The company that I work for uses a dynamic pricing SaaS. This SaaS basically scrapes the 10-15 competitors' ecommerce websites, including the website of the company that I work for and they provide an excel sheet with every product and the price at which every company sells it for. Additionally if you have a contract with this company, you can also provide it your product stock information on a daily basis. This tells the SaaS how quickly or slowly some products are being sold.
It provides two services that I could tell (I'm not a pricing expert)
1. It gives you a "dumb" daily recommendation per product to either lower or increase the price so that your price in on par with the competitor who is selling it for the highest price.
2. It also gives you a "smart" daily recommendation per product to either lower or increase the price so that your price in on par with the competitor who is making the most sales.
Now I see no reason why all 10-15 competitors can't be subscribed to this SaaS and therefore all competitors are pricing their products practically the same. It's hard for me to come to terms with it, because on one hand it is "pricing it right" and on another it is algorithmic collusion.
The only moral issue I see here is that some products are "essential" (think food, toiletries) and therefore the customer will buy these products at prices that they are not comfortable with.
Pricing software offers implicit collusion by providing competitors a way to agree on a price that is equivalent to monopoly prices, without them need to formally meet and agree on a price - which would be easily prosecutable.
This paper discusses how algorithmic pricing produces outcomes that are equivalent to collusion-based pricing in the German gasoline market.
Recent experiences with grocery pricing across North America and Europe look very similar to me. I know some computer scientists who have worked with major grocery retailers to implement fairly sophisticated automatic pricing tools. The goals they work towards are typically fairly simple metrics, like average spend. Even though the goal isn't to gouge consumers, it's easy to see how how this might be the unintended result.
I don't understand the mechanism here. The thing that makes competition work isn't that competitors don't know each others' prices. It's that each participant in the market makes more money by lowering their price below the monopoly price.
No one is selling exactly the same goods anyway, not at that level.
All purchases (wholesale, retail, whatever) are actually auctions, and they remain auctions even if you aren't aware that they are. So if someone was saying to themselves "Dammit, Kroger sells lettuce so high, I could that I could sell it for 4% over cost and still be 20¢ cheaper!" then they are deluding themselves. Ignore the overhead of opening a nationwide chain and all that other stuff.
When they go to purchase lettuce wholesale, as a new competitor, more lettuce doesn't pop up in the fields instantly. Or even quickly. So you end up causing wholesale prices to rise, at least until the agricultural sector catches up, if it does. They were always careful to grow just enough that none of it ends up unsold. Even if you could source it, likely you're getting the lower quality lots (the stuff Walmart goes after just so they can have theirs priced a penny cheaper, that turns slimy 24 hours after putting it in your fridge).
This discourages new entrants, competitors. And gives Kroger some slack if someone does decide to try it.
> They were always careful to grow just enough that none of it ends up unsold.
It is a market. However much they grow, exactly that much will end up sold. They'll drop the price if there is unsold inventory to sell it.
They can't be doing a physical estimate of how much lettuce people eat. If there was any variance at all in how much lettuce gets eaten (which there is) then there'd be constant lettuce shortages where the shelves were empty. That doesn't happen, so we can tell that they are using price signals to control how much gets sold.
The mechanism isn't additional information; it's enabling the collusion the individual participants would already prefer to participate in. With simple inventories (like gasoline), computers aren't essential for collusion. In more complicated markets it's helpful to let the machines do the "heavy" lifting.
When all else is equal, the preference for sellers is to charge the same price a monopolist would choose (assume temporary price excursions don't have long-term ramifications like brand loyalty, and assume that "all else equal" extends far enough that competitors would also drop prices to match to avoid greatly reduced sales).
Realish-time updates, apparently with very simplistic rules, seem to converge near that price point, and the inequalities of various sellers seem to not matter much (because there aren't many, because they average out, because they don't impact price preferences much, ....)
As one player raises their prices incrementally, this information is passed on to all the other players immediately. The software will then "recommend" that other players raise their rates to match. Or the software recommendations a slightly higher price to all players. With players of this size, small increases make a big difference.
This is only true when prices change slowly. If I use a computer to do my pricing, the here’s what can happen in real time.
Player A raises prices. Algorithm automatically raises everyone’s prices to the new average.
Player A lowers prices to be in line with new average.
everyone’s prices come down very slightly because A is now towing the line.
A was able to raise the prices of everyone before anyone can adjust their spending accordingly.
This is a real problem, and big players are going to continue to learn how to game it to the detriment of all.
BTW I’ve seen this strategy play out in online games with heavy botting. It’s funny to see there. Not funny to have potential to happen in real life.
There is no magic about the speed of price changes. If slow or fast price changes made a difference on amount bought, then companies would do that speed. But they don't.
Similarly, prices rising fast doesn't trick people in aggregate to ignore the increase - they still react to price increases.
This is all pretty basic econ. If this "new" system you are afraid of allowed rampant price increases, everything would cost more, yet things have not increased (except for a recent inflationary period completely predicted due to free COVID cash giveaway and Russian oil shocks).
Algorithmic price discovery lowered consumer cost in stock markets big time. It lowers risk to producers as they get up to dat information, and lower risk means lower spread required.
>A was able to raise the prices of everyone before anyone can adjust their spending accordingly.
Not "everyone" will buy at an increased level - if that were true, then the producer would raise the prices anyways. The algorithms only outprice people until those running them realize they screwed up and improve the algorithms.
>big players are going to continue to learn how to game it to the detriment of all
Again, if prices could be raised to get more profit, than that is what companies would have already done. They cannot because people take their dollars elsewhere.
>BTW I’ve seen this strategy play out in online games with heavy botting. It’s funny to see there.
And if it costs people real money, some price out and stop. Same as in reality.
This seems like a huge problem without an easy solution. Now that grocery stores are starting to deploy electronic price tags, I don't see why they wouldn't implement exactly that.
The only ideas I have are to limit how often prices can change or mandate prices, but both of those have some huge implications and downsides.
Did people buy less food after grocery stores raised prices? I doubt it. If you have something people require then you can increase prices a ton as long as you ensure everyone else also does it.
The reason this doesn't happen for groceries is that starting a grocery store is very easy, if everyone increases grocery prices a competitor with lower prices will appear extremely quickly. But for services that are harder to setup you can't do that, replacing a pharma or a chip company isn't something anyone can do even if they had lots of money.
And the reason we don't want a monopoly to set these prices is that it blocks progress. Imagine if you had to pay the maximum you'd be willing to pay for food instead of the cost it takes to produce? You'd be forced to spend most of your salary on food or ration it, that isn't a society you want to live in.
>Did people buy less food after grocery stores raised prices? I doubt it.
Yes they did. So your premise needs checked. Read any news about what happens to food sales as inflation outpaces income and it's abundantly clear stores cannot simply raise prices without losing sales. There's such easy literature to find you don't need to "doubt it" when you can simply check it. For example [1]
Some consumers purchase at the limit of what they can spend - there's no elasticity for them.
> The reason this doesn't happen for groceries is that starting a grocery store is very easy, if everyone increases grocery prices a competitor with lower prices will appear extremely quickly.
But a) it is not clear that this is, in fact, true at this point in time, and b) even if it is, "extremely quickly" is still going to be on the order of a year or two.
The reason I say (a) is because the existing grocery store chains are very large, and very willing to lower prices locally to prevent a competitor from getting an edge on them. They also have significant economies of scale that allow them to drop prices lower than a new local upstart could and still make at least some profit.
In short, the barriers to entry are high enough that a few months of raised prices aren't enough to cause a competitor to appear out of nowhere, and any would-be competitor would need to either have massive resiliency to outlast the incumbents undercutting them (again, locally, such that it wouldn't make a blip in the overall inflation numbers), or somehow start up enough locations all at once that such an undercutting attack would be less feasible and much more visible.
This is the problem with all players raising prices to the same rate at nearly the same time. There are simply no alternatives and people need to pay the higher price. That's kind of the whole point of the article.
The point of the article is to get views. If it were a decent study of facts, it would be better as a peer reviewed article. But it wouldn't stand up to that scrutiny, due to the fact that in such fake collusion any player can gain by breaking the pact.
Even OPEC cannot keep all their members in check to set oil prices - countries routinely undercut them to sell more oil. This has been demonstrated time and time again in industries where people claim long term widespread collusion - such things don't last long.
Not if the product is controlled by an explicit or an implicit cartel. The point being made is that cross company pricing services leads to an implicit and deniable cartelization.
High profit doesn't necessarily mean the players aren't at rock bottom. Some industries need high profits to justify the effort. If all you can eek out is a small profit, you can do just about anything else.
But, assuming there is room to go lower, then the market isn't yet competitive and has room for someone to swoop in and take the spoils. If there is some regulatory barrier that is preventing that, then there was no illusions of it being competitive in the first place.
The only possible reason for barriers to entry is regulation? There are many industries where startup costs are high for reasons intrinsic to the business and margins are relatively low so you are unlikely to get investment from outside sources. Grocery stores for example. You are trying to apply a toy model from econ 101 to explain the behavior of complex real world markets, and when the model doesn't fit you invent bogeymen to blame. This is more like religious fundamentalism than any kind of science.
Grocery stores are already operating at rock bottom – in most markets, at least.
It is not that difficult to try opening your own grocery store. In fact, many restaurants did exactly that during COVID-19 shutdowns. Realistically, succeeding is going to be nigh impossible, though, as there is not much you can compete on. You are not going to be able to sell the product for less.
It is not meaningfully bound by a regulatory barrier, but it is limited by there being no further room for competitiveness, as also spoken to in the previous comment.
I find it very funny that a forum of people who ostensibly work in the highest profit margin businesses in the world, enjoying the highest industry wide compensation to quality of life at work ratios, claim that the lowest profit margin businesses in the world with some of the lowest compensation to quality of ratio work has enough pricing power to allow them to reap undue windfalls of profit.
When it's entirely enabled by your vein of work, it is absolutely fair game to call out your fellow practitioners. Further, not everyone here is FAANG. Nor does everyone here necessarily get the majority of motivation on what they work on from the paycheck rather than the effects of the work done.
As the ostensible computer scientists in the room. Sitting back and not pointing out that there exist "monopoly pricing indirection mechanisms" implemented as businesses is really failing to do one's moral and ethical responsibility.
> As the ostensible computer scientists in the room. Sitting back and not pointing out that there exist "monopoly pricing indirection mechanisms" implemented as businesses is really failing to do one's moral and ethical responsibility.
And yet the empirical evidence is not there due to nonexistent profit margins. Show me the sustained increase in profit margins if you are going to claim malfeasance. And I am not claiming there is not malfeasance, I just don’t want to see innocent parties (those with low single digit profit margins) get accused of it for no reason.
Is it possible businesses are colluding resulting in increased profit margins? Obviously.
But we have publicly listed companies with public financials showing non material increases, or even decreases, in profit margin. Which means those businesses are just increasing prices to cover their own increasing cost of goods sold.
Thank you. Much too often the replies in threads on prices are just a conspiracyfest of people alleging things that make no economic sense without providing any kind of evidence.
Because it is of course completely obvious that collusion among very large, very complex competing entities is a very easy proposition, you just need a magic algorithm to do it! /s
Yeah I'm skeptical. When you say "maintain high profits", maybe that is true maybe it isn't. But they are sharing the market with all of their competitors.
Retail business profit margins are 1% to 5%. Mathematically, how can the prices be any lower without the business failing? Hence we see similar prices everywhere.
Grocery stores especially have 1% or 2% profit margins, so logically, the things they sell must be priced as low as they can. And also why a mom and pop grocery store cannot compete with Walmart/Kroger/Costco/Target/etc, you need those huge economies of scale otherwise your prices will be uncompetitive.
How can grocery store have a 1% to 2% profit margin, when the price of the same item across grocery store chains can vary by 10-30% or more? I can't imagine it coming down to a store having higher costs alone.
>How can grocery store have a 1% to 2% profit margin, when the price of the same item across grocery store chains can vary by 10-30% or more?
1. Individual price discrepancies of "10-30% or more" doesn't really matter. What does matter is overall markups.
2. The stores themselves might be upscale/higher tier, which also makes their stuff more expensive. I'm not talking about whole foods carrying organic products, I'm talking about stores that have better selection, full service butcher/deli, better cleaning, better interior design/decoration, or better location (richer neighborhood).
Ask yourself why the stores that charges 30% more are still around? Likely they operate in different areas, or they offer some services the cheaper place doesn't, or they have higher quality wares etc. Otherwise everyone would go shop at the cheaper store.
Now ask yourself, why doesn't the cheaper store offer those things? Maybe because they costs something?
In 2022, Kroger made $2.2B on $34.8B sales. That’s more than 6% _profit_, never mind margins. These companies are making way more margin than you are saying they are.
Edit: looks like that was just the quarter — still 1% profit which means margins must be far higher. Margins in retail, by the way, are mark-up over wholesale cost.
Those numbers are wrong. Yahoo shows their financials: revenue was 122b, 132b, 137b, 148b for years 2020-2023. Normalized the income was respectively 1.4b, 1.7b, 2.3b, and 2.8b.
Kroger buys other retailers. Their income (and their taxes) will be reduced by (amortization of) the intangible cost of the retailers bought. This is money paid to the shareholders of the retailers who sold out, which should also be counted as income of the retailing sector.
Furthermore, we now have an economy in which many so-called industries have a single-winner or have a race to become the single-winner now in progress. So just about every firm that advertises is paying uncompetitive rates for eyeballs in the media markets, every firm that accepts credit cards paying uncompetitive rates for payment processing, and seemingly every firm that wants to have more control over its pricing is paying exorbitant executive compensation for those who are supposed to bring that about. If the firm is at all profitable, the customers pay for all of that, too.
> Kroger buys other retailers. Their income (and their taxes) will be reduced by (amortization of) the intangible cost of the retailers bought. This is money paid to the shareholders of the retailers who sold out, which should also be counted as income of the retailing sector.
This does not make any accounting sense. Profit (net income) is not a function equity, and what if the prior owners lost money on the investment?
Also, what intangibles are you referring to in a grocery business? The buildings, real estate, supplies etc are all tangibles.
If a corporation buys some stores from another corporation it pays a price. It then values all the tangible assets to find out how much it puts on its books as tangible assets to be depreciated over their respective useful lives. It will quite typically find that it paid more in total for the acquisition than the tangible assets are worth, but it is not usually required to report a loss for paying more than the sum of the values of the tangible assets. The difference is the value of the acquired businesses as going concerns, sometimes called 'good will.' That becomes an asset on the acquirers balance sheet to be depreciated over some period of time. The acquirer may also be able to assign some of the purchase price to capitalize such assets as deferred tax credits, contracts signed by the sold business, trademarks and licenses, etc. Those assets may be written down over years to offset income of the combined entity that would otherwise be taxable. Then there is the possibility of buying a corporation, holding it for a few years and then spinning it off tax-free, which can equivalent to a huge dividend to the shareholders of the purchasing company that never was taxable as corporate income.
>which should also be counted as income of the retailing sector
This makes no sense.
If I own an asset worth X and sell it for X, I made zero profit. Paying shareholders to buy them out is not all profit, it's trading one asset for another.
Next, these deals are rarely simply cash giveaways, but include all sorts of other asset trades (stock in new company, payment over time... etc), also not being simply magic pure profit. Next, they're not simply taken out of one year's profits, but are generally financed by taking on more debt, so this is not some way to hide or reduce profits.
>we now have an economy in which many so-called industries have a single-winner or have a race to become the single-winner now in progress.
This is simply untrue. Pretty much every industry has lots of players. And there's constant churn. There's nearly zero product categories I cannot shop between many sellers.
The larges US banks have under 20% share, and there's literally thousands of banks.
The largest US grocery by dollar share include: Walmart 18%, Kroger 8.8%, Costco 6.4%, Albertson 6.4%, Delhaize 4.3%, Publix 3.7, Sams Club 3.6, Target 2.4, and literally hundreds more.
The same pattern of the largest company follows in pretty much every industry.
So pick some industries where you think there's a single winner that make up a decent amount of consumer sales and list them. I don't think you'll find any.
I have come to suspect such algorithmic pricing “coordination” may be facilitated at the consumer level by sharing of web search results. Recently I was shopping for a circular saw. Eventually to decided on the saw I wanted, and was looking around at pricing. At first, one retailer had the best price, which was $169, $30 off MSRP of $199. Then after searching some more, I noticed another retailer had it for $149, but that was for delivery, and I needed it for a job quickly, so I settled on the first retailer. When I went to the store to buy it, the price ended up being $149.
In this case, this apparent “coordination” worked out in my favor, but the same mechanism could easily be used to raise prices. Either way, if such a mechanism exists, it is troubling.
The difference I see is that in this case, it's the same middleman that visits all the stores (and is welcome at the store) and it's the same middleman that is making the price recommendations to all the stores at near real-time.
How, exactly, are they "grabbing coffee afterwards"? From what I've seen so far, it looks like there is no direct communication between competitors.
If I ran a bakery, say, in New York City in 1900, I could send a boy around to the nearest five bakeries and get answers within an hour. That would be "real time" within that context, in the sense that customers would not respond faster than I could gather the information.
If I ran a stall at a market in, say, 1500s England, selling potatoes, I would know what price my competitors were selling potatoes for, faster even than an hour.
If I ran a gas station at an intersection, I could see at a glance what price my competitor across the street is displaying.
With current stock market tools, I can see the backlog of both buy and sell orders.
When I go to sell a house, my agent tells me the asking prices of comparable houses that are currently for sale, as well as the actual selling prices of comparable houses that have recently sold.
This is how markets are. Sellers know each others' prices.
So the only thing different is your "grabbing coffee afterwards" claim, and so far, I have seen nothing of substance to back it.
The difference is that the bakery boy now works for every bakery on a city, state or maybe even country-wide level and gives advice on how much each baker should take for their bread.
That's always been the case. Market analytics has existed as a service since forever. And the company doing the analysis wants to sell that product to everyone to maximize their sales
So this means more accurate pricing, which generally means better for consumers. The same thing happened in stocks as pricing went electronic, lowering the bid/ask spread. This meant lower trading fees.
The same thing has happened in many markets. Quicker information results in more accurate pricing and lower risk, which translates into efficiency and less dead weight loss.
This is not more accurate prices for consumers, it's more accurate prices for non-consumers (suppliers), so they end up indirectly colluding in a way that lowering prices might not give one any advantage (if the competitors can lower it nearly at the same time and you get negligeable additional sales).
>it's more accurate prices for non-consumers (suppliers)
More accurate prices for suppliers means they can produce with less capital risk, which is generally also good for consumers since the consumers don't have to pay more to give the supplier as large a safety cushion. This has been historically true, it's basic economics, and it's empirically true in the literature.
Think if you produce a product, and there's a lot of risk in your supply chain. You need to charge more for your end product to account for that risk. This can be and is measured.
Remove risk (whether it's credit, inflation, pricing, stability, etc.), and the supplier has less risk.
This is never purely going to profits, since your competitors generally also have the same risk landscape. So any gains perhaps help profits, but some are also used in other sectors of the business - selling cheaper to try and grab market share, better wages to attract better employees, and so on.
> if the competitors can lower it nearly at the same time and you get negligeable additional sales
If you and all your competitors lower prices then likely more of the entire sector of products makes more sales as more people can afford the product. This has been the pattern since the original Luddites - when textile prices dropped from automation the entire sector exploded and produced around 10x as many goods. This too has been the pattern across history and industries.
> It was only when there was a broad narrative shift towards inflation that businesses began increasing prices dramatically
economy makes more sense when you consider that things are being done intentionally and are not just a collection of random events converging to create a scenario that somehow almost always f--ks 90% of people and benefits the top 1%.
Everything makes more sense when you believe it to be intentionally orchestrated by someone or something. That's why this way of thinking is so popular.
“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
― Conspiracy Theorist Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations
You quoted Smith Chapter X Part II, whose argument in context is that the pressure of competition quickly kills attempts at collusion, while surviving conspiracies are enabled by regulation.
The paper contrasts commodities from all other concentrated markets; whereas the former is expected to have an impulse transient response whose price discovery quickly settles by way of competitive forces consistent with Smith, the latter has a salient capacity as price maker to play games.
Megacorps and multi-nationals weren't exactly meta in the 18th century. Exponential tech complexity, sector consolidation, global economies of scale, regulatory capture, the speed of information and capacity of market participants to meaningfully act are just a few modern barriers to entry in concentrated markets suppressing the notional competition that Smith leans heavily into.
To be clear, I was not quoting Smith in support of his contextual argument, but in recognition of what appears to be a universal human tendency that remains. I deliberately did not quote the following "But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies, much less to render them necessary." In light of present data, a case could be made for law.
I upvoted your comment because it's true, and important to keep in mind.
However, in this case, it would be very naive to think there wasn't some intentional orchestration going on.
I like to bring up the recent massive intentionally orchestrated conspiracy by "dozens" of major tech companies to defraud their own employees with "no poaching" collusion. It's estimated that they may have effectively stolen over $8,000,000,000 from their own employees.
> The defendants were high-technology companies Adobe, Apple Inc., Google, Intel, Intuit, Pixar, Lucasfilm and eBay,
The private economy is literally owned by shareholders who want to get paid for holding shares. That's not a theory, not a conspiracy, it's a description of reality.
The mechanism that keeps them in check is competition. We should expect constant attempts to circumvent this mechanism requiring frequent intervention to keep it in place. That's not a conspiracy theory, that's a consequence of incentives working, which is the reason why we have this system in the first place. Not for these incentives, for other better ones, but these come along for the ride. You should expect to see them.
These are basic reasonable expectations you should have in a capitalist economy.
so that the firms that run that kind of fund are the largest shareholders of many firms. If I was a shareholder in, say, Delta airlines, but not American, I might want Delta to compete really hard against American today (at the expense of immediate profits) so that it gains market share and is worth more tomorrow.
If I am a shareholder in all the airlines, however, it makes no difference to me in how the market is partitioned, I just want the industry as a whole to be profitable. So one would imagine that large index fund shareholders would be having conversations to that end with the firms that they own.
The majority of US adults own stock in some form. And as people age, the percentage owning grows significantly. Pensions, retirement funds, savings outside perhaps cash, all provide stock ownership as an asset component.
So by shareholders you mean the majority of everyday people.
Weather makes a lot more sense when you realize it snows the day after all the weathermen collude to tell you it will.
Do you really believe that businesses priced their products low until the business press started reporting on inflation and then realized “oh man, I should raise my prices!”?
Did the (apparent) sudden flourishing of gen-AI from a bunch of different companies come about because the press started reporting on gen-AI? Or do the press start writing about the early part of the wave?
>Do you really believe that businesses priced their products low until the business press started reporting on inflation and then realized “oh man, I should raise my prices!”?
Absolutely yes. They had an excuse they thought their customers would swallow, and saw other companies doing it.
Man, the business press really screwed people over then. If they’d just have kept their traps shut, that inflation wave could have been avoided./s
My view is: A. Injecting as much money into the economy as we did was bound to reduce the value of an individual dollar. B. Sellers would naturally demand more of those less valuable dollars for their goods and services. C. The press then reports on the first signs of that wave landing. D. The rest of the wave then lands.
Starting at step C, it looks like the reporting caused inflation. I think that’s a “wet streets cause rain” analysis of the situation.
It’s quite possible that the injection was the least bad thing given the real and perceived constraints of the day. But the inevitable consequence was the devaluing of the dollar.
If your money is devalued through inflation and your groceries get more expensive, but you can still produce and sell a widget for the same price as before, do you (have to) increase the price of that widget?
Yes, inflation matters a lot, but the psychological part is significant as well (and is conveniently overlooked in basic classical undergrad economics).
A similar thing happened when the Euro was introduced in Europe in 2002: The act of changing the price tags, the confusion of consumers when showing different numbers was an opportunity to hike prices.
> If your money is devalued through inflation and your groceries get more expensive, but you can still produce and sell a widget for the same price as before, do you (have to) increase the price of that widget?
To the extent that you use the profits from selling widgets as the means to buy groceries to feed your family, yes, you have to, unless your family wants to go on a diet.
Well - if the dollar being devalued is the whole story everything should go up by more or less the same %. This was clearly not the case.
Perhaps one could argue that the dollar being devalued triggered inflation but the quantum of it is a combination of mutliple factors - one (and probably the biggest) of which is supplier concentration and their pricing power.
I can see the press playing a role in many situations, take for example a business with long-term/subscription based customers: the meetings to discuss raising prices will necessarily include assessments of the impact on existing customers. Will they be upset? Churn? Strategies to soften the blow or grandfather them into lower rates will be proposed.
But…what if they’ve been reading in the news about how inflation is through the roof and the price of everything is going up? Now they’re psychologically primed for an increase and we can raise prices higher with less concern about the blowback. Make hay while the sun shines.
I think the cash got devalued by super low interest rates floated to the privileged class. Almost everything is financed. It's dumb to not take 2% loans and buy back stock or expand your business...and by expand I mean purchasing a competitor. It seems like small/medium businesses are the only ones who organically expand by purchasing equipment, finding new customers, and hiring anymore.
Agreed. It's pretty wild to see the Fed start pointing fingers at businesses when they've been expanding the money supply for over a decade.
That said, inflation does create an environment where businesses can "reset prices" for reasons other than inflation driving up costs. But that's inflation in general - it creates an environment of rising wages, rising costs and a vicious circle where price increases in one place, drive price in other places. It's one reason why inflation is so hard to break. When expectations are that "prices are going up faster" then people's behavior changes.
Your first paragraph argues against itself. If the Fed expanded the money supply for over a decade with little to no inflation as a result until the world saw an unprecedented global pandemic that implies maybe what the fed was doing wasn't the root cause.
> Do you really believe that businesses priced their products low until the business press started reporting on inflation and then realized “oh man, I should raise my prices!”?
Do you really think a believable excuse people will swallow doesn't make a difference in what companies can get away with? (Especially one that's global?)
See, for example, daily housekeeping in hotels. Hotels were trying to do away with this pre-COVID, without much success; people correctly saw it as a measure to boost profits at customers' expense.
People accepted "oh it's COVID" as an explanation, so they got away with it, and it's not going to come back.
The prices you charge are in part caused by input prices, except if you wait until the input prices go up you might not have enough padding to pay for it, so if you think the inputs are going to go up in the future you raise prices now.
A lot of economics assumes that businesses don't collude on prices/employee conditions etc, this isn't true in my experience. Casual conversations, business magazines, investors, even monitoring other companies prices all set the norms, a truly free market doesn't exist.
“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
― Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations
this is why i think markets tend to do opposite of what i expect.
for me, war is bad so i expect markets to go down...but instead they rally. because war is good for the 1%.
markets are ultimately driven by the incentives and best interest of the monopolists. and there is always a monopoly whatever the political or economic system is called.
the stock market rally this year which put S&P and Nasdaq at one point their best year since 1995 and 1970s was presented in the media heavily as an AI narrative rally. but you can see the markets started rallying (and diverged from most other markets) on the exact day that the BTFP (bank term funding program/shadow liquidity) was announced to bailout SVB and provide another money spigot for bankers to yolo into.
> But are there other examples? Yes. One mind-blowing story from ProPublica that came out in 2022 was about landlord software sold by a firm called RealPage, which essentially told big landlords to raise rents by showing them “data RealPage gathers from clients, including private information on what nearby competitors charge.” There’s a quasi-consulting arrangement here too, as “RealPage discourages bargaining with renters and has even recommended that landlords in some cases accept a lower occupancy rate in order to raise rents and make more money.”
> RealPage is now facing at least seven private antitrust class action suits, as lower output and higher prices are classic signs of monopoly power. What’s fascinating is that here again, an economist would look at these markets and see competition and multiple rivals renting out apartments, but they would miss that there’s a cartel, or rather a set of regional cartels coordinated by a software platform, operating to boost prices and margins.
Zillow tells landlords they are "losing money" if their rent is less than similar apartments in the same area, while also telling the landlord they are "the market leader" when they have the highest rent in an area. I bet in a more fair world, that little mechanism would be illegal.
You don't need a house somewhere in the US, you need one in a job market where you can support yourself. Remote jobs are still rare, and long term I don't think they will pay well.
So what do we do if price discovery zeros out consumer surplus because pricing based profit maximation by competitors creates synthetic oligopoly or monopoly pricing? Move to auctions everywhere? Something else?
To use your analogy, the gas station owner would have to drive by every competitor in their city, as well as all the neighboring cities, as well visit every similar populated city in their country to get the same information. A service that tells sellers what they should charge is what I don't like. I seriously expect in many situations, these "price aggregators" are probably corporate subsidiaries of the market leaders.
They’d have to do that iff someone would consider buying gas 50 or 500 miles away as a reasonable substitute for buying gas from them.
> A service that tells sellers what they should charge is what I don't like.
Is it only the “tells sellers what they should charge” part that you specifically object to (the conditional messaging) or do you also object to the lesser “tells sellers what others are charging”?
> only the “tells sellers what they should charge” part
that, and when they inform the seller they use emotionally loaded language implying "if they are not the market leader, they are leaving money on the table, like a fool." Yes, the service consumer has to be a little manipulable for such mechanisms to work, but they do, nearly all the time.
In Canada there is a grid, and the affluence of each grid impacts the price of gas sold in that grid. You can have swings of 20¢/L from one side of the tracks to the other - all sold by the same chain, fueled by the same trucks equidistant from the depot.
So if monopolies and price signaling drives prices up, what can be used from the consumer's side to drive them down? Price comparison would work, but inevitably those engines will discover their own power to fix prices. What is better
Separate marketplace and merchant using regulation.
Separate Amazon the platform/marketplace from Amazon the merchant. Two different companies.
Imagine a duopoly where NYSE and Nasdaq Inc. operate the marketplace and are the only stockbroker in their marketplace. That's what Amazon is for stuff they sell.
This is already illegal. So, the answer is simple: take every penny from the executives and throw them in gen pop.
I understand that we let our owners get away with worse without doing anything to stop them. Our current government can't even stop Tesla from committing mass murder, chocolate companies from enslaving people, or tobacco companies from deliberately poisoning children. But the laws are on the books and the solution is no mystery.
You mean like some kind of organisation designed to regulate the behaviours of businesses and individuals over the long term such that the general population isn't exploited or abused by the few, and tragedy of the commons style problems can be avoided?
> The goal of such a platform should not be to make money, but to make the market more efficient.
This. Proponents of fully free markets often conveniently ignore that it’s almost always cheaper to sell products of unethical means, absent outside intervention. It’s always cheaper for nestle to sell slavery-produced chocolate than not, and nothing in free market capitalism can effectively address questions of ethics.
1. The graph makes it look like COVID lockdowns are driving the current conversation. That wasn't caused by monopolies.
2. Given the experiences in the health and energy sectors, the first question should be whether it is legal to compete. Those sectors might be the worst for competition being nipped in the bud by regulation - but it seems unlikely that they are alone. It'll be happening everywhere.
This should be the easiest era in history to start a new business and eat in to those fat margins. If people aren't, that does say something about the state of market regulation.
> 1. The graph makes it look like COVID lockdowns are driving the current conversation. That wasn't caused by monopolies.
I don't think anyone is claiming that covid policies and covid itself had no effect, the argument is that the events of 2020 created the circumstances that businesses exploited to drive profits and inflation.
> This should be the easiest era in history to start a new business and eat in to those fat margins. If people aren't, that does say something about the state of market regulation.
regulations are far from the only barrier to entry
Well, roenxi specifically mentioned health and energy. Healthcare isn't a free market. It's an FDA regulated market.
Say I've got a killer (um, bad choice of adjectives) idea for a new way to do heart stents. I could create a startup and develop them. But then I've got to get them FDA approved before anyone can actually use them. That's going to cost a decade, and one or more tens of millions of dollars. So startups aren't going to come save us from high healthcare costs, even if there's inefficiencies or price-gouging in the healthcare market.
Energy is kind of the same way. You have an idea for a more efficient way to do a refinery? You can't just go build one, not without EPA approval (plus local zoning regulations).
Now, in both cases, the regulations are there for good reason. I don't want my doctor implanting Billy Bob's Discount Shunt Of The Week in my coronary artery, thanks. But healthcare is more costly than it would be in a freer market.
The idea is that fewer people die with the regulations. But the regulations also mean that some people die because they can't afford the healthcare. Is it a net win? I don't know.
> the regulations also mean that some people die because they can't afford the healthcare.
Healthcare costs have no relation with how many people can get coverage.
Civilised societies provide healthcare to all residents; the related costs impact taxes, but not number of deaths. People dying for not being able to afford the care is only a problem in barbaric countries.
> Healthcare costs have no relation with how many people can get coverage.
Sure they do - even in "civilised societies".
Let's say your government is willing to spend 10% of its budget on healthcare. Well, if healthcare costs twice as much, then the citizens get half as much healthcare.
And, in practice, isn't that how it works out? Basic care is available to everyone. If you need the heart surgery or the expensive cancer treatment, well, there's a long wait list, because they aren't paying for very many of those each month, so get in line.
So, yes. The regulations also mean that some people die because society can't afford the healthcare. (Or at least doesn't afford the healthcare.)
Price rises are always, everywhere, a lack of effective competition.
Price competition only works when there is excess capacity to supply and a very definite and immediate downside to not using that capacity (ie you'll go bust).
It’s the sort of statement that stands up, but you must contort things like “shortage of components” into “a lack of competition”. So, true, but limited usefulness, perhaps.
Collusion in general doesn’t work if there’s not a mechanism to punish defection—or government regulation to prevent it!
I don’t see what that mechanism or regulation would be for, say, pork prices. It seems far more likely that accurately collated pricing information is simply driving efficiency for each individual supplier.
That is just naive game theory. Humans can actually cooperate if cooperating makes everyone better off even if game theory says they shouldn't cooperate, has been tested and shown to be true over and over.
So the question is if the companies collectively benefits from colluding? If yes then they probably will do so, at least when the number of competitors are small and inhouse alternatives are expensive.
This article doesn't really explain why a set of competitors in a given industry would agree to collude and keep prices high. Sure, I agree that Amazon or other very large companies may decide to increase their margins, because they are a quasi-monopoly. But why would a company that has 5% market share raise prices when they learn all their competitors have done so? Why wouldn't they keep prices at bay and compete for a larger market share?
Interest rates were low, money supply was high, supply chains were broken and we had an inflation spike throughout the world. Now the situation is reversed and prices are falling again. I think greed is a constant variable here, and one that does not properly explain why we see this pattern at all. Are companies less greedy this year? Have we punished their collusion attempts?
It shows how governments are powerless when it comes to big corporations.
Technically price-fixing is illegal, but if you call it price-matching and you ensure that you don't meet with your fellow competitors somewhere in a dark basement and fix prices under the light of candles, but instead you do it in the open and even say which competitor you match prices with, then it is all good and legal!
Businesses have an incentive to bring down consumer surplus (or "convert" it into intangibles on the consumer side). Optimizing pricing (willingness to pay, etc.) is in that direction. And once companies focus on profit not revenue, the equilibra forming could well show pricing more like in an oligo- or monopoly than a competitive market.
Every application already believes its at address 0 and can allocate as much memory as it wants. This is literally fractional reserve banking applied to memory management. Seems to be ok.
If purchasers could effectively collude to fix the prices they were willing to pay, the market would even out. Unfortunately people need food and shelter far more than any business needs to provide them.
I’ve been lightly pushing on the idea of there being a “soft” cartel on product prices for a while and have had a lot of people push back on the idea. But it doesn’t take a bunch of ne’erdowells sitting in a smoky dark room plotting out high prices. If I’m company A and I see company B selling the same widget as mine for $5, should I sell it for $4 or $5? What’s the downside of selling it for $5, especially if it doesn’t seem like it matters. During the pandemic, people showed they didn’t really care what things cost if they wanted them. So companies just aren’t behaving like economists say they will. They have no reason to when customers have no other choice. I mean, what are we going to do?
Here we go again with "Inflation is being driven by companies that somehow just discovered monopolistic practices in 2020, coincidentally at the same time of the largest government stimulus in decades"
So dumb and out of touch. Should be self evident especially to the people here who lived the tech boom money explosion that that stimulus lead to.
One, insulting and name calling doesn’t further the discussion.
Two, is there any concrete evidence that may change your mind from the current position of “businesses can’t have done anything bad so if anything has gone bad it’s the government’s fault”? If yes, and if the standards for proof are reasonable, others may try to find such evidence or fail to, thus furthering the conversation. If not, consider how dogmatic your position is, and how you can open up your mind for fruitful conversations.
You know what else is out of touch? A lack of nuance. For instance the boom in tech is only one small part of the actual story. It gives several other examples such as price fixing in Ag, the rental economy, even tipping.
To your point, at the same time as the post-covid price fixing was going on The Fed was blaming inflation on "a current labor force shortfall of roughly 3-1/2 million people,"[1] which drives up wages, which drives up prices, which drives up inflation.
So there's truth to what you're saying (we didn't even get into stimulus checks), but there's truth beyond it as well, and this article brings up good points.
The stimulus checks are meaningless and not at all what I mean by "stimulus"
You can tell someone is a layman on the topic if they think "stimulus" refers to stimulus checks. What the gov and the fed did on the backend was so insane in scale, and seemingly few people actually grasp it, swimming in a swamp of "greedflation" and "wage war" articles. They actually think people like me are talking about a few dinky checks...
I said we "didn't even get into" stimulus checks. So what's your point again, or were you just trying to grab any one point you could to refute with bile?
Just look at those charts and then tell me how "price fixing" drove inflation more than "tons of cash in consumers pockets". No shit companies jacked prices, consumers where stacked with cash.
The only medium for creating monopolistic power is government. Unless laws or regulation exist to create barriers of entry to market by businesses then the prices are always competitive.
Cartels have been proven 100x over to not be feasible. Even classic examples like standard oil prove the monopolies aren't possible, because Standard Oil was out competing all market competitors on price, quality, and innovation.
Only thing close to a modern day monopolistic behavior is growth before profit capitalism we've seen over the last 20 years. Now that interest rates are going back up it's finally coming to an end.
> The only medium for creating monopolistic power is government.
This is naively incorrect.
Economies of scale exist. Larger companies have lower overheads, which leads to an advantage in pricing, which leads to large companies becoming larger, until there's only one left. This is a natural consequence of markets: absent outside intervention, they trend towards monopoly over time. Competition is not the natural state of a market. If you want competition (which you should, because competition is good for consumers) then you need outside intervention, which, if all else fails, must be the task of the government.
IF competition cant exist because of economies of scale, that means consumers are are better off with the monopoly than with competition.
Let me say that again, if a new competitor cannot undercut a monopoly, the customer would not be better off with more competition.
Nobody wants the government to break up a monopoly because economies of scale allow them to sell goods too cheaply.
If profits are high, there is room for competition.
If profits are low, customers are getting a good deal.
The only things that breaks this are 1) regulation to prevent competition despite high profits, or 2) anti-competitive practices like price dumping, exclusive contracting, ect.
Imagine a world where only one company can make cutting-edge semiconductors. A competitor could easily undercut their prices, but only after years of research and billions of dollars, which nobody is willing to invest.
You can say "not a true monopoly" all you want, but the fact is buyers would be much better off if there was more than one supplier. And there have been many cases of such a dominant supplier in the last few years.
I encourage everyone to watch/listen to Peter Thiel's "Why Monopolies Are a Good Thing."
Thiel is a objectivist (Ayn Rand acolyte). This puts him in a position to argue a libertarian/conservative-like position, but with a very different moral framework.
The idea that economics is a morally-neutral science is hard to find evidence for irl.
Divide economists into "Austrians," "Monetarists," "Keynesians" "Marxists," etc. They will divide politically, epistemologically and ethical philosophy into their respective schools. That is just how it is.
Anyway... Peter. His talk on monopolies reaches convergence on various points that don't normally.
It provides two services that I could tell (I'm not a pricing expert)
1. It gives you a "dumb" daily recommendation per product to either lower or increase the price so that your price in on par with the competitor who is selling it for the highest price.
2. It also gives you a "smart" daily recommendation per product to either lower or increase the price so that your price in on par with the competitor who is making the most sales.
Now I see no reason why all 10-15 competitors can't be subscribed to this SaaS and therefore all competitors are pricing their products practically the same. It's hard for me to come to terms with it, because on one hand it is "pricing it right" and on another it is algorithmic collusion.
The only moral issue I see here is that some products are "essential" (think food, toiletries) and therefore the customer will buy these products at prices that they are not comfortable with.