6 ms·

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 i

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.

dclowd9901 3y ago
What if they didn’t though? That’s what the software offers. They maintain high profits with very little effort.
- randomdata 3y ago
  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.
  - evanwise 3y ago
    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.
    - randomdata 3y ago
      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.
      - lotsofpulp 3y ago
        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.
        DangitBobby 3y ago
        Who was saying that??
        lotsofpulp 3y ago
        https://news.ycombinator.com/user?id=paul80808 https://news.ycombinator.com/user?id=paul80808 https://news.ycombinator.com/item?id=37869309 https://news.ycombinator.com/item?id=37869309 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.
        salawat 3y ago
        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.
        lotsofpulp 3y ago
        > 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.
- nightski 3y ago
  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.
- lotsofpulp 3y ago
  Profit margin is the relevant metric, not profit (aka net income).
cmiles74 3y ago
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.
- SideQuark 3y ago
  As someone raises prices, sales decrease. Companies cannot simply raise prices without losing customers, in any area.
  - ikekkdcjkfke 3y ago
    Don't the grocery stores usually have toght integration with the supply chain
  - Jensson 3y ago
    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.
    - danaris 3y ago
      > 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.
NoMoreNicksLeft 3y ago
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.
- roenxi 3y ago
  > 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.
hansvm 3y ago
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, ....)

dclowd9901 3y ago

What if they didn’t though? That’s what the software offers. They maintain high profits with very little effort.

randomdata 3y ago
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.
- evanwise 3y ago
  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.
  - randomdata 3y ago
    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.
    - lotsofpulp 3y ago
      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.
      - DangitBobby 3y ago
        Who was saying that??
        lotsofpulp 3y ago
        https://news.ycombinator.com/user?id=paul80808 https://news.ycombinator.com/user?id=paul80808 https://news.ycombinator.com/item?id=37869309 https://news.ycombinator.com/item?id=37869309 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.
      - salawat 3y ago
        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.
        lotsofpulp 3y ago
        > 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.
nightski 3y ago
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.
lotsofpulp 3y ago
Profit margin is the relevant metric, not profit (aka net income).

cmiles74 3y ago

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.

SideQuark 3y ago
As someone raises prices, sales decrease. Companies cannot simply raise prices without losing customers, in any area.
- ikekkdcjkfke 3y ago
  Don't the grocery stores usually have toght integration with the supply chain
- Jensson 3y ago
  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.
  - danaris 3y ago
    > 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.

NoMoreNicksLeft 3y ago

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.

roenxi 3y ago
> 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.

hansvm 3y ago

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, ....)