4 ms·

We are building smarter and smarter machines that nickel and dime from us at scale. How does this end?

gshulegaard 9y ago
It leads to consumer surplus being further and further converted into supplier surplus. Ultimately, this trend will approach 100% conversion so that there is no more consumer surplus and all surplus is realized by producers. It is an interesting sort of economic reality to speculate about...but I don't really have enough background to even credibly start.
- acchow 9y ago
  You're ignoring the existence of competition...
  - toomuchtodo 9y ago
    You're ignoring duopolies.
  - gshulegaard 9y ago
    Not really, competition only checks this effect if the price-discrimination advantage isn't so compelling such that: 1) All firms start doing it...because what Producer wants to leave money on the table? 2) The firm that does it best gains a significant advantage over competitors thus leading towards non-competitive market conditions. And, from a purely speculative perspective, if the price discrimination advantage wasn't strong enough to result in one of the two above situations, then why would a firm invest in this sort of tech anyway? But, like I said, I am no where near educated enough in the subject matter to really credibly start speculating too far. And it is certainly conceivable that competition could check this trend...but I don't believe it is a sure thing.
    - BurningFrog 9y ago
      Let me try to demystify what we're talking about, and show competition works fine even in this scenario. Let's say a ride is worth $20 for the consumer and $12 for the producer, for a total surplus of $8. If the price they agree on is $14, the consumer surplus is $6 and the producer surplus is $2. If the producer can be sure the consumer values the ride at $20, they can charge $19 and take home most of the surplus. Now lets introduce a competing producer, which is equally competent and can also figure out all this. By your "what Producer wants to leave money on the table?" theory, they would also charge $19, and maybe get half the market that way. But obviously they could also charge $18, get all of the market, and make a lot more money. Producer 1 will obviously retaliate and prices will go down.
      - gech 9y ago
        The only mystifying part is your abstract analogy that never seems to happen in reality
        dnautics 9y ago
        Of course it rarely happens. Let's say I say "go out and make a bus company that captures this market opportunity". How would you even begin to do it?
        nothrabannosir 9y ago
        Yeah, except... all the time. Sibling comment has an example about telecom in France. Google fiber. Low fare airlines which drove down incumbents' prices. This list is as long as the history of economics. Competition doesn't always work. It isn't magic. It may even need assistance. But to say it never happens is just... not.
      - vmarsy 9y ago
        You're describing a "race to the bottom" those 2 competing producers would participate in. But we all know that when there's a quasi-monopoly with only 2/3 big players, they would "cooperate" to maintain the high prices. Phone providers are a good example of this: In France for many years there was phone providers with extremely high prices: 50, 60, or even 70 euros per month for unlimited plans. They were all telling how their prices were fair, that they need infrastructure investments, etc etc. Then came a disrupting player: 'Free', who started charging 20 euros per month for the unlimited plans. Immediately, the 3 other players started offering 20-25 euros unlimited plans as well. The infrastructure hasn't suffered from this, 4G came as expected, and Free is now one of the major players. What would happen in your example, is, unless a 'Free' equivalent shows up, is that they would all charge something around $19.
    - maxerickson 9y ago
      Isn't the way they gain advantage by having the lower price? (so riders with options will not choose the fair with a larger supplier surplus) The reason they invest in the technology is because they are able to utilize it across enormous numbers of fares.
    - baddox 9y ago
      > 1) All firms start doing it...because what Producer wants to leave money on the table? That seems to just skirt around the issue. The basic (Econ 101) point of competition is that if all existing firms are making 100 units of profit, and a new firm can make 50 units of profit by offering an equivalent product at a lower price, then that new firm will take business from the existing firms.
      - deleted 9y ago
        [deleted]
  - r00fus 9y ago
    Cartels and monopolies easily evade competition. And evasion of anti-trust is now just another business expense.
  - droopyEyelids 9y ago
    Competition is an empty suit of armor at this point. It's something we'll try to explain to our grandchildren and they'll try to understand it like we try to understand how people fought duels in the 17th century.

It leads to consumer surplus being further and further converted into supplier surplus. Ultimately, this trend will approach 100% conversion so that there is no more consumer surplus and all surplus is realized by producers. It is an interesting sort of economic reality to speculate about...but I don't really have enough background to even credibly start.

acchow 9y ago
You're ignoring the existence of competition...
- toomuchtodo 9y ago
  You're ignoring duopolies.
- gshulegaard 9y ago
  Not really, competition only checks this effect if the price-discrimination advantage isn't so compelling such that: 1) All firms start doing it...because what Producer wants to leave money on the table? 2) The firm that does it best gains a significant advantage over competitors thus leading towards non-competitive market conditions. And, from a purely speculative perspective, if the price discrimination advantage wasn't strong enough to result in one of the two above situations, then why would a firm invest in this sort of tech anyway? But, like I said, I am no where near educated enough in the subject matter to really credibly start speculating too far. And it is certainly conceivable that competition could check this trend...but I don't believe it is a sure thing.
  - BurningFrog 9y ago
    Let me try to demystify what we're talking about, and show competition works fine even in this scenario. Let's say a ride is worth $20 for the consumer and $12 for the producer, for a total surplus of $8. If the price they agree on is $14, the consumer surplus is $6 and the producer surplus is $2. If the producer can be sure the consumer values the ride at $20, they can charge $19 and take home most of the surplus. Now lets introduce a competing producer, which is equally competent and can also figure out all this. By your "what Producer wants to leave money on the table?" theory, they would also charge $19, and maybe get half the market that way. But obviously they could also charge $18, get all of the market, and make a lot more money. Producer 1 will obviously retaliate and prices will go down.
    - gech 9y ago
      The only mystifying part is your abstract analogy that never seems to happen in reality
      - dnautics 9y ago
        Of course it rarely happens. Let's say I say "go out and make a bus company that captures this market opportunity". How would you even begin to do it?
      - nothrabannosir 9y ago
        Yeah, except... all the time. Sibling comment has an example about telecom in France. Google fiber. Low fare airlines which drove down incumbents' prices. This list is as long as the history of economics. Competition doesn't always work. It isn't magic. It may even need assistance. But to say it never happens is just... not.
    - vmarsy 9y ago
      You're describing a "race to the bottom" those 2 competing producers would participate in. But we all know that when there's a quasi-monopoly with only 2/3 big players, they would "cooperate" to maintain the high prices. Phone providers are a good example of this: In France for many years there was phone providers with extremely high prices: 50, 60, or even 70 euros per month for unlimited plans. They were all telling how their prices were fair, that they need infrastructure investments, etc etc. Then came a disrupting player: 'Free', who started charging 20 euros per month for the unlimited plans. Immediately, the 3 other players started offering 20-25 euros unlimited plans as well. The infrastructure hasn't suffered from this, 4G came as expected, and Free is now one of the major players. What would happen in your example, is, unless a 'Free' equivalent shows up, is that they would all charge something around $19.
  - maxerickson 9y ago
    Isn't the way they gain advantage by having the lower price? (so riders with options will not choose the fair with a larger supplier surplus) The reason they invest in the technology is because they are able to utilize it across enormous numbers of fares.
  - baddox 9y ago
    > 1) All firms start doing it...because what Producer wants to leave money on the table? That seems to just skirt around the issue. The basic (Econ 101) point of competition is that if all existing firms are making 100 units of profit, and a new firm can make 50 units of profit by offering an equivalent product at a lower price, then that new firm will take business from the existing firms.
    - deleted 9y ago
      [deleted]
- r00fus 9y ago
  Cartels and monopolies easily evade competition. And evasion of anti-trust is now just another business expense.
- droopyEyelids 9y ago
  Competition is an empty suit of armor at this point. It's something we'll try to explain to our grandchildren and they'll try to understand it like we try to understand how people fought duels in the 17th century.