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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

#41

Post by friendzis »

Fernicia wrote: post #38
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.

> The principles behind the free market are flawed Can you go into specifics?

The so called "free market" (not to be confused with laissez faire) assumes perfect "information symmetry" and perfectly rational market participants, which is, effectively, impossible in this particular reality, and concerns itself mostly with marginal eventual state. It is a model.

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"

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

#42

Post by fellowniusmonk »

hrimfaxi wrote: post #35
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 talk…

That's not what was said.

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.

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

#43

Post by photonthug »

hrimfaxi wrote: post #30
nomilk wrote: post #17

Earlier quoted context omitted.

> Regulators can already police the data used as inputs in decision-making in industries like insurance 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…

> But how would a regulator find/prove algorithmic collusion? 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.

Seems like an optimistic read on things. This is the kind of common-sense approach you would expect in a world without lawyers, just observing that collusion is bad because the effects are bad, and digging into the details of the causes are completely irrelevant for the public/plaintiff because it's really just on the company to fix the undesirable result.

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.

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

#44

Post by spwa4 »

wat10000 wrote: post #36
spwa4 wrote: post #23

Earlier quoted context omitted.

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 e…

And yet, if you check it out for real, you'll find most food could be a lot cheaper (some countries have regulations for basic foods to be excepted from most regulation and taxes, and there's a large price difference)

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.

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

#45

Post by guywithahat »

lotsofpulp wrote: post #9
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. Individual lowering of prices makes sense if and only if your competitor is capable of saturating the market. Like Walmart/Dollar Tree/Costco/Aldi/Target/Kroger/Amazon etc can (and have)? And on a macro scale, like China can (and has)?

If anything it's incredible how competitive the market is. You can go into walmart, in the richest large country on earth by a significant margin, and buy pants for like $20. There are some heavily regulated industries where maybe we don't want this but in general companies competing to drive down prices is how most things work, and it works unbelievably well.

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

#46

Post by babush »

IlikeKitties wrote: post #40
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.

I never mentioned a computer.

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

#47

Post by nerdponx »

Retric wrote: post #34
shafoshaf wrote: post #29

Earlier quoted context omitted.

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.

The irony is that rental markets are probably one of the better markets to apply Econ 101 principles. Yes you have problems with information asymmetry, but for the most part you have a huge number of relatively small buyers and sellers, and prices freely ebb and flow based on supply and demand conditions. So if you are going to analyze the effect of algorithmic pricing in the real estate market, starting with the simple free market assumptions actually is not a bad idea at all.

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.

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

#48

Post by walterbell »

https://news.ycombinator.com/item?id=45611361

  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.

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

#49

Post by vladms »

nomilk wrote: post #6

The researcher says > 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…

Regulators could ensure that detailed financial data of companies is public. If everybody understands how much profit and opportunities are in a certain thing that will encourage other people to do the same thing.

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).

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

#50

Post by bluGill »

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…

In the real world there are always things other than price to compete on. Business school will tell you constantly that best quality is where you want to compete in almost all cases. Quality has many different options and so you can compete with something that is different from someone else by enough that if someone prefers your quality you are the only option.
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