitalism only makes good incentives.
Interestingly, the claim about competing on price was that it would just inevitably lead to everyone lowering their price to zero marginal cost, so you should find other ways to differentiate yourself or to use IP to sue others from not competing.
Let’s say there is a dozen of them playing Minecraft, one could say they are in the same market competing with each other.
But what happens really is some folks like dude with long hair, others like the other guy that screams every time he wins.
Same with training videos, I bought course from a guy that is kind of monotonous and I don’t care but my GF cannot stand watching the guy for longer than 10 minutes.
Bakeries seem like closest one would be best, but somehow I’d rather go 10 mins further because I don’t like the feeling of the first one. Even though quality or price they don’t differ.
I don't mean it in a bad way. I do think engineers and business people should be in contention. But business people will sacrifice product (quality) for profit while engineers sacrifice profit for product.
Quality is often hard to define too. The business people have a harder time defining it as well since they understand at best as a user, but only if they are dog fooding (even engineers often don't!). They've developed strategies to make profit and still be relevant.
Imagine a town with two widget merchants. The two go out to dinner one night, and next week they both double their prices. Both widget merchants are pleased.
higher prices usually equals better service, less busy shopping. get in and get out.
so if your time is worth more than your money you aren't sensitive to price at the widget scale. most widgets are bundled with some kind of service.
I bought some printing and it was super cheap but no service not an email not a phone number nothing. not ordering from their again.
I feel like in the US or Asia this would never happen. In these hyper-capitalist and competitive societies, both bakeries would jump on the opportunity of extra business, sacrifice their family and fun time, and neither would take any vacation. Two bakeries in a town would see each other as mortal competitors instead of collaborators and take every opportunity to eat into the others' business.
Like Walmart/Dollar Tree/Costco/Aldi/Target/Kroger/Amazon etc can (and have)?
And on a macro scale, like China can (and has)?
[0] https://en.wikipedia.org/wiki/Double_auction#Game-theoretic_...
The reason this doesn't happen is because the ones lowering their prices have typically done so due to explicit measures to improve efficiency, and so they already have a healthier margin with which to capture more of the market from competitors.
If it was just one player, like Open AI, we'd still be at GPT-4 turbo and it would cost $400/mo.
I think what you say is true for well established markets. In growing markets the incentive to capture market share may well override any profit considerations.
Although a good proxy for the situation in the real world is gas stations, as long as you ignore that gas stations tend not to make much, if any, profit on gas sales.
In my area, there's one notorious gas station that's a couple miles away from any other commerce but has a reasonably large amount of traffic passing by. Amazingly, its prices are always about 50% higher than everywhere else.
Competition works when it exists. Yes, you also have to factor in supply. That's why the phrase is "supply and demand."
There are many industries where that doesn’t happen, but there is also opportunity to make it happen
Individual lowering of prices makes sense if you are capable of producing some amount more than you currently do.
Suppose there are 10 suppliers, your production cost is $1 and the current market price is $2. You each sell 100 widgets and you yourself make $100, the other 9 providers also sell an average of 100 widgets, so there are 1000 total purchases.
If you can produce 200 widgets and you lower your price to $1.90, you're now making $180 instead of $100, because people prefer to pay $1.90 to $2 until you run out of capacity. Moreover, the other suppliers have now collectively lost 100 sales to you unless they match your price reduction and maybe some of them have higher costs than you and can't, which means you get to keep their share of the market. The other participants who have lower costs like you, even if they don't have any excess capacity, would rather make the ones who can't lower prices eat the loss in sales because it's better to lower margins by 10% than take an 11% reduction in sales. And lowering prices might also increase sales if customers buy more market-wide at the lower price.
> Yet, if the rest of the market does not react to the signal, the one lowering their prices hurts their profits and possibly kicks themselves out of the market.
How would the one lowering the price kick themselves out of the market? Their sales would only go up, or if consumers are completely insensitive to price, stay the same. As long as the lower price is still yielding them a net profit, they're still in the market. The theory isn't expected to cause them to lower prices below their own costs, because of course they weren't going to do that.
If consumers are completely price insensitive and they didn't know that until they tried it, they might end up raising the price again because it didn't do any good, but that's also pretty uncommon. If you can get the exact same thing for less money, do you pay more for no reason?
> Turns out the probability of either move being the winning move is dependent on probability of other market participants colluding/defecting.
Collusion is something else entirely. If all of the participants are getting together in a back room to fix prices then none of this applies, but that's also why there's a law against that.
It's also why the theory doesn't work when the number of participants is very small.
Suppose there are only two providers and they each have unlimited capacity. They each have a $1 cost, sell 500 widgets for $2 and make $500 each. If one of them lowers prices to $1.90, they'll sell 1000 widgets and make $900. Except that the other one will just match their price and then they'll each make $450 instead, which they both know so they both don't do it. And that's on top of explicit collusion being much easier to hold together and harder to detect when there are fewer sellers.
That isn't what happens when there are 100 sellers, because then 99 of them are trying to hold together a cartel and the last one is laughing at them all because they can increase their sales by 10,000% by lowering prices by 5% and none of the others are matching them.
Which means increasing supply for just about anything ... doesn't actually change price, and in fact the issue you're pointing out is not just one of the influences on prices, but almost the only one.
The market is saturated and producers have no incentive to lower prices, for nearly every good. Which means increasing supply ... does not lower prices. Increasing demand does not raise prices ... that's just not how it works anymore.
The only influence on price is international relations, or to put it more bluntly: various kinds of taxes are the only influence on prices (going from import/export tax, vat/sales tax, subsidies, raw material availability (effectively mostly meaning a tax in the form of export restrictions), what loan conditions are for good X, ...), and so economics just doesn't really apply anymore to the vast majority of goods.
The price of widgets from water balloons to air fryers is controlled by government subsidies in particular countries.
The price of houses is controlled by mortgage conditions, which are set in law. Meaning they are different between countries in both ways that matter (so, for example, Freehold vs Leasehold, Australia's Negative Gearing, whether 30 year fixed price is available, immigration policy, whether foreign investment is allowed ...) and in weird ways that don't matter. Supply and demand don't control price.
The price of labor and services is around 80% tax in most of Europe. Measured by taking $100 that the employer pays to have labour done, so including for example France's "patronal" tax, compared to what the employer would receive and not have to pay to the government in his bank account if the employee chose to spend all of his pay on whatever his labor produces. Yes there is still some supply/demand here ... but not much.
The problem is that for nearly everything "taxes" (as in taxes and tax-like regulations) determine who produces, and the tax swings are so large (going from -10%, yes minus, to 80% and more) depending on location and good, and their effect swamps any economic concern in nearly all sectors of the economy.
Housing is an area where supply is heavily restricted, partially because land cannot be manufactured, partly because of government regulations controlling what can be built and where. Surprise, housing is very expensive.
Especially meat could be a great deal cheaper if these countries wanted to make that happen.
Food in the west is only cheap in one sense of the word, and even then if you compare how much of the cheapest bread today you can buy for the average monthly pay today versus how much of the cheapest bread in 2000 you could buy for the average monthly pay in 2000 it's almost a factor 2 less.
But yeah, that's still very cheap: nobody's going hungry at the increased prices.
Does that mean food prices have dropped enormously or could it be that families have to spend more money on eg. rent, gas, and health? Adjusting for inflation, the price of milk have only decreased 1.1%[1]
[1] https://www.usinflationcalculator.com/inflation/milk-prices-...
If we look at 1901, milk was around 6 cents per quart according to https://fraser.stlouisfed.org/title/bulletin-united-states-b.... Adjusted for inflation, that's about $2.29/quart today, or $9.16/gallon. That's over twice what I pay and over twice the average according to https://fred.stlouisfed.org/series/APU0000709112.
> this strange strategy will maximize your profit. “To me, it was a complete surprise”
It doesn't seem like such a surprise that algorithms that use information about rivals to optimising profit tend to price high.
Consider a small town with two gas stations, you own one. You can set the price (high or low) in the morning and can't change it until the next day. Your goal is to optimise profit for the next 1000 days. On day one you price high (hoping your rival will). But your rival prices low and wins lots of business. On day two, you price high again (hoping your rival will have seen your prices and cooperate). If your rival prices high, you both stay high for the most of the next 998 days (there's some incentive to 'cheat' and price low, but that is easily countered by the rival pricing low). If your rival priced low on day 2, you have to start pricing low too. But occasionally you'll price high to try to 'nudge' your rival to price high to avoid low-low. If they eventually understand, you can both price high for the rest of the 1000 days. Critically, even if stuck at the low-low equilibrium, you'll keep trying to 'nudge' high periodically. The frequency with which you try to 'nudge' will depend on the ratio of profit for high-high vs low-low. If you both make extreme profits when pricing high-high, you have more incentive to 'nudge', but if the difference isn't great, you won't nudge as often.
Seems obvious pricing high will be attempted in proportion to the reward relative to pricing low.
The researchers' conclusion seems reasonable:
> it’s very hard for a regulator to come in and say, ‘These prices feel wrong’”
and
> what can regulators do? Roth admits he doesn’t have an answer.
(i.e. in practical terms, there's no way regulators can police what algorithms sellers use - I can't think of exceptions to this, but perhaps there are some special cases)
I always think that in this day and age financial secrecy benefits mostly the richest people and adds to the informational imbalance (which does not help even the model of free markets).
All of this is a tall order, but there's no shortcut to establishing, re-establishing, or maintaining a democracy.
I would claim that democracy was an ideal at any point in time. Most people have/had insufficient education to understand all the topics. Even in more advanced countries (with better education on average) the discourse gets focused on petty issues. The societies that will be able to focus on the longer term will be the next centuries winners!
If you don't like that intrusion into your finances, you are still free to do business using your own personhood, but the public won't provide you with a spare disposable one.
Regulators can already police the data used as inputs in decision-making in industries like insurance, so policing the algorithms that operate on that data doesn't seem like too much of a reach.
How enforceable is policing which data can be used as inputs though?
It's common for insurance companies to price based on age and sex (e.g. teenage boys will typically pay higher car insurance premiums than similar aged girls). Presumably insurers are not allowed to price on a factor such as race. Unlike collusion, overt use of a variable like 'race' in a pricing model could be detected and enforced via a company whistleblower.
But how would a regulator find/prove algorithmic collusion?
In an extreme case, regulators could ban all use of competitors' data in a sellers' pricing models. But that seems extreme and unproductive since it could stop price wars (downward prices), as well as muting good effects of the 'invisible hand' (higher prices attracting more market entrants and greater investment)
That being said, I can add some insight. Most state insurance regulators require a company to justify the rate they're charging based on actual claims data (i.e. you wouldn't be allowed to use a competitor's pricing as a justification). Insurance companies would basically never share their claims data with their competitors, so there's functionally a ban on using competitor's data.
Any rate changes have to be justified (based on claims frequency and experience) to the state regulator. I don't think it's a perfect system by any means; insurance commissions aren't completely unbiased, and there's some flexibility in what data the insurer uses. But in my experience it's pretty effective at regulating the data you can and can't use.
The ultimate outcome is that most insurers in these markets run combined loss ratios of greater than 90% (so on an underwriting basis, more than 90% of the premium they earn goes to paying claims and overhead associated with managing those claims).
I think the model of "here's a regulatory body, justify what you're charging based on this set of allowed data" is a decent framework, even if it doesn't work in every market.
If you're curious, the SERFF website [0] has rate filings for a lot of states. So you can see when a rating factor changes and what it changed to. Most of the detailed claims data isn't available for data privacy reasons, but depending on the state you choose, there will be summary figures available.
They don't need to. At least in the US, courts look at the outcome and if the outcome is discriminatory that's the important part. This is under the idea of disparate impact. Beyond that, the realpage cases offer an example of modern day prosecution of algorithmic collusion.
IANAL but if realpages outcomes were definitive or reasonably generalized results dealing with the core issue, then similar arguments against e.g. Amazon would be a slam dunk. AFAIK, actual case outcome just hinges on details about "nonpublic data" and similar. Not remotely on bad effects for consumers or anything like that. Since printing realpages database in the newspaper would not actually help apartment-hunters, then this just tells landlords and third party markets how to do price-fixing legally next time? Most likely algorithmic pricing, surveillance pricing, etc is still coming to your grocery store after the issue is "settled" for property rental, or at least settled for realpages, in certain jurisdictions, for now.
that sounds like insider trading. price fixing would need not involve nonpublic information (beyond the actual conspiracy to fix the prices as it helps to keep that part secret normally)
https://www.multifamilydive.com/news/realpage-class-action-l...
I agree that "nonpublic" is barely related to the problem so how it's related to a solution is unclear. But it seems like this is the only general aspect of the outcome. Otherwise the outcome is just to stop doing this specific bad thing this specific time, and fines that are less than the profit made from bad behaviour.
One obvious answer would be to introduce a publicly-owned, zero-margin competitor not constrained by this algorithm, thus reintroducing an incentive to drive down costs or drive up quality.
Regulators could say "you're not allowed to make more than X profit". They already do that with utilities, so it's not a matter of practical impossibility.
Basically don't bother to dictate margins, just declare that market a failure.
[0] - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3304991
This is rational in the metagame where a maximally extortionate behavior invites attention and regulation.
A parasite's goal is to suck as much blood as it can without killing the host.
If there are 2 suppliers in a market, they will collude without algos or private meetings: I can be pretty sure you will not cut your price if I don’t cut mine. The issue there is that there are only 2 suppliers, so trust is very easy.
If there are 100 other suppliers, I know ONE of them will cut their price. So I best cut mine first.
What I am trying to say here is that, algos or not, n is the major driver here imho.
That’s kind of interesting since the US has been very relaxed about falling values of n as long as prices seem ok.
Are people not aware of this?
A switch to value based pricing for essentials (water,shelter,transport,utilities, etc.)is an extremely easy way to destroy disposable income and even make some areas impossible to live in for the existing members.
Austin, Texas in 2021 saw several of my friends who were renters see a 1 year price increase that more than doubled their rent, I had friends who we're doctors who we're forced to move out of one bedroom apartments, even if it wasn't the plan, it's still a great way to displace people like local musicians so hack comedian can move in.
Hack comedians are moving in while doctors are priced out? What are you even talking about?
There were different professional cohorts of people displaced as prices went up around the entire city, this is not a hard concept.
This massive cultural displacement is part of what drove Austin to permit more new construction than any other city in the states.
Fortunately musicians are still the single largest cohesive voting block in Austin.
>it's still a great way to displace people like local musicians so hack comedian can move in.
It may not be a direct quote but it _is_ what you said.
Isn't this describing the strategy of keeping ever high prices, then doing some temporary price cuts/sales/deals?
I've seen Walmart do this in the past. Items that were not on sale could have significant differences in price, where in general the prices in more affluent areas are higher. We're talking 50 to 75 cents on common items, but sporting goods quite often had a different of 3 to 5 dollars.
However, Walmart now displays in store and online for pickup prices on their website. I walked into the Walmart and paid $1.11 more than if I were to have ordered it via the app on my phone or website for pickup.
And Walmart was very upfront about it, and I knowingly paid $1.11 more because their online order and pickup option sometimes makes you wait 20min+ for a Walmart employee to come out and give you what you bought (even after it says your order is ready for pickup).
Enormous amounts of price testing with a very clear strategy that is easy to see in pricing charts.
When my grandparents went to the market in the developing country they immigrated from, they would bargain for everything, and every customer got a different price.
The developed world was rich enough that grocery stores didn’t need to waste time doing this, and could simply price high enough to earn a consistent profit margin and expect consistent sales. They did engage in price discrimination via coupons. Just not individually, until smartphones and apps came along.
Now that automation can handle a lot of the price discrimination, expect more of it, everywhere.
The behavioral economics here is that many people will pay a consistent (fair) price to not be surprised and not feel ripped off.
Agree that automation will engage in price discrimination whenever possible. When will we see the backlash? I have heard stories of outrage ("when I looked for airline tickets at work they were way cheaper than when I looked on my home laptop!") but we haven't seen a widespread reaction, and the moral aspect seems to be relatively overlooked at this time.
One of my first thoughts as well. If you're big enough, you collect so much data and run so many experiments all the time that you know exactly what you'd do if/when there's any competitor on the scene. Not only is there no need to talk to them and make backroom deals, but barely any need to even observe them. You priced like they did/would/could at some point already anyway. At a certain scale and if you already know the price that the market can tolerate.. the most relevant hidden information you want to know is how much cash your competitor has access to. That tells you whether you can win the price-war to sell at a loss for long enough to ruin them, buy them, move on to integrating verticals etc.
Game theory is interesting but also a bad model to the extent that it assumes persistent players with changing strategies, whereas average case in late-stage capitalism is more likely to have players eating players, no new players can enter, players changing rules, etc. As a CS nerd I still like a game theoretical approach better than most econ, but at some point we need to give up on tidy formulas and closed-form answers, and go all in on messy simulations.
On October 6, 2025, California Governor Gavin Newsom signed AB325, a law targeting the use and distribution of certain algorithmic pricing tools. This law is part of a larger legislative trend to try to reign in algorithmic pricing.. California’s bill targets pricing algorithms in all markets and will take effect in 2026. However, a violation of the new law requires a conspiracy or price coercion, so as a practical matter, it may not extend the range of violations already encompassed by the Cartwright Act.It isn't the software that's responsible driving up prices, it's the information.
> Yet a widely cited 2019 paper (opens a new tab) showed that algorithms could learn to collude tacitly, even when they weren’t programmed to do so. A team of researchers pitted two copies of a simple learning algorithm against each other in a simulated market, then let them explore different strategies for increasing their profits. Over time, each algorithm learned through trial and error to retaliate when the other cut prices — dropping its own price by some huge, disproportionate amount. The end result was high prices, backed up by mutual threat of a price war.
This is nonsense. Those "algorithms" were programed to do that. I also notice they didn't add a third copy of the algorithm or a fourth. The summary of this research is that they built a novel algorithm (not one used in practice) and put it in a simulation. How this is representative of any real world scenario escapes me. They proved that software written to optimize profits optimizes profits. Shocking.
The researchers quoted in the article are, essentially, defining collusion as knowing what competitors prices are.
It really is just another display about how injured the concept of "collusion" always was. Plenty of competitors have met in smokey rooms in order to fix prices, but you don't actually have to speak to each other to agree that if all of you can maximize your profits together, you should. Everybody knows how much everybody else is charging.
The ideal competition myth only works in a fictional zero-cost startup, zero-cost supplier, zero-cost distribution scenario. In real life if you try to enter a market with a few competitors with super high margins, they'll just threaten to freeze anybody who buys from you or sells to you out of the market, then offer you a ticket into their cartel.
Doesn't make it not evil, though, and it doesn't mean it's not an essential function of government to stop it. Government can't allow powerful little subgovernments to build up. You might as well allow paramilitary militias.
On the contrary, it's the word that's going to justify balkanization and government control of speech on the web. It's spooky magic that controls people's minds to most people. You know we're cooked when it becomes common on HN of all places to claim that "algorithmic feeds" should be illegal because they're the source of all society's ills, toxicity and political dissent.
Very interesting to see that there is a class of stable systems that force high prices.
Would be interesting to understand if the no swap regret systems studied also give stable results when it is an N player game rather than a 2 player game
In any event, it would be interesting to know how the dynamics change with increases in the number of players — I wondered if it might provide some kind of rationale for having a certain number of competitors in a market.
Not hard at all. Outright ban fixes all.
Imagine if multiple vendors in a product or service area form consortium which launches an "independent price determination task force". If everyone follows the recommendations of the task force, they are colluding, even if they don't talk to each other to set prices.
Replacing "task force" by an algorithm changes nothing. The agreement to use the algorithm rather than to compete is the collusion.