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.
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.
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.
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, ....)
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.
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.
Yes they did. So your premise needs checked. Read any news about what happens to food sales as inflation outpaces income and it's abundantly clear stores cannot simply raise prices without losing sales. There's such easy literature to find you don't need to "doubt it" when you can simply check it. For example [1]
Some consumers purchase at the limit of what they can spend - there's no elasticity for them.
[1] https://ajph.aphapublications.org/doi/full/10.2105/AJPH.2008...
Even OPEC cannot keep all their members in check to set oil prices - countries routinely undercut them to sell more oil. This has been demonstrated time and time again in industries where people claim long term widespread collusion - such things don't last long.
Player A raises prices. Algorithm automatically raises everyone’s prices to the new average. Player A lowers prices to be in line with new average. everyone’s prices come down very slightly because A is now towing the line.
A was able to raise the prices of everyone before anyone can adjust their spending accordingly.
This is a real problem, and big players are going to continue to learn how to game it to the detriment of all.
BTW I’ve seen this strategy play out in online games with heavy botting. It’s funny to see there. Not funny to have potential to happen in real life.
The only ideas I have are to limit how often prices can change or mandate prices, but both of those have some huge implications and downsides.
There is no magic about the speed of price changes. If slow or fast price changes made a difference on amount bought, then companies would do that speed. But they don't.
Similarly, prices rising fast doesn't trick people in aggregate to ignore the increase - they still react to price increases.
This is all pretty basic econ. If this "new" system you are afraid of allowed rampant price increases, everything would cost more, yet things have not increased (except for a recent inflationary period completely predicted due to free COVID cash giveaway and Russian oil shocks).
Algorithmic price discovery lowered consumer cost in stock markets big time. It lowers risk to producers as they get up to dat information, and lower risk means lower spread required.
>A was able to raise the prices of everyone before anyone can adjust their spending accordingly.
Not "everyone" will buy at an increased level - if that were true, then the producer would raise the prices anyways. The algorithms only outprice people until those running them realize they screwed up and improve the algorithms.
>big players are going to continue to learn how to game it to the detriment of all
Again, if prices could be raised to get more profit, than that is what companies would have already done. They cannot because people take their dollars elsewhere.
>BTW I’ve seen this strategy play out in online games with heavy botting. It’s funny to see there.
And if it costs people real money, some price out and stop. Same as in reality.
Not if the product is controlled by an explicit or an implicit cartel. The point being made is that cross company pricing services leads to an implicit and deniable cartelization.
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.
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.
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.
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.
Because it is of course completely obvious that collusion among very large, very complex competing entities is a very easy proposition, you just need a magic algorithm to do it! /s