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The law doesn't work on hard and fast rules like that. It's more like "If the effect is that you are working together to set prices, that's illegal", regardless

The law doesn't work on hard and fast rules like that. It's more like "If the effect is that you are working together to set prices, that's illegal", regardless of whether you use algorithm A or B, regardless of whether you share prices in advance or watch how other companies set prices, regardless of any details of the mechanism. If you use the same algorithm it's not necessarily illegal, but it will be if it results in price fixing. If you take into account competitors prices its not necessarily illegal, but it will be if it results in price fixing.

lazide 3y ago
What is the definition of price fixing in this world?
- makeitdouble 3y ago
  Reducing consumer choice by artificially setting sinilar prices as comptitors.
- ClumsyPilot 3y ago
  Taking competition our from the market mechanism
- StewardMcOy 3y ago
  We can start with what is definitely price fixing and work our way up to why algorithmic pricing is price fixing. To keep things simple, let's say a city has two landlords, Alice and Bob, who each own around half of the residential rental properties in the city. Textbook definition of price fixing is if Bob and Alice agree to never rent for less than $5 per square foot. Next scenario: Instead of a minimum price, let's say that Bob and Alice agree a formula on how to price their properties based on vacancies. The formula can be as simple or as complicated as you like. But in this scenario, if the formula never gives them a result less than $5/square foot, it has the exact same outcome as the textbook scenario. And since there is direct coordination between Bob and Alice, this is definitely price fixing. In fact, it's even worse than the textbook scenario, because now they're coordinating on exact prices, and not just a minimum. Forgetting formulas for a minute, let's say Charlie, who is unrelated to Alice and Bob, approached them separately and offered to sell them information on how to set their prices. In this case, there's no algorithm involved. They each pay Charlie a small fee per month, and he tells them not to rent for less than $5 per square foot. There's no direct communication between Bob and Alice, but because they both know that the other is acting on the same advice from Charlie, the result is the same as the textbook scenario. You could even argue that there is indirect communication between them, and that Charlie is running some kind of price laundering service. Finally, you can combine the two. Bob and Alice both tell Charlie how many vacancies, delinquent payments, etc. they have. Charlie feeds all the data into his computer, which contains a really complicated formula, and that computer tells them how much to charge. And wouldn't you know it, that formula never produces a result less than $5/square foot. Again, because Bob and Alice know that the other is using this service, and because they have an exact price, rather than a minimum, they know they don't have to negotiate with potential customers. The other landlord won't give that customer a better deal.
  - lazide 3y ago
    Except no city has only two landlords, and most cities anyone who owns can be a landlord if they want - and will have plenty of incentive if either Alice or Bob goes much higher than fundamentals no?
    - StewardMcOy 3y ago
      The exact number of landlords doesn't quite matter here, as long as enough of them are using the algorithm. One of the cases specifically being looked at in this investigation is Washington D.C. Google tells me that around 60% of rentals in D.C. are in large apartment buildings, but that's just a quick search so take that with a grain of salt. ProPublica says that 90% of these apartments are using the software. If we accept these numbers are close, and knowing that 90% of buildings doesn't necessarily mean 90% of all apartments, we can guess that means somewhere around 50% of all rental properties in D.C. are priced using this software. The number might be higher, since I don't know if any non-apartment buildings are using this software, or it might be lower if the data is inaccurate. So yes, the remaining 50% of the market could undercut the 50% using the software. However, it's still possible for 50% to have an effect on the housing market. This is because the housing market is generally considered to be inelastic and because it is difficult to increase supply quickly. Compare it to, for example, soda, which is an elastic market with a lot of production. If Coke and Pepsi lost their minds and started charging $100 for an 8 oz can, they're creating a lot of potential for other companies to undercut them at, say $2 a can. As long as $2/can is profitable, they can win Coke and Pepsi's market from them overnight. If 50% of rental properties started renting for $1 million/week, obviously, very few people can afford that, and I doubt anyone would pay it. But what could the other 50% of the market do? They could keep their rates lower, but all the rentals will fill up. Again, numbers are hard to find, but vacancies in D.C. are probably around 6%, so prospective renters will play musical chairs for the 50% of rental properties that have more reasonable rents. There's a potential here for companies to build new properties and undercut the 50%, but building is lengthy, expensive, requires permitting, etc. The market can't respond very quickly, and because new construction tends to be expensive, rents from new buildings tend to be higher.
      - 3y ago
- dragonwriter 3y ago
  Its worth noting in US federal law, there isn't a distinct statutory prohibition or definition of price fixing. “Price fixing” is a description of one general pattern of violation of a very broad statutory language in the Sherman Act (15 USC § 1) prohibiting “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations”. State competition laws may have separate rules for price fixing and other specific kinds of behavior or have similarly broad language to the Sherman Act.

lazide 3y ago

What is the definition of price fixing in this world?

makeitdouble 3y ago
Reducing consumer choice by artificially setting sinilar prices as comptitors.
ClumsyPilot 3y ago
Taking competition our from the market mechanism
StewardMcOy 3y ago
We can start with what is definitely price fixing and work our way up to why algorithmic pricing is price fixing. To keep things simple, let's say a city has two landlords, Alice and Bob, who each own around half of the residential rental properties in the city. Textbook definition of price fixing is if Bob and Alice agree to never rent for less than $5 per square foot. Next scenario: Instead of a minimum price, let's say that Bob and Alice agree a formula on how to price their properties based on vacancies. The formula can be as simple or as complicated as you like. But in this scenario, if the formula never gives them a result less than $5/square foot, it has the exact same outcome as the textbook scenario. And since there is direct coordination between Bob and Alice, this is definitely price fixing. In fact, it's even worse than the textbook scenario, because now they're coordinating on exact prices, and not just a minimum. Forgetting formulas for a minute, let's say Charlie, who is unrelated to Alice and Bob, approached them separately and offered to sell them information on how to set their prices. In this case, there's no algorithm involved. They each pay Charlie a small fee per month, and he tells them not to rent for less than $5 per square foot. There's no direct communication between Bob and Alice, but because they both know that the other is acting on the same advice from Charlie, the result is the same as the textbook scenario. You could even argue that there is indirect communication between them, and that Charlie is running some kind of price laundering service. Finally, you can combine the two. Bob and Alice both tell Charlie how many vacancies, delinquent payments, etc. they have. Charlie feeds all the data into his computer, which contains a really complicated formula, and that computer tells them how much to charge. And wouldn't you know it, that formula never produces a result less than $5/square foot. Again, because Bob and Alice know that the other is using this service, and because they have an exact price, rather than a minimum, they know they don't have to negotiate with potential customers. The other landlord won't give that customer a better deal.
- lazide 3y ago
  Except no city has only two landlords, and most cities anyone who owns can be a landlord if they want - and will have plenty of incentive if either Alice or Bob goes much higher than fundamentals no?
  - StewardMcOy 3y ago
    The exact number of landlords doesn't quite matter here, as long as enough of them are using the algorithm. One of the cases specifically being looked at in this investigation is Washington D.C. Google tells me that around 60% of rentals in D.C. are in large apartment buildings, but that's just a quick search so take that with a grain of salt. ProPublica says that 90% of these apartments are using the software. If we accept these numbers are close, and knowing that 90% of buildings doesn't necessarily mean 90% of all apartments, we can guess that means somewhere around 50% of all rental properties in D.C. are priced using this software. The number might be higher, since I don't know if any non-apartment buildings are using this software, or it might be lower if the data is inaccurate. So yes, the remaining 50% of the market could undercut the 50% using the software. However, it's still possible for 50% to have an effect on the housing market. This is because the housing market is generally considered to be inelastic and because it is difficult to increase supply quickly. Compare it to, for example, soda, which is an elastic market with a lot of production. If Coke and Pepsi lost their minds and started charging $100 for an 8 oz can, they're creating a lot of potential for other companies to undercut them at, say $2 a can. As long as $2/can is profitable, they can win Coke and Pepsi's market from them overnight. If 50% of rental properties started renting for $1 million/week, obviously, very few people can afford that, and I doubt anyone would pay it. But what could the other 50% of the market do? They could keep their rates lower, but all the rentals will fill up. Again, numbers are hard to find, but vacancies in D.C. are probably around 6%, so prospective renters will play musical chairs for the 50% of rental properties that have more reasonable rents. There's a potential here for companies to build new properties and undercut the 50%, but building is lengthy, expensive, requires permitting, etc. The market can't respond very quickly, and because new construction tends to be expensive, rents from new buildings tend to be higher.
    - 3y ago
dragonwriter 3y ago
Its worth noting in US federal law, there isn't a distinct statutory prohibition or definition of price fixing. “Price fixing” is a description of one general pattern of violation of a very broad statutory language in the Sherman Act (15 USC § 1) prohibiting “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations”. State competition laws may have separate rules for price fixing and other specific kinds of behavior or have similarly broad language to the Sherman Act.