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The game theory of how algorithms can drive up prices

quantamagazine.org

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Re: The game theory of how algorithms can drive up prices

#31

Post by zaphar »

friendzis wrote: post #8

> Imagine a town with two widget merchants. Customers prefer cheaper widgets, so the merchants must compete to set the lowest price. 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 y…

You shouldn't lower prices as a direct reaction to your competitor. You should lower prices as a reaction to your customers willingness to buy at a given price. It's an indirect reaction but it factors in the actual market.

Re: The game theory of how algorithms can drive up prices

#32

Post by jellicle »

friendzis wrote: post #8

> Imagine a town with two widget merchants. Customers prefer cheaper widgets, so the merchants must compete to set the lowest price. 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 y…

> Imagine a town with two widget merchants. Customers prefer cheaper widgets, so the merchants must compete to set the lowest price.

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.

Re: The game theory of how algorithms can drive up prices

#33

Post by wat10000 »

dghlsakjg wrote: post #20
friendzis wrote: post #8

> Imagine a town with two widget merchants. Customers prefer cheaper widgets, so the merchants must compete to set the lowest price. 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 y…

It is an intentional oversimplification. 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.

No need to ignore it. This is exactly why gas stations tend not to make much profit on gas.

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."

Re: The game theory of how algorithms can drive up prices

#34

Post by Retric »

shafoshaf wrote: post #29
amelius wrote: post #25

Earlier quoted context omitted.

> I always found this statement to be rather wishful. 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.

Not flawed, but very, very complicated. The theory of free markets holds a lot of very well reasoned and tested lessons that can be instructive, depending to which principles you are referring. 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 resour…

Free markets as described by Econ 101 don’t apply in any sector where advertising is useful.

Far more complicated theories get much closer to reality, but aren’t nearly as well known outside of economic circles.

Re: The game theory of how algorithms can drive up prices

#35

Post by hrimfaxi »

fellowniusmonk wrote: post #28

This was the Greystar situation that already happened with apartment rentals. 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…

> 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?

Re: The game theory of how algorithms can drive up prices

#36

Post by wat10000 »

spwa4 wrote: post #23
friendzis wrote: post #8

> Imagine a town with two widget merchants. Customers prefer cheaper widgets, so the merchants must compete to set the lowest price. 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 y…

You want to get an economist to shut up? Point out that we're now in a situation that for nearly any physical good, one producer is able to saturate the market, that nearly every factory is operating below capacity, that individual farms are so big they can easily produce what an entire state needs and in fact operates below capacity for financial reasons. Both factories and farms: A LOT below capacity. Because 1% of…

Food in developed nations is incredibly cheap as a direct result of the massive productive capacity of modern agriculture. Factory goods are also very cheap. Increasing supply demonstrably drives prices down.

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.

Re: The game theory of how algorithms can drive up prices

#37

Post by babush »

shafoshaf wrote: post #29
amelius wrote: post #25

Earlier quoted context omitted.

> I always found this statement to be rather wishful. 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.

Not flawed, but very, very complicated. The theory of free markets holds a lot of very well reasoned and tested lessons that can be instructive, depending to which principles you are referring. 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 resour…

Can gravity buy out magnetism?

Re: The game theory of how algorithms can drive up prices

#38

Post by Fernicia »

amelius wrote: post #25
friendzis wrote: post #8

> Imagine a town with two widget merchants. Customers prefer cheaper widgets, so the merchants must compete to set the lowest price. 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 y…

> I always found this statement to be rather wishful. 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.

> The principles behind the free market are flawed

Can you go into specifics?

Re: The game theory of how algorithms can drive up prices

#40

Post by IlikeKitties »

babush wrote: post #39

"Algorithmic collusion"... If using an algorithm leads to collusion, then choosing to use the algorithm should be considered regular collusion.

The Problem is that "using the algorithm" doesn't require you to use a computer. You can do this with pen and paper and it still works. You just have to ensure your competitor is aware of how the algorithm works, which is impossible to make illegal.
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