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Prices aren't just about supply and demand, but control over supply and demand

dougaldlamont.substack.com

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Re: Prices aren't just about supply and demand, but control over supply and demand

#21

Post by timerol »

xianshou wrote: post #12

The PoW camp example is interesting, but the way this article talks about risk and return makes no sense. The author gives an example of a lottery with a $1m prize, funded by selling 1 million tickets at $1 each, then introduces a "Mr. Behemoth" who can buy as many tickets as he wants. Since he can buy 600k tickets to win 400k, for a 66% return at 3:2 odds, or even 900k tickets to win 100k for an 11% return at 9:1 od…

It was so close to a good example, too. Increasing the payout to $1.1M would make the example make so much more sense. It's positive EV for everyone, but only Mr. Behemoth can control his variance. (This is ignoring finance.)

Re: Prices aren't just about supply and demand, but control over supply and demand

#22

Post by Eji1700 »

vasdae wrote: post #4

There is no practical difference between the two.

Thank you. I really can't find words to explain how baffling this whole thing feels. "Integers aren't just positive" strikes me as a similar title, and the tone isn't "hey other people without a background, I think something clicked for me" so much as "ahhh i've found something they missed!"

Re: Prices aren't just about supply and demand, but control over supply and demand

#23

Post by Eji1700 »

AlexandrB wrote: post #17
thirdplace_ wrote: post #6

> It’s very clear that large companies do abuse their market power (price-fixing and collusion) Can we get some examples of this? (not implying otherwise)

I think Amazon's "most favoured nation" clauses[1] qualify. Or deals like those between Amazon and Apple[2] that excluded third party sellers of Apple products from competing with Apple themselves. Edit: Another example was the collusion between Canada's bread makers[3]. [1] https://arstechnica.com/tech-policy/2021/05/amazon-sued-over... [2] https://9to5mac.com/2022/11/09/apple-amazon-lawsuit-price-fi... [3] https://…

It's also worth mentioning that such activities are generally illegal. The issue is more the enforcement of the laws than it is the laws themselves.

Re: Prices aren't just about supply and demand, but control over supply and demand

#25

Post by legitster »

Nothing that this article discusses is particularly noteworthy or novel - Literally chapter 7 of the most common Econ 101 book (Paul Krugman's) covers "Imperfect Competition" in much better, less circular detail.

However, the mental gymnastics the author performs to reach these conclusions is impressive on its own right. "You are not buying an apple, but the property rights to an apple" is just the sort of non-parody content I have come to expect from Substack writers at this point.

If you are actually interested in how supply and demand work in non-monetary markets (like the POW camp example), I cannot recommend enough "Who Gets What and Why" by Alvin Roth, the father of Kidney exchange programs.

Re: Prices aren't just about supply and demand, but control over supply and demand

#26

Post by haroldp »

xianshou wrote: post #12

The PoW camp example is interesting, but the way this article talks about risk and return makes no sense. The author gives an example of a lottery with a $1m prize, funded by selling 1 million tickets at $1 each, then introduces a "Mr. Behemoth" who can buy as many tickets as he wants. Since he can buy 600k tickets to win 400k, for a 66% return at 3:2 odds, or even 900k tickets to win 100k for an 11% return at 9:1 od…

That example was terrible. The ivory example was terrible. The housing market example is stupendously bad. Not a great article.

Re: Prices aren't just about supply and demand, but control over supply and demand

#28

Post by AlexandrB »

Eji1700 wrote: post #23
AlexandrB wrote: post #17

Earlier quoted context omitted.

I think Amazon's "most favoured nation" clauses[1] qualify. Or deals like those between Amazon and Apple[2] that excluded third party sellers of Apple products from competing with Apple themselves. Edit: Another example was the collusion between Canada's bread makers[3]. [1] https://arstechnica.com/tech-policy/2021/05/amazon-sued-over... [2] https://9to5mac.com/2022/11/09/apple-amazon-lawsuit-price-fi... [3] https://…

It's also worth mentioning that such activities are generally illegal. The issue is more the enforcement of the laws than it is the laws themselves.

The problem is that "illegal" in the context of a corporation means a fine. If the fine is less than the extra revenue generated (and it often is), there's no reason not to engage in the illegal behavior.

From the bread pricing scandal, the amount of coordination that was going on between supposed competitors is crazy. The fact that it took "a decade and a half" to prosecute the case means that much more subtle collusion is probably very common.

> “Retail customers would call threatening to reject a price increase if another retailer was offside in terms of pricing alignment.”

> The coordination was particularly tough between discounters including Walmart, Giant Tiger, Loblaw’s No Frills, Sobeys’ FreshCo and Metro’s Food Basics, the document says.

> “None of them wanted to be the first to implement the price increase …There was always a negotiation process going back and forth between the four retailers where the supplier was trying to coordinate it, because somebody had to be the first to move.”

> According to redacted witnesses cited in the documents, the individual retailers involved were all in favour of taking price increases, and full-price grocers such as Loblaw tended to hike prices first, followed by discounters such as Walmart.

Re: Prices aren't just about supply and demand, but control over supply and demand

#29

Post by mitthrowaway2 »

happytiger wrote: post #13
mitthrowaway2 wrote: post #9

Earlier quoted context omitted.

In which paragraph do you think that phrase belongs?

> That “equlibrium” is an assumption that there are forces in the market that will moderate excess - that the market is self-balancing. This is the argument against regulation or government intervention. > For example, it might be assumed that if supply shrinks, that prices will increase, which will reduce demand because fewer people can afford it, which will lead to a rebound in supply - which means prices will drop…

The author's point here seems to be a bit different than price-elasticity, though. If this were a price elasticity article, then you'd expect this sentence:

> There’s another possibility, however. Imagine that there is a demand for a specific luxury good - say, ivory from elephant tusks.

to be followed with something like "but as it happens, in some cases like luxury goods, demand can actually increase as prices increase! This is called a Veblen Good, isn't that interesting!"

The author instead makes a different point: the 'supply' of elephant ivory can increase despite the underlying rarity of the natural resource, because rising prices create more willingness to poach, and market prices are about how much you have to pay the poacher, not the elephant. This isn't necessarily self-balancing because eventually you do run out of elephants entirely.

This doesn't really strike me as a comment about price elasticity per se.

Re: Prices aren't just about supply and demand, but control over supply and demand

#30

Post by SenAnder »

thirdplace_ wrote: post #6

> It’s very clear that large companies do abuse their market power (price-fixing and collusion) Can we get some examples of this? (not implying otherwise)

To add to the sibling comment: rent optimization software that facilitates collusion between ostensibly competing landlords:

https://arstechnica.com/tech-policy/2023/11/14-big-landlords...

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