8 ms·

Is it a cosmic coincidence that these two large competitors are going to increase fees at exactly the same time?

by tome 8y ago

iaw 8y ago
Has to be if there's no documented evidence otherwise, right?
dontbenebby 8y ago
Your comment reminds me of a recent article I read (on HN iirc but can't find the comment thread): https://www.technologyreview.com/the-download/612947/pricing-algorithms-can-learn-to-collude-with-each-other-to-raise-prices/ https://www.technologyreview.com/the-download/612947/pricing... >Researchers at the University of Bologna in Italy created two simple reinforcement-learning-based pricing algorithms and set them loose in a controlled environment. They discovered that the two completely autonomous algorithms learned to respond to one another’s behavior and quickly pulled the price of goods above where it would have been had either operated alone. >“What is most worrying is that the algorithms leave no trace of concerted action,” the researchers wrote. “They learn to collude purely by trial and error, with no prior knowledge of the environment in which they operate, without communicating with one another, and without being specifically designed or instructed to collude.” This risks driving up the price of goods and ultimately harming consumers. I don't think it's out of the realm of possibility that two companies could arrive at such a move without conscious collusion. I also don't think it should be treated differently. Long term, I think Visa an MC could shoot themselves in the foot. Merchants are now allowed to charge fees for using CCs IIRC in at least some areas. You could easily end up with a situation like Europe where people mostly use debit cards for in person purchases since the processing fees are lower. Consumers lose the protection of a buffer from their bank account, issuers lose out on revenue. Not a good outcome IMHO.
- jfoster 8y ago
  Of course. They also share most of their customers. Their business model is the same. A lot of their metrics probably trend similarly. Each would definitely know what the other is up to without talking directly.
- etrautmann 8y ago
  Is this essentially a variant of the "tit for tat" strategy in an iterated prisoner's dilemma? It seems analogous
  - will_brown 8y ago
    The prisoners dilemma is ultimately just a demonstration of game theory. That is there is more than you win/I lose or I win/you lose but there is win/win. It’s definately conceivable two algorithms or two ai would be capable of concluding the same. In fact it may be even easier because what’s the actual dilemma/self interest of such a system without the selfishness of human nature?
    - roywiggins 8y ago
      Why would you intentionally operate an AI that wasn't as selfish as possible?
      - will_brown 8y ago
        Because game theory/prisoners dilemma/the red black game (whatever you want to call it) suggests you would get a better outcome otherwise.
      - 8note 8y ago
        if you ruin your only competitor, the antitrust folks will come after you
        pas 8y ago
        Nah, they still can come after you if you prevent new firms to enter the market. (But if you just do the usual regulatory capture the gov. will be just happy for you, as you gave them a lot of busywork for nothing.)
    - raverbashing 8y ago
      My pet peeve is how "The Prisoner's dilemma" is the most commonly used example of game theory while being one of the worse examples (because it involves no information exchange and a skewed payback)
- benologist 8y ago
  What do European banks do when debit card fraud occurs?
  - CydeWeys 8y ago
    European banks use chip and PIN cards which are much less susceptible to fraud. So they're fine.
    - conductr 8y ago
      Am I wrong to assume most fraud is online? How does Europe deal with big data breaches and the like?
      - CydeWeys 8y ago
        2-factor auth is typically mandatory when using a chip and PIN card to buy things online. Rather than physically entering the PIN on a keypad, you're doing something through a flow using your user account with the bank. So not only would the random retailer need to be compromised, but the bank would have to be as well.
      - felipelemos 8y ago
        In that case what is the difference between credit and debit usage?
        benologist 8y ago
        Arbitrary "protection" policies anyone can implement, powered by Visa and Mastercard?
        jmiserez 8y ago
        In practice, here in Europe credit cards are often worse because the seller can add additional charges after the transaction using just the CC number (even with chip+pin CCs) whereas this is impossible with a chip+pin debit card. And the CC "protection policies" aren't that useful here, in my experience it's near impossible to do a successful chargeback and there are few cards with high cashback.
- nsedlet 8y ago
  There was this thread from awhile ago: "Cartels Are an Emergent Phenomenon, Say Complexity Theorists" https://news.ycombinator.com/item?id=3494224 https://news.ycombinator.com/item?id=3494224
btian 8y ago
But they're not competitors. They just happen to provide the same service. Cooperation is the way to maximize profits for both companies.
- jfoster 8y ago
  Look at AMEX, which has been rebuked by many merchants due to higher fees. The biggest risk for Visa & MC in doing this is that AMEX might begin to seem more swallowable for merchants.
  - CardFellow 8y ago
    Amex actually lowered their fees to be more in line with Visa/MC through its Optblue program back in 2015. The fact that many businesses don't know that is just a testament to the complexity and confusion in the industry. Source: am in the industry.
    - jfoster 8y ago
      Would that mean that after Visa & MasterCard do this, AMEX will actually be the better option for merchants?
      - CardFellow 8y ago
        We don't know which rates Visa/MC are actually raising yet, but probably not. It has a lot to do with how/what processors charge. Along with lowering costs, Optblue let processors add a markup to Amex transactions. (Previously they couldn't. That meant no incentive for processors to suggest or push Amex acceptance, as they didn't make money on Amex transactions.) Now they can, and those markups tend to be higher than for Visa/MC. In egregious cases, the processor simply continues charging the business the old Amex rate (~3.5%) and pockets the entire difference between 3.5% and the new lower rates.
        theshortofit 8y ago
jasode 8y ago
Several forces would contribute to both VISA and MC changing fees at the same time. - the typical open and transparent "price signaling" where competitors can "see" others' price changes. Similar to one airline immediately changing (matching) a ticket price in response to another airline lowering or raising its price. Same mechanism as Amazon bots constantly web scraping Best Buy and Walmart and Best Buy in turn scrapes Amazon. Everybody is constantly monitoring everybody's prices. - Visa and MC have overlap of owners[1][2]. 4 out of the top 5 owners are the same for both: Vanguard, Blackrock, FMR, State Street - Visa and MC have overlap of member banks that also have minority ownership Yes, you were being sarcastic about the coincidence but it seems like the natural economic equilibrium is for both to have near identical network fees. [1] Visa top 5 institutional stockholders: https://www.nasdaq.com/symbol/v/ownership-summary https://www.nasdaq.com/symbol/v/ownership-summary [2] MC top 5 institutional stockholders: https://www.nasdaq.com/symbol/ma/ownership-summary https://www.nasdaq.com/symbol/ma/ownership-summary
- chrisbolt 8y ago
  The overlap of owners means nothing, as those are mutual funds or ETFs that are the top owners of most stocks on the market.
  - sjjshvuiajhz 8y ago
    It seems relevant - if company leadership is attempting to act in the best interests of the shareholders, the fact that the shareholders also own their competitors would tend to bias them against engaging in a price war (even one that they would have a good shot at winning).
  - prickledpear 8y ago
    These mutual funds and ETFs actively participate in corporate governance, and the overlapping ownership of most stocks in the market is a very underrated problem. Economists have found evidence that as ownership concentration increases, firms act more like a monopoly. See this paper for one example in the airline industry: https://onlinelibrary.wiley.com/doi/full/10.1111/jofi.12698 https://onlinelibrary.wiley.com/doi/full/10.1111/jofi.12698
benj111 8y ago
That's why they're 'mulling'. Company A 'mulls' something, company B and C follows, X gets done. If company A mulled something and no one else piped up, they could still of course go it alone, or they could decide that they want to help save their customers even more money, and not raise prices.
puranjay 8y ago
Capitalism has failed in a way. The free market was supposed to facilitate competition. But what we've seen is increasing consolidation, not competition. Most industries are dominated by a handful of players who gobble up smaller rivals, who, after raising millions in funding, are too happy for the exit. All data shows the same: competition is being trumped by consolidation and its eventual end, cartelization
- TimTheTinker 8y ago
  > Capitalism has failed in a way. That's not to say that capitalism is thus refuted as an economic model. All it means is that someone hasn't been doing an adequate enough job (probably regulators or lawmakers, in this case). Capitalism's success is always a function of adequate rule of law, economic regulation, social trust, and personal generosity. Where those are present, it absolutely trounces other models.
  - sitkack 8y ago
    Capitalism is astable and requires a negative feedback framework to operate properly. It also has a narrow habitable zone otherwise it will cause an ecosystem collapse. Capitalism isn't just a hand, it is mostly a mind that runs as an overlay over all the participants willing or not, and it isn't very bright, but it is very powerful. We are all but rabbits under its strong hands. https://www.youtube.com/watch?v=ArNz8U7tgU4 https://www.youtube.com/watch?v=ArNz8U7tgU4
  - CardFellow 8y ago
    I'll agree that processing is surprisingly lightly-regulated.
- pas 8y ago
  global markets, network effects are king. these services should not operate as for-profits. though efficient oversight is also hard :(
bedhead 8y ago
In economics this is called tacit collusion
- savanaly 8y ago
  Wouldn't we observe the exact same behavior if the two were in an equilibrium where long term average cost was minimized (and, incidentally, equal to the price) and something caused LTAC to rise?
clairity 8y ago
just use cash. can’t be tracked and it works everywhere (however i’ve run into one cashless shop recently). it’s unweildy for large transactions though, so checks or (reluctantly) cards are useful there.
- bb88 8y ago
  Also Delta flights don't accept cash transactions.
  - inferiorhuman 8y ago
    Delta Connection flights (potentially single class cabin only) only take cash. United also did away with cash transactions onboard. Of course, if people stop buying things on board because they can't use cash the airlines will switch back.
    - bb88 8y ago
      Technically that's not Delta. That's run by a third party because it's not cost effective for Delta to operate small jets.
      - inferiorhuman 8y ago
        > Technically that's not Delta. That's run by a third party because it's not cost effective for Delta to operate small jets. Technically it depends, but it's still Delta branded with Delta setting the policies. Endeavor Air is, for instance, wholly owned by Delta.
  - clairity 8y ago
    ah, yes, i don't usually buy stuff on a plane but that's a more prevelant example that i couldn't remember earlier.
  - anonymous5133 8y ago
    Don't fly delta then.
ams6110 8y ago
Just like all the gas stations in an area raise and lower their prices at the same time and in the same amounts.
- davidsawyer 8y ago
  Gas stations do that at a very regular cadence: daily. Visa and Mastercard change prices much less often than that, so this take is a little too apples-and-oranges for me.
  - CardFellow 8y ago
    It's true that they don't change prices daily, but it's also not particularly uncommon for them to do so. Visa raised an assessment I think last January? And interchange fees have changed several times over the years as well.
- dogma1138 8y ago
  Gas stations change their prices based on their primary supplier for a given area these prices tend to be more or less the same, they also don’t make money on selling gas these days but rather of the convenience store/restaurant or by leasing that space to someone.
JustSomeNobody 8y ago
No. I'm sure they use similar algorithms to determine when to increase fees.

Is it a cosmic coincidence that these two large competitors are going to increase fees at exactly the same time?

by tome 8y ago

Is it a cosmic coincidence that these two large competitors are going to increase fees at exactly the same time?

iaw 8y ago

Has to be if there's no documented evidence otherwise, right?

dontbenebby 8y ago

Your comment reminds me of a recent article I read (on HN iirc but can't find the comment thread): https://www.technologyreview.com/the-download/612947/pricing-algorithms-can-learn-to-collude-with-each-other-to-raise-prices/ https://www.technologyreview.com/the-download/612947/pricing... >Researchers at the University of Bologna in Italy created two simple reinforcement-learning-based pricing algorithms and set them loose in a controlled environment. They discovered that the two completely autonomous algorithms learned to respond to one another’s behavior and quickly pulled the price of goods above where it would have been had either operated alone. >“What is most worrying is that the algorithms leave no trace of concerted action,” the researchers wrote. “They learn to collude purely by trial and error, with no prior knowledge of the environment in which they operate, without communicating with one another, and without being specifically designed or instructed to collude.” This risks driving up the price of goods and ultimately harming consumers. I don't think it's out of the realm of possibility that two companies could arrive at such a move without conscious collusion. I also don't think it should be treated differently. Long term, I think Visa an MC could shoot themselves in the foot. Merchants are now allowed to charge fees for using CCs IIRC in at least some areas. You could easily end up with a situation like Europe where people mostly use debit cards for in person purchases since the processing fees are lower. Consumers lose the protection of a buffer from their bank account, issuers lose out on revenue. Not a good outcome IMHO.

jfoster 8y ago
Of course. They also share most of their customers. Their business model is the same. A lot of their metrics probably trend similarly. Each would definitely know what the other is up to without talking directly.
etrautmann 8y ago
Is this essentially a variant of the "tit for tat" strategy in an iterated prisoner's dilemma? It seems analogous
- will_brown 8y ago
  The prisoners dilemma is ultimately just a demonstration of game theory. That is there is more than you win/I lose or I win/you lose but there is win/win. It’s definately conceivable two algorithms or two ai would be capable of concluding the same. In fact it may be even easier because what’s the actual dilemma/self interest of such a system without the selfishness of human nature?
  - roywiggins 8y ago
    Why would you intentionally operate an AI that wasn't as selfish as possible?
    - will_brown 8y ago
      Because game theory/prisoners dilemma/the red black game (whatever you want to call it) suggests you would get a better outcome otherwise.
    - 8note 8y ago
      if you ruin your only competitor, the antitrust folks will come after you
      - pas 8y ago
        Nah, they still can come after you if you prevent new firms to enter the market. (But if you just do the usual regulatory capture the gov. will be just happy for you, as you gave them a lot of busywork for nothing.)
  - raverbashing 8y ago
    My pet peeve is how "The Prisoner's dilemma" is the most commonly used example of game theory while being one of the worse examples (because it involves no information exchange and a skewed payback)
benologist 8y ago
What do European banks do when debit card fraud occurs?
- CydeWeys 8y ago
  European banks use chip and PIN cards which are much less susceptible to fraud. So they're fine.
  - conductr 8y ago
    Am I wrong to assume most fraud is online? How does Europe deal with big data breaches and the like?
    - CydeWeys 8y ago
      2-factor auth is typically mandatory when using a chip and PIN card to buy things online. Rather than physically entering the PIN on a keypad, you're doing something through a flow using your user account with the bank. So not only would the random retailer need to be compromised, but the bank would have to be as well.
    - felipelemos 8y ago
      In that case what is the difference between credit and debit usage?
      - benologist 8y ago
        Arbitrary "protection" policies anyone can implement, powered by Visa and Mastercard?
      - jmiserez 8y ago
        In practice, here in Europe credit cards are often worse because the seller can add additional charges after the transaction using just the CC number (even with chip+pin CCs) whereas this is impossible with a chip+pin debit card. And the CC "protection policies" aren't that useful here, in my experience it's near impossible to do a successful chargeback and there are few cards with high cashback.
nsedlet 8y ago
There was this thread from awhile ago: "Cartels Are an Emergent Phenomenon, Say Complexity Theorists" https://news.ycombinator.com/item?id=3494224 https://news.ycombinator.com/item?id=3494224

btian 8y ago

But they're not competitors. They just happen to provide the same service. Cooperation is the way to maximize profits for both companies.

jfoster 8y ago
Look at AMEX, which has been rebuked by many merchants due to higher fees. The biggest risk for Visa & MC in doing this is that AMEX might begin to seem more swallowable for merchants.
- CardFellow 8y ago
  Amex actually lowered their fees to be more in line with Visa/MC through its Optblue program back in 2015. The fact that many businesses don't know that is just a testament to the complexity and confusion in the industry. Source: am in the industry.
  - jfoster 8y ago
    Would that mean that after Visa & MasterCard do this, AMEX will actually be the better option for merchants?
    - CardFellow 8y ago
      We don't know which rates Visa/MC are actually raising yet, but probably not. It has a lot to do with how/what processors charge. Along with lowering costs, Optblue let processors add a markup to Amex transactions. (Previously they couldn't. That meant no incentive for processors to suggest or push Amex acceptance, as they didn't make money on Amex transactions.) Now they can, and those markups tend to be higher than for Visa/MC. In egregious cases, the processor simply continues charging the business the old Amex rate (~3.5%) and pockets the entire difference between 3.5% and the new lower rates.
      - theshortofit 8y ago

jasode 8y ago

Several forces would contribute to both VISA and MC changing fees at the same time. - the typical open and transparent "price signaling" where competitors can "see" others' price changes. Similar to one airline immediately changing (matching) a ticket price in response to another airline lowering or raising its price. Same mechanism as Amazon bots constantly web scraping Best Buy and Walmart and Best Buy in turn scrapes Amazon. Everybody is constantly monitoring everybody's prices. - Visa and MC have overlap of owners[1][2]. 4 out of the top 5 owners are the same for both: Vanguard, Blackrock, FMR, State Street - Visa and MC have overlap of member banks that also have minority ownership Yes, you were being sarcastic about the coincidence but it seems like the natural economic equilibrium is for both to have near identical network fees. [1] Visa top 5 institutional stockholders: https://www.nasdaq.com/symbol/v/ownership-summary https://www.nasdaq.com/symbol/v/ownership-summary [2] MC top 5 institutional stockholders: https://www.nasdaq.com/symbol/ma/ownership-summary https://www.nasdaq.com/symbol/ma/ownership-summary

chrisbolt 8y ago
The overlap of owners means nothing, as those are mutual funds or ETFs that are the top owners of most stocks on the market.
- sjjshvuiajhz 8y ago
  It seems relevant - if company leadership is attempting to act in the best interests of the shareholders, the fact that the shareholders also own their competitors would tend to bias them against engaging in a price war (even one that they would have a good shot at winning).
- prickledpear 8y ago
  These mutual funds and ETFs actively participate in corporate governance, and the overlapping ownership of most stocks in the market is a very underrated problem. Economists have found evidence that as ownership concentration increases, firms act more like a monopoly. See this paper for one example in the airline industry: https://onlinelibrary.wiley.com/doi/full/10.1111/jofi.12698 https://onlinelibrary.wiley.com/doi/full/10.1111/jofi.12698

benj111 8y ago

That's why they're 'mulling'. Company A 'mulls' something, company B and C follows, X gets done. If company A mulled something and no one else piped up, they could still of course go it alone, or they could decide that they want to help save their customers even more money, and not raise prices.

puranjay 8y ago

Capitalism has failed in a way. The free market was supposed to facilitate competition. But what we've seen is increasing consolidation, not competition. Most industries are dominated by a handful of players who gobble up smaller rivals, who, after raising millions in funding, are too happy for the exit. All data shows the same: competition is being trumped by consolidation and its eventual end, cartelization

TimTheTinker 8y ago
> Capitalism has failed in a way. That's not to say that capitalism is thus refuted as an economic model. All it means is that someone hasn't been doing an adequate enough job (probably regulators or lawmakers, in this case). Capitalism's success is always a function of adequate rule of law, economic regulation, social trust, and personal generosity. Where those are present, it absolutely trounces other models.
- sitkack 8y ago
  Capitalism is astable and requires a negative feedback framework to operate properly. It also has a narrow habitable zone otherwise it will cause an ecosystem collapse. Capitalism isn't just a hand, it is mostly a mind that runs as an overlay over all the participants willing or not, and it isn't very bright, but it is very powerful. We are all but rabbits under its strong hands. https://www.youtube.com/watch?v=ArNz8U7tgU4 https://www.youtube.com/watch?v=ArNz8U7tgU4
- CardFellow 8y ago
  I'll agree that processing is surprisingly lightly-regulated.
pas 8y ago
global markets, network effects are king. these services should not operate as for-profits. though efficient oversight is also hard :(

bedhead 8y ago

In economics this is called tacit collusion

savanaly 8y ago
Wouldn't we observe the exact same behavior if the two were in an equilibrium where long term average cost was minimized (and, incidentally, equal to the price) and something caused LTAC to rise?

clairity 8y ago

just use cash. can’t be tracked and it works everywhere (however i’ve run into one cashless shop recently). it’s unweildy for large transactions though, so checks or (reluctantly) cards are useful there.

bb88 8y ago
Also Delta flights don't accept cash transactions.
- inferiorhuman 8y ago
  Delta Connection flights (potentially single class cabin only) only take cash. United also did away with cash transactions onboard. Of course, if people stop buying things on board because they can't use cash the airlines will switch back.
  - bb88 8y ago
    Technically that's not Delta. That's run by a third party because it's not cost effective for Delta to operate small jets.
    - inferiorhuman 8y ago
      > Technically that's not Delta. That's run by a third party because it's not cost effective for Delta to operate small jets. Technically it depends, but it's still Delta branded with Delta setting the policies. Endeavor Air is, for instance, wholly owned by Delta.
- clairity 8y ago
  ah, yes, i don't usually buy stuff on a plane but that's a more prevelant example that i couldn't remember earlier.
- anonymous5133 8y ago
  Don't fly delta then.

ams6110 8y ago

Just like all the gas stations in an area raise and lower their prices at the same time and in the same amounts.

davidsawyer 8y ago
Gas stations do that at a very regular cadence: daily. Visa and Mastercard change prices much less often than that, so this take is a little too apples-and-oranges for me.
- CardFellow 8y ago
  It's true that they don't change prices daily, but it's also not particularly uncommon for them to do so. Visa raised an assessment I think last January? And interchange fees have changed several times over the years as well.
dogma1138 8y ago
Gas stations change their prices based on their primary supplier for a given area these prices tend to be more or less the same, they also don’t make money on selling gas these days but rather of the convenience store/restaurant or by leasing that space to someone.

JustSomeNobody 8y ago

No. I'm sure they use similar algorithms to determine when to increase fees.