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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

#51

Post by skeezyjefferson »

photonthug wrote: post #43
hrimfaxi wrote: post #30

Earlier quoted context omitted.

> 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…

> AFAIK, actual case outcome just hinges on details about "nonpublic data" and similar.

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)

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

#52

Post by walkabout »

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…

It’s also the case that market-ideals tend to become miserable to experience in practice if you approach them too closely.

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.

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

#53

Post by amelius »

friendzis wrote: post #41
Fernicia wrote: post #38

Earlier quoted context omitted.

> 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 i…

Yes, there is nothing wrong with working hard and making money. But if you use that money against the rest of us, then we have a problem. Making a huge pile of money to corner a market is one of those scenarios, but there are many.

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

#54

Post by wat10000 »

spwa4 wrote: post #44
wat10000 wrote: post #36

Earlier quoted context omitted.

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 cheapes…

Agricultural productive capacity hasn't changed that much in the past 25 years. Looking at the longer term, food prices have dropped enormously. At the beginning of the 20th century, the average American household budget was 40+% food. Today it's around 10%.

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

#55

Post by ozim »

bluGill wrote: post #50
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.

That’s the fun part of observing influencers.

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.

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

#56

Post by positron26 »

zaphar wrote: post #31
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.

This is still so oversimplified. There's always bellwether products customers buy a lot and get used to. They use those to decide if you are cheap or expensive. Costco hotdogs are about satisfaction. If I can get one good deal or even a great deal that I find every time, I'm much more likely to be satisfied.

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

#57

Post by parineum »

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 closet they actually come to existing is in black markets because regulations exist.

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

#58

Post by photochemsyn »

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 landlords who own all rental properties. Yes consumers prefer cheaper rentals, but all the landlords have to do is write an app that they can use to set prices as high as they can while not having too many units empty. If the homeless population in the town increases, that's an externality - especially if the landlords themselves don't live in the town.

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

#59

Post by parineum »

fellowniusmonk wrote: post #42
hrimfaxi wrote: post #35

Earlier quoted context omitted.

> 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…

> I had friends who we're doctors who we're forced to move out of one bedroom apartments ... so hack comedian can move in.

It may not be a direct quote but it _is_ what you said.

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

#60

Post by LatteLazy »

I never understand why people don’t pay more attention to “n” in these cases: number of other players.

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.

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