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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

#141

Post by 542354234235 »

TimTheTinker wrote: post #122
mlsu wrote: post #113

Earlier quoted context omitted.

it's just incredible. 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 do…

The difference is that unlike USSR bureaucracy, these corporations' continued operations depend completely on the decisions (buy or not) of customers who they cannot coerce -- so their feet are far more held to the fire of market reality than totalitarian regime leaders. They do not have the power to force people not to vote with their wallets (not to mention with their feet). As frustrating and corrupt as our market…

In this day and age, that feels like something that is true in principle but not in reality. For food, the grocery store shelves are almost entirely stocked with brands owned by 10 companies, that have a combined revenue of $375 billion a year [1]. If you have a bad experience with DiGiorno pizza and boycott them, would you know you also needed to boycott Tombstone Pizza, California Pizza Kitchen, Cheerios, Tidy Cat, and on and on. If you wanted to actually boycott Nestle, how difficult would it be to maintain a spreadsheet of the literal thousands of brands they own [2]? Any issue with any brand is just absorbed by a thousand others. Any regional effort is absorbed by their global market. It isn't the USSR, but the idea that consumers can vote with their wallet just isn't the reality we live in anymore.

[1] https://www.the-independent.com/life-style/companies-control...

[2] https://en.wikipedia.org/wiki/List_of_Nestl%C3%A9_brands

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

#142

Post by Workaccount2 »

MagicMoonlight wrote: post #134
Workaccount2 wrote: post #120

Earlier quoted context omitted.

The AI market is a prime example of intense competition going on right now. All the dynamics are there. If it was just one player, like Open AI, we'd still be at GPT-4 turbo and it would cost $400/mo.

They’re all charging the same price…

And losing money hand over fist on it.

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

#143

Post by antasvara »

nomilk wrote: post #17
hrimfaxi wrote: post #13

Earlier quoted context omitted.

> (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) 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.

> 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…

I work in insurance, but not specifically in-depth on regulated insurance rates like personal auto.

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.

[0]: https://www.serff.com/serff_filing_access.htm

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

#144

Post by spwa4 »

wat10000 wrote: post #138
hn-reader-2 wrote: post #126

Earlier quoted context omitted.

Yes of course you can buy cheap and bad quality milk but you should strive to buy good product. Same goes for meat. If you do not invest in yourself then you are wasting money

Are you suggesting that milk was higher quality in 1901? I’ve read enough of The Jungle to doubt that greatly.

Well, people say milk used to taste better and forget that getting bacterial infections from milk was very common. Infections from milk and bread were a significant cause of death.

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

#145

Post by spwa4 »

wat10000 wrote: post #54
spwa4 wrote: post #44

Earlier quoted context omitted.

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%.

True, the situation that changing government relations (international relations, tarrifs, boycotts, taxes, ...) are the biggest factor in the economy is nothing new anymore.
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