The game theory of how algorithms can drive up prices

Post by sylos » Thu, Oct 23, 2025, 5:09 PM UTC

indoordin0saur wrote: post #61

photochemsyn wrote: post #58

Earlier quoted context omitted.

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.

This works if landlords don't have significantly more units than are demanded by the population AND it is both very expensive for new units to be built and new competitors to enter the market. If enough supply comes on the market and the best move for the landlord with the additional supply would be to lower prices. Tenants then all move into the better value units and the expensive landlord is left with either empty…

Post by ajmurmann » Thu, Oct 23, 2025, 5:14 PM UTC

sharemywin wrote: post #65

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…

if you've ever shopped at Giant Eagle instead of Kroger you'll understand the flaw in the logic. 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 num…

Post by jimnotgym » Thu, Oct 23, 2025, 5:31 PM UTC

Post by gowld » Thu, Oct 23, 2025, 5:32 PM UTC

crowcroft wrote: post #77

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…

Not entirely relevant to the article, but another factor that is rarely discussed. You need to assume people know about both widget companies. You often see a McDonalds or Wendy's outcompete lower price/higher quality alternatives, simply because it's a brand people can recall.

Post by godelski » Thu, Oct 23, 2025, 5:35 PM UTC

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.