11 ms·

The game theory of how algorithms can drive up prices

201 points by isaacfrond 1y ago

steve_gh 1y ago
Very interesting. I looked at stability in learning agents in artificial markets back in the late 90s for my PhD and concluded that at least the systems I worked with weren't stable - they were prone to bubbles and crashes. Very interesting to see that there is a class of stable systems that force high prices. Would be interesting to understand if the no swap regret systems studied also give stable results when it is an N player game rather than a 2 player game
- kalinkochnev 1y ago
  That sounds actually really cool. Do you have a link to any of your papers?
- derbOac 1y ago
  I had the same question about N-player settings. My intuition is the more players, the more competition and the more chaotic the dynamics, and the harder it would be for any strategy like they describe to emerge. But intuitions can be wrong. In any event, it would be interesting to know how the dynamics change with increases in the number of players — I wondered if it might provide some kind of rationale for having a certain number of competitors in a market.
- Etheryte 1y ago
  Intuitively, stability might also be easier to achieve here since there is a human check in the loop, oftentimes someone with considerable experience and knowledge of the current market state.
pixl97 1y ago
I mean we are in the age of digital pricing, even on the shelf. Modern price collusion is more apt to happen with A/B testing if prices at locations to see what the local market will bear. I've seen Walmart do this in the past. Items that were not on sale could have significant differences in price, where in general the prices in more affluent areas are higher. We're talking 50 to 75 cents on common items, but sporting goods quite often had a different of 3 to 5 dollars.
- PaulKeeble 1y ago
  You can see this happening all the time on Amazon these days if you use a price tracker. Most items are swapping between two prices that are maintained for periods and little peaks just a little bit lower and higher to test response. Then when you take that and look across different countries stores you can see they are running different pricing and running tests globally while the price is being sustained in others. Enormous amounts of price testing with a very clear strategy that is easy to see in pricing charts.
  - lotsofpulp 1y ago
    Having a single flat price is/was due to labor prices being high enough in the developed world to ignore potential profits from price discrimination. When my grandparents went to the market in the developing country they immigrated from, they would bargain for everything, and every customer got a different price. The developed world was rich enough that grocery stores didn’t need to waste time doing this, and could simply price high enough to earn a consistent profit margin and expect consistent sales. They did engage in price discrimination via coupons. Just not individually, until smartphones and apps came along. Now that automation can handle a lot of the price discrimination, expect more of it, everywhere.
    - kaitai 1y ago
      It is not only about labor prices being high enough (creating consumers who can buy more). There is a significant religious component to the introduction of fixed pricing. Quakers are often credited with introducing fixed pricing in the Western world, because they felt that charging higher prices to those less able to haggle (or higher prices by age, gender, race) was immoral, dishonest in the eyes of God. They then experienced greater sales because you could send your kid to the store and trust the kid wouldn't get ripped off. It just took a layer of stress off going to the store. John Wanamaker (a Presbyterian?) I think is the one who really started a retail empire on fixed pricing. One of his main selling points was one price for anyone, and a fair return policy. The behavioral economics here is that many people will pay a consistent (fair) price to not be surprised and not feel ripped off. Agree that automation will engage in price discrimination whenever possible. When will we see the backlash? I have heard stories of outrage ("when I looked for airline tickets at work they were way cheaper than when I looked on my home laptop!") but we haven't seen a widespread reaction, and the moral aspect seems to be relatively overlooked at this time.
nomilk 1y ago
The researcher says > this strange strategy will maximize your profit. “To me, it was a complete surprise” It doesn't seem like such a surprise that algorithms that use information about rivals to optimising profit tend to price high. Consider a small town with two gas stations, you own one. You can set the price (high or low) in the morning and can't change it until the next day. Your goal is to optimise profit for the next 1000 days. On day one you price high (hoping your rival will). But your rival prices low and wins lots of business. On day two, you price high again (hoping your rival will have seen your prices and cooperate). If your rival prices high, you both stay high for the most of the next 998 days (there's some incentive to 'cheat' and price low, but that is easily countered by the rival pricing low). If your rival priced low on day 2, you have to start pricing low too. But occasionally you'll price high to try to 'nudge' your rival to price high to avoid low-low. If they eventually understand, you can both price high for the rest of the 1000 days. Critically, even if stuck at the low-low equilibrium, you'll keep trying to 'nudge' high periodically. The frequency with which you try to 'nudge' will depend on the ratio of profit for high-high vs low-low. If you both make extreme profits when pricing high-high, you have more incentive to 'nudge', but if the difference isn't great, you won't nudge as often. Seems obvious pricing high will be attempted in proportion to the reward relative to pricing low. The researchers' conclusion seems reasonable: > it’s very hard for a regulator to come in and say, ‘These prices feel wrong’” and > what can regulators do? Roth admits he doesn’t have an answer. (i.e. in practical terms, there's no way regulators can police what algorithms sellers use - I can't think of exceptions to this, but perhaps there are some special cases)
- RataNova 1y ago
  What's interesting is that the surprise seems less about the behavior itself and more about how minimal the assumptions were
- hrimfaxi 1y ago
  > (i.e. in practical terms, there's no way regulators can police what algorithms sellers use - I can't think of exceptions to this, but perhaps there are some special cases) Regulators can already police the data used as inputs in decision-making in industries like insurance, so policing the algorithms that operate on that data doesn't seem like too much of a reach.
friendzis 1y ago
> Imagine a town with two widget merchants. Customers prefer cheaper widgets, so the merchants must compete to set the lowest price. I always found this statement to be rather wishful. Individual lowering of prices makes sense if and only if your competitor is capable of saturating the market. Otherwise, demand elasticity becomes very relevant. Sure, your competitor may take the larger share of the market, but then you can compensate with higher per item profit. The common wisdom is that in properly functional markets there's enough supply with n-1 market participants, therefore given a market signal of one participant lowering their prices the last one standing without lowering prices gets kicked out of the market, making maintaining prices the losing move. Yet, if the rest of the market does not react to the signal, the one lowering their prices hurts their profits and possibly kicks themselves out of the market. Making price maintenance, and depending on elasticity maybe even jacking of prices, the winning move in the presence of this signal. Turns out the probability of either move being the winning move is dependent on probability of other market participants colluding/defecting. However, since lowering the prices hurts the profit a rational market participant would conclude that the rest of the market is inclined, even if a little bit, not to lower their prices in reaction given price cutting signal and similarly a bit more inclined to raise the prices given price hike signal.
- AnthonyMouse 1y ago
  > Individual lowering of prices makes sense if and only if your competitor is capable of saturating the market. Individual lowering of prices makes sense if you are capable of producing some amount more than you currently do. Suppose there are 10 suppliers, your production cost is $1 and the current market price is $2. You each sell 100 widgets and you yourself make $100, the other 9 providers also sell an average of 100 widgets, so there are 1000 total purchases. If you can produce 200 widgets and you lower your price to $1.90, you're now making $180 instead of $100, because people prefer to pay $1.90 to $2 until you run out of capacity. Moreover, the other suppliers have now collectively lost 100 sales to you unless they match your price reduction and maybe some of them have higher costs than you and can't, which means you get to keep their share of the market. The other participants who have lower costs like you, even if they don't have any excess capacity, would rather make the ones who can't lower prices eat the loss in sales because it's better to lower margins by 10% than take an 11% reduction in sales. And lowering prices might also increase sales if customers buy more market-wide at the lower price. > Yet, if the rest of the market does not react to the signal, the one lowering their prices hurts their profits and possibly kicks themselves out of the market. How would the one lowering the price kick themselves out of the market? Their sales would only go up, or if consumers are completely insensitive to price, stay the same. As long as the lower price is still yielding them a net profit, they're still in the market. The theory isn't expected to cause them to lower prices below their own costs, because of course they weren't going to do that. If consumers are completely price insensitive and they didn't know that until they tried it, they might end up raising the price again because it didn't do any good, but that's also pretty uncommon. If you can get the exact same thing for less money, do you pay more for no reason? > Turns out the probability of either move being the winning move is dependent on probability of other market participants colluding/defecting. Collusion is something else entirely. If all of the participants are getting together in a back room to fix prices then none of this applies, but that's also why there's a law against that. It's also why the theory doesn't work when the number of participants is very small. Suppose there are only two providers and they each have unlimited capacity. They each have a $1 cost, sell 500 widgets for $2 and make $500 each. If one of them lowers prices to $1.90, they'll sell 1000 widgets and make $900. Except that the other one will just match their price and then they'll each make $450 instead, which they both know so they both don't do it. And that's on top of explicit collusion being much easier to hold together and harder to detect when there are fewer sellers. That isn't what happens when there are 100 sellers, because then 99 of them are trying to hold together a cartel and the last one is laughing at them all because they can increase their sales by 10,000% by lowering prices by 5% and none of the others are matching them.
betimsl 1y ago
Who wrote the algorithm?
alyxya 1y ago
It's possible algorithms simply drive up prices because price isn't the main factor some people use in deciding what to buy. Algorithms are probably able to learn that raising the price outweighs the decrease in the number of people buying something, and if every algorithm does the same, then prices will continue to rise.
js8 1y ago
How is this new compared to https://www.paecon.net/PAEReview/issue53/KeenStandish53.pdf https://www.paecon.net/PAEReview/issue53/KeenStandish53.pdf ? (See the section "perfect competitors are not profit maximizers".)
oxqbldpxo 1y ago
Is this applicable to the stock market? Maybe this is why valuations are completely devoid of any intrinsic value.
AlGoreRhythm 1y ago
The author cites the common CEPR paper [0], but missed its most interesting finding. It found that the algorithms definitively did show signs of collusive behaviour, but that their chosen equilibrium price point was far below the Nash equilibrium. That is, the researchers expected these algorithms to maximally extort the consumers, but they only modestly extorted the economy's consumers. [0] - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3304991 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3304991
- munificent 1y ago
  > but they only modestly extorted the economy's consumers. This is rational in the metagame where a maximally extortionate behavior invites attention and regulation. A parasite's goal is to suck as much blood as it can without killing the host.
fellowniusmonk 1y ago
This was the Greystar situation that already happened with apartment rentals. Are people not aware of this? A switch to value based pricing for essentials (water,shelter,transport,utilities, etc.)is an extremely easy way to destroy disposable income and even make some areas impossible to live in for the existing members. Austin, Texas in 2021 saw several of my friends who were renters see a 1 year price increase that more than doubled their rent, I had friends who we're doctors who we're forced to move out of one bedroom apartments, even if it wasn't the plan, it's still a great way to displace people like local musicians so hack comedian can move in.
- hrimfaxi 1y ago
  > Austin, Texas in 2021 saw several of my friends who were renters see a 1 year price increase that more than doubled their rent, I had friends who we're doctors who we're forced to move out of one bedroom apartments, even if it wasn't the plan, it's still a great way to displace people like local musicians so hack comedian can move in. Hack comedians are moving in while doctors are priced out? What are you even talking about?
  - fellowniusmonk 1y ago
    That's not what was said. There were different professional cohorts of people displaced as prices went up around the entire city, this is not a hard concept. This massive cultural displacement is part of what drove Austin to permit more new construction than any other city in the states. Fortunately musicians are still the single largest cohesive voting block in Austin. >it's still a great way to displace people like local musicians so hack comedian can move in.
    - parineum 1y ago
      > I had friends who we're doctors who we're forced to move out of one bedroom apartments ... so hack comedian can move in. It may not be a direct quote but it _is_ what you said.
babush 1y ago
"Algorithmic collusion"... If using an algorithm leads to collusion, then choosing to use the algorithm should be considered regular collusion.
- RataNova 1y ago
  Feels more like a system design failure than malice
  - baerrie 1y ago
    Profiting from a design failure indefinitely isn’t malice, it’s negligence that can still be considered criminal.
- IlikeKitties 1y ago
  The Problem is that "using the algorithm" doesn't require you to use a computer. You can do this with pen and paper and it still works. You just have to ensure your competitor is aware of how the algorithm works, which is impossible to make illegal.
  - babush 1y ago
    I never mentioned a computer.
walterbell 1y ago
https://news.ycombinator.com/item?id=45611361 https://news.ycombinator.com/item?id=45611361 On October 6, 2025, California Governor Gavin Newsom signed AB325, a law targeting the use and distribution of certain algorithmic pricing tools. This law is part of a larger legislative trend to try to reign in algorithmic pricing.. California’s bill targets pricing algorithms in all markets and will take effect in 2026. However, a violation of the new law requires a conspiracy or price coercion, so as a practical matter, it may not extend the range of violations already encompassed by the Cartwright Act.
LatteLazy 1y ago
I never understand why people don’t pay more attention to “n” in these cases: number of other players. If there are 2 suppliers in a market, they will collude without algos or private meetings: I can be pretty sure you will not cut your price if I don’t cut mine. The issue there is that there are only 2 suppliers, so trust is very easy. If there are 100 other suppliers, I know ONE of them will cut their price. So I best cut mine first. What I am trying to say here is that, algos or not, n is the major driver here imho. That’s kind of interesting since the US has been very relaxed about falling values of n as long as prices seem ok.
parineum 1y ago
"Algorithm" has got to be the least useful word in English today. It isn't the software that's responsible driving up prices, it's the information. > Yet a widely cited 2019 paper (opens a new tab) showed that algorithms could learn to collude tacitly, even when they weren’t programmed to do so. A team of researchers pitted two copies of a simple learning algorithm against each other in a simulated market, then let them explore different strategies for increasing their profits. Over time, each algorithm learned through trial and error to retaliate when the other cut prices — dropping its own price by some huge, disproportionate amount. The end result was high prices, backed up by mutual threat of a price war. This is nonsense. Those "algorithms" were programed to do that. I also notice they didn't add a third copy of the algorithm or a fourth. The summary of this research is that they built a novel algorithm (not one used in practice) and put it in a simulation. How this is representative of any real world scenario escapes me. They proved that software written to optimize profits optimizes profits. Shocking. The researchers quoted in the article are, essentially, defining collusion as knowing what competitors prices are.
- krapp 1y ago
  >"Algorithm" has got to be the least useful word in English today. On the contrary, it's the word that's going to justify balkanization and government control of speech on the web. It's spooky magic that controls people's minds to most people. You know we're cooked when it becomes common on HN of all places to claim that "algorithmic feeds" should be illegal because they're the source of all society's ills, toxicity and political dissent.
- pessimizer 1y ago
  > The researchers quoted in the article are, essentially, defining collusion as knowing what competitors prices are. It really is just another display about how injured the concept of "collusion" always was. Plenty of competitors have met in smokey rooms in order to fix prices, but you don't actually have to speak to each other to agree that if all of you can maximize your profits together, you should. Everybody knows how much everybody else is charging. The ideal competition myth only works in a fictional zero-cost startup, zero-cost supplier, zero-cost distribution scenario. In real life if you try to enter a market with a few competitors with super high margins, they'll just threaten to freeze anybody who buys from you or sells to you out of the market, then offer you a ticket into their cartel. Doesn't make it not evil, though, and it doesn't mean it's not an essential function of government to stop it. Government can't allow powerful little subgovernments to build up. You might as well allow paramilitary militias.
RLAIF 1y ago
[dead]
jimnotgym 1y ago
> hard it may be to regulate Not hard at all. Outright ban fixes all.
RataNova 1y ago
"Everything is working as intended" but the real-world outcome feels dystopian
Arwill 1y ago
>strikingly high probabilities to very high prices, along with lower probabilities for a wide range of lower prices Isn't this describing the strategy of keeping ever high prices, then doing some temporary price cuts/sales/deals?
tug2024 1y ago
[dead]
bcrl 1y ago
I feel obliged to link to the Behind the Bastards podcast "Why is rent so damn high?" It's a lengthy 2 part piece, but quite enlightening. https://podcasts.apple.com/us/podcast/part-one-why-is-the-rent-so-damn-high/id1373812661?i=1000585476273 https://podcasts.apple.com/us/podcast/part-one-why-is-the-re...
kazinator 1y ago
It's painfully simple. When vendors follow an algorithm, they are colluding. Imagine if multiple vendors in a product or service area form consortium which launches an "independent price determination task force". If everyone follows the recommendations of the task force, they are colluding, even if they don't talk to each other to set prices. Replacing "task force" by an algorithm changes nothing. The agreement to use the algorithm rather than to compete is the collusion.
jpfromlondon 1y ago
Smells like Reddit in here

201 points by isaacfrond 1y ago

Very interesting. I looked at stability in learning agents in artificial markets back in the late 90s for my PhD and concluded that at least the systems I worked with weren't stable - they were prone to bubbles and crashes. Very interesting to see that there is a class of stable systems that force high prices. Would be interesting to understand if the no swap regret systems studied also give stable results when it is an N player game rather than a 2 player game

kalinkochnev 1y ago
That sounds actually really cool. Do you have a link to any of your papers?
derbOac 1y ago
I had the same question about N-player settings. My intuition is the more players, the more competition and the more chaotic the dynamics, and the harder it would be for any strategy like they describe to emerge. But intuitions can be wrong. In any event, it would be interesting to know how the dynamics change with increases in the number of players — I wondered if it might provide some kind of rationale for having a certain number of competitors in a market.
Etheryte 1y ago
Intuitively, stability might also be easier to achieve here since there is a human check in the loop, oftentimes someone with considerable experience and knowledge of the current market state.

pixl97 1y ago

I mean we are in the age of digital pricing, even on the shelf. Modern price collusion is more apt to happen with A/B testing if prices at locations to see what the local market will bear. I've seen Walmart do this in the past. Items that were not on sale could have significant differences in price, where in general the prices in more affluent areas are higher. We're talking 50 to 75 cents on common items, but sporting goods quite often had a different of 3 to 5 dollars.

PaulKeeble 1y ago
You can see this happening all the time on Amazon these days if you use a price tracker. Most items are swapping between two prices that are maintained for periods and little peaks just a little bit lower and higher to test response. Then when you take that and look across different countries stores you can see they are running different pricing and running tests globally while the price is being sustained in others. Enormous amounts of price testing with a very clear strategy that is easy to see in pricing charts.
- lotsofpulp 1y ago
  Having a single flat price is/was due to labor prices being high enough in the developed world to ignore potential profits from price discrimination. When my grandparents went to the market in the developing country they immigrated from, they would bargain for everything, and every customer got a different price. The developed world was rich enough that grocery stores didn’t need to waste time doing this, and could simply price high enough to earn a consistent profit margin and expect consistent sales. They did engage in price discrimination via coupons. Just not individually, until smartphones and apps came along. Now that automation can handle a lot of the price discrimination, expect more of it, everywhere.
  - kaitai 1y ago
    It is not only about labor prices being high enough (creating consumers who can buy more). There is a significant religious component to the introduction of fixed pricing. Quakers are often credited with introducing fixed pricing in the Western world, because they felt that charging higher prices to those less able to haggle (or higher prices by age, gender, race) was immoral, dishonest in the eyes of God. They then experienced greater sales because you could send your kid to the store and trust the kid wouldn't get ripped off. It just took a layer of stress off going to the store. John Wanamaker (a Presbyterian?) I think is the one who really started a retail empire on fixed pricing. One of his main selling points was one price for anyone, and a fair return policy. The behavioral economics here is that many people will pay a consistent (fair) price to not be surprised and not feel ripped off. Agree that automation will engage in price discrimination whenever possible. When will we see the backlash? I have heard stories of outrage ("when I looked for airline tickets at work they were way cheaper than when I looked on my home laptop!") but we haven't seen a widespread reaction, and the moral aspect seems to be relatively overlooked at this time.

nomilk 1y ago

The researcher says > this strange strategy will maximize your profit. “To me, it was a complete surprise” It doesn't seem like such a surprise that algorithms that use information about rivals to optimising profit tend to price high. Consider a small town with two gas stations, you own one. You can set the price (high or low) in the morning and can't change it until the next day. Your goal is to optimise profit for the next 1000 days. On day one you price high (hoping your rival will). But your rival prices low and wins lots of business. On day two, you price high again (hoping your rival will have seen your prices and cooperate). If your rival prices high, you both stay high for the most of the next 998 days (there's some incentive to 'cheat' and price low, but that is easily countered by the rival pricing low). If your rival priced low on day 2, you have to start pricing low too. But occasionally you'll price high to try to 'nudge' your rival to price high to avoid low-low. If they eventually understand, you can both price high for the rest of the 1000 days. Critically, even if stuck at the low-low equilibrium, you'll keep trying to 'nudge' high periodically. The frequency with which you try to 'nudge' will depend on the ratio of profit for high-high vs low-low. If you both make extreme profits when pricing high-high, you have more incentive to 'nudge', but if the difference isn't great, you won't nudge as often. Seems obvious pricing high will be attempted in proportion to the reward relative to pricing low. The researchers' conclusion seems reasonable: > it’s very hard for a regulator to come in and say, ‘These prices feel wrong’” and > what can regulators do? Roth admits he doesn’t have an answer. (i.e. in practical terms, there's no way regulators can police what algorithms sellers use - I can't think of exceptions to this, but perhaps there are some special cases)

RataNova 1y ago
What's interesting is that the surprise seems less about the behavior itself and more about how minimal the assumptions were
hrimfaxi 1y ago
> (i.e. in practical terms, there's no way regulators can police what algorithms sellers use - I can't think of exceptions to this, but perhaps there are some special cases) Regulators can already police the data used as inputs in decision-making in industries like insurance, so policing the algorithms that operate on that data doesn't seem like too much of a reach.

friendzis 1y ago

> Imagine a town with two widget merchants. Customers prefer cheaper widgets, so the merchants must compete to set the lowest price. I always found this statement to be rather wishful. Individual lowering of prices makes sense if and only if your competitor is capable of saturating the market. Otherwise, demand elasticity becomes very relevant. Sure, your competitor may take the larger share of the market, but then you can compensate with higher per item profit. The common wisdom is that in properly functional markets there's enough supply with n-1 market participants, therefore given a market signal of one participant lowering their prices the last one standing without lowering prices gets kicked out of the market, making maintaining prices the losing move. Yet, if the rest of the market does not react to the signal, the one lowering their prices hurts their profits and possibly kicks themselves out of the market. Making price maintenance, and depending on elasticity maybe even jacking of prices, the winning move in the presence of this signal. Turns out the probability of either move being the winning move is dependent on probability of other market participants colluding/defecting. However, since lowering the prices hurts the profit a rational market participant would conclude that the rest of the market is inclined, even if a little bit, not to lower their prices in reaction given price cutting signal and similarly a bit more inclined to raise the prices given price hike signal.

AnthonyMouse 1y ago
> Individual lowering of prices makes sense if and only if your competitor is capable of saturating the market. Individual lowering of prices makes sense if you are capable of producing some amount more than you currently do. Suppose there are 10 suppliers, your production cost is $1 and the current market price is $2. You each sell 100 widgets and you yourself make $100, the other 9 providers also sell an average of 100 widgets, so there are 1000 total purchases. If you can produce 200 widgets and you lower your price to $1.90, you're now making $180 instead of $100, because people prefer to pay $1.90 to $2 until you run out of capacity. Moreover, the other suppliers have now collectively lost 100 sales to you unless they match your price reduction and maybe some of them have higher costs than you and can't, which means you get to keep their share of the market. The other participants who have lower costs like you, even if they don't have any excess capacity, would rather make the ones who can't lower prices eat the loss in sales because it's better to lower margins by 10% than take an 11% reduction in sales. And lowering prices might also increase sales if customers buy more market-wide at the lower price. > Yet, if the rest of the market does not react to the signal, the one lowering their prices hurts their profits and possibly kicks themselves out of the market. How would the one lowering the price kick themselves out of the market? Their sales would only go up, or if consumers are completely insensitive to price, stay the same. As long as the lower price is still yielding them a net profit, they're still in the market. The theory isn't expected to cause them to lower prices below their own costs, because of course they weren't going to do that. If consumers are completely price insensitive and they didn't know that until they tried it, they might end up raising the price again because it didn't do any good, but that's also pretty uncommon. If you can get the exact same thing for less money, do you pay more for no reason? > Turns out the probability of either move being the winning move is dependent on probability of other market participants colluding/defecting. Collusion is something else entirely. If all of the participants are getting together in a back room to fix prices then none of this applies, but that's also why there's a law against that. It's also why the theory doesn't work when the number of participants is very small. Suppose there are only two providers and they each have unlimited capacity. They each have a $1 cost, sell 500 widgets for $2 and make $500 each. If one of them lowers prices to $1.90, they'll sell 1000 widgets and make $900. Except that the other one will just match their price and then they'll each make $450 instead, which they both know so they both don't do it. And that's on top of explicit collusion being much easier to hold together and harder to detect when there are fewer sellers. That isn't what happens when there are 100 sellers, because then 99 of them are trying to hold together a cartel and the last one is laughing at them all because they can increase their sales by 10,000% by lowering prices by 5% and none of the others are matching them.

betimsl 1y ago

Who wrote the algorithm?

alyxya 1y ago

It's possible algorithms simply drive up prices because price isn't the main factor some people use in deciding what to buy. Algorithms are probably able to learn that raising the price outweighs the decrease in the number of people buying something, and if every algorithm does the same, then prices will continue to rise.

js8 1y ago

How is this new compared to https://www.paecon.net/PAEReview/issue53/KeenStandish53.pdf https://www.paecon.net/PAEReview/issue53/KeenStandish53.pdf ? (See the section "perfect competitors are not profit maximizers".)

oxqbldpxo 1y ago

Is this applicable to the stock market? Maybe this is why valuations are completely devoid of any intrinsic value.

AlGoreRhythm 1y ago

The author cites the common CEPR paper [0], but missed its most interesting finding. It found that the algorithms definitively did show signs of collusive behaviour, but that their chosen equilibrium price point was far below the Nash equilibrium. That is, the researchers expected these algorithms to maximally extort the consumers, but they only modestly extorted the economy's consumers. [0] - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3304991 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3304991

munificent 1y ago
> but they only modestly extorted the economy's consumers. This is rational in the metagame where a maximally extortionate behavior invites attention and regulation. A parasite's goal is to suck as much blood as it can without killing the host.

fellowniusmonk 1y ago

This was the Greystar situation that already happened with apartment rentals. Are people not aware of this? A switch to value based pricing for essentials (water,shelter,transport,utilities, etc.)is an extremely easy way to destroy disposable income and even make some areas impossible to live in for the existing members. Austin, Texas in 2021 saw several of my friends who were renters see a 1 year price increase that more than doubled their rent, I had friends who we're doctors who we're forced to move out of one bedroom apartments, even if it wasn't the plan, it's still a great way to displace people like local musicians so hack comedian can move in.

hrimfaxi 1y ago
> Austin, Texas in 2021 saw several of my friends who were renters see a 1 year price increase that more than doubled their rent, I had friends who we're doctors who we're forced to move out of one bedroom apartments, even if it wasn't the plan, it's still a great way to displace people like local musicians so hack comedian can move in. Hack comedians are moving in while doctors are priced out? What are you even talking about?
- fellowniusmonk 1y ago
  That's not what was said. There were different professional cohorts of people displaced as prices went up around the entire city, this is not a hard concept. This massive cultural displacement is part of what drove Austin to permit more new construction than any other city in the states. Fortunately musicians are still the single largest cohesive voting block in Austin. >it's still a great way to displace people like local musicians so hack comedian can move in.
  - parineum 1y ago
    > I had friends who we're doctors who we're forced to move out of one bedroom apartments ... so hack comedian can move in. It may not be a direct quote but it _is_ what you said.

babush 1y ago

"Algorithmic collusion"... If using an algorithm leads to collusion, then choosing to use the algorithm should be considered regular collusion.

RataNova 1y ago
Feels more like a system design failure than malice
- baerrie 1y ago
  Profiting from a design failure indefinitely isn’t malice, it’s negligence that can still be considered criminal.
IlikeKitties 1y ago
The Problem is that "using the algorithm" doesn't require you to use a computer. You can do this with pen and paper and it still works. You just have to ensure your competitor is aware of how the algorithm works, which is impossible to make illegal.
- babush 1y ago
  I never mentioned a computer.

walterbell 1y ago

https://news.ycombinator.com/item?id=45611361 https://news.ycombinator.com/item?id=45611361 On October 6, 2025, California Governor Gavin Newsom signed AB325, a law targeting the use and distribution of certain algorithmic pricing tools. This law is part of a larger legislative trend to try to reign in algorithmic pricing.. California’s bill targets pricing algorithms in all markets and will take effect in 2026. However, a violation of the new law requires a conspiracy or price coercion, so as a practical matter, it may not extend the range of violations already encompassed by the Cartwright Act.

LatteLazy 1y ago

I never understand why people don’t pay more attention to “n” in these cases: number of other players. If there are 2 suppliers in a market, they will collude without algos or private meetings: I can be pretty sure you will not cut your price if I don’t cut mine. The issue there is that there are only 2 suppliers, so trust is very easy. If there are 100 other suppliers, I know ONE of them will cut their price. So I best cut mine first. What I am trying to say here is that, algos or not, n is the major driver here imho. That’s kind of interesting since the US has been very relaxed about falling values of n as long as prices seem ok.

parineum 1y ago

"Algorithm" has got to be the least useful word in English today. It isn't the software that's responsible driving up prices, it's the information. > Yet a widely cited 2019 paper (opens a new tab) showed that algorithms could learn to collude tacitly, even when they weren’t programmed to do so. A team of researchers pitted two copies of a simple learning algorithm against each other in a simulated market, then let them explore different strategies for increasing their profits. Over time, each algorithm learned through trial and error to retaliate when the other cut prices — dropping its own price by some huge, disproportionate amount. The end result was high prices, backed up by mutual threat of a price war. This is nonsense. Those "algorithms" were programed to do that. I also notice they didn't add a third copy of the algorithm or a fourth. The summary of this research is that they built a novel algorithm (not one used in practice) and put it in a simulation. How this is representative of any real world scenario escapes me. They proved that software written to optimize profits optimizes profits. Shocking. The researchers quoted in the article are, essentially, defining collusion as knowing what competitors prices are.

krapp 1y ago
>"Algorithm" has got to be the least useful word in English today. On the contrary, it's the word that's going to justify balkanization and government control of speech on the web. It's spooky magic that controls people's minds to most people. You know we're cooked when it becomes common on HN of all places to claim that "algorithmic feeds" should be illegal because they're the source of all society's ills, toxicity and political dissent.
pessimizer 1y ago
> The researchers quoted in the article are, essentially, defining collusion as knowing what competitors prices are. It really is just another display about how injured the concept of "collusion" always was. Plenty of competitors have met in smokey rooms in order to fix prices, but you don't actually have to speak to each other to agree that if all of you can maximize your profits together, you should. Everybody knows how much everybody else is charging. The ideal competition myth only works in a fictional zero-cost startup, zero-cost supplier, zero-cost distribution scenario. In real life if you try to enter a market with a few competitors with super high margins, they'll just threaten to freeze anybody who buys from you or sells to you out of the market, then offer you a ticket into their cartel. Doesn't make it not evil, though, and it doesn't mean it's not an essential function of government to stop it. Government can't allow powerful little subgovernments to build up. You might as well allow paramilitary militias.

RLAIF 1y ago

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jimnotgym 1y ago

> hard it may be to regulate Not hard at all. Outright ban fixes all.

RataNova 1y ago

"Everything is working as intended" but the real-world outcome feels dystopian

Arwill 1y ago

>strikingly high probabilities to very high prices, along with lower probabilities for a wide range of lower prices Isn't this describing the strategy of keeping ever high prices, then doing some temporary price cuts/sales/deals?

tug2024 1y ago

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bcrl 1y ago

I feel obliged to link to the Behind the Bastards podcast "Why is rent so damn high?" It's a lengthy 2 part piece, but quite enlightening. https://podcasts.apple.com/us/podcast/part-one-why-is-the-rent-so-damn-high/id1373812661?i=1000585476273 https://podcasts.apple.com/us/podcast/part-one-why-is-the-re...

kazinator 1y ago

It's painfully simple. When vendors follow an algorithm, they are colluding. Imagine if multiple vendors in a product or service area form consortium which launches an "independent price determination task force". If everyone follows the recommendations of the task force, they are colluding, even if they don't talk to each other to set prices. Replacing "task force" by an algorithm changes nothing. The agreement to use the algorithm rather than to compete is the collusion.

jpfromlondon 1y ago

Smells like Reddit in here