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Left To Their Own Devices, Pricing Algorithms Resort To Collusion (popularmechanics.com)
Reader schwit1 shares a report: When you're browsing online, who sets the prices? An algorithm, most likely. A study from 2015 showed that a third of all items on Amazon [PDF] had prices set by an algorithm, and chances are that percentage has only risen. A new study shows how easy it would be for price-setting algorithms to learn to collude with each other and keep prices at a disadvantage for customers.
This sort of collusion would stem from a certain type of algorithm, the researchers say. Reinforcement algorithms learn through trial and error. In the simplest terms, a walking robot would take a step, fall, and try again. These algorithms have often been used to teach algorithms to win games like Go.
"From the antitrust standpoint," say professors Emilio Calvano, Giacomo Calzolari, and others from the University of Bologna in Italy, "the concern is that these autonomous pricing algorithms may independently discover that if they are to make the highest possible profit, they should avoid price wars. That is, they may learn to collude even if they have not been specifically instructed to do so, and even if they do not communicate with one another."
This sort of collusion would stem from a certain type of algorithm, the researchers say. Reinforcement algorithms learn through trial and error. In the simplest terms, a walking robot would take a step, fall, and try again. These algorithms have often been used to teach algorithms to win games like Go.
"From the antitrust standpoint," say professors Emilio Calvano, Giacomo Calzolari, and others from the University of Bologna in Italy, "the concern is that these autonomous pricing algorithms may independently discover that if they are to make the highest possible profit, they should avoid price wars. That is, they may learn to collude even if they have not been specifically instructed to do so, and even if they do not communicate with one another."
"and even if they do not communicate with one another"
Well that can be the case with people, too, can it not? Except that when people do not communicate with each other, I don't believe that it can be said to be colluding, by definition. So why is it collusion when algorithms do it?
"That is, they may learn to collude even if they have not been specifically instructed to do so, and even if they do not communicate with one another."
I think collusion pretty much requires communication and intent.
Independent algorithms (or people) arriving at the same conclusion from the same data and openly performing actions in their own self-interest without communication is not collusion.
Their actions may look like collusion from the outside, but they fail on most commonly accepted definitions of the word.
E.g. wikipedia
"Collusion is an agreement between two or more parties, sometimes illegal–but always secretive–to limit open competition by deceiving, misleading, or defrauding others of their legal rights, or to obtain an objective forbidden by law typically by defrauding or gaining an unfair market advantage. It is an agreement among firms or individuals to divide a market, set prices, limit production or limit opportunities."
Headline: "Left To Their Own Devices, Pricing Algorithms Resort To Collusion"
Summary: "That is, they may learn to collude even if they have not been specifically instructed to do so"
Classic 2019 journalism right there.
"That is, they may learn to collude even if they have not been specifically instructed to do so, and even if they do not communicate with one another."
Sounds like the situation we have with major companies now.
Left To Their Own Devices, Pricing Algorithms Resort To Collusion ... fill in the blank with pretty much anything, and don't be surprised.
Left To Their Own Devices, Corporations Resort To Collusion
Left To Their Own Devices, Politicians Resort To Collusion
Left To Their Own Devices,___________ Resort To Collusion
How do you distinguish collusion from algorithms simply figuring out the market price given buyer/seller volume, and realizing there's no benefit in deviating from that?
There's case studies many economics classes use of how the airlines in the 1970s would evade the collusion in restraint of trade laws. Basically, they developed a process for proposing fare changes. They would announce a scheduled fare increase a month in advance. If the other company followed suit they would enact it if they didn't they would retract it or post a fare decrease shortly after that.
It worked quite well till the regulators figured it out. Braniff (deceased high end airline) was the ringleader.
These pricing algorithms just accomplish this one time scales of hours rather than months.
but it's just old wine in new bottles. No one invented anything or changed anything. But the amplification and universality of it made the problem worse.
But what actually makes this interesting is that it may also be an emergent behavior as opposed to either intentional programming or an untended artifact of some algorithm. THat is, if an AI is simply asked to maximize profit in a multi-agent system it's entirely possible it will learn this tit for tat strategy. Humans do in cooperation-games in behavior theory.
Some drink at the fountain of knowledge. Others just gargle.
It's pretty obvious Amazon adjusts at least some of their pricing based on customers past purchasing history and / or habits.
It explains why an .mp3 download will cost me $1.25 when the exact same download will cost .99 for someone else who doesn't normally download music from Amazon.
Game Theory dictates that if the persons (algos) act independently then the price tend to fall down, not rise up.
Very early in their studies, MBA students are taught not to start a price war. The problem isn't collusion. It's that there is not enough competition. There is nobody left to fight over market share. High barriers of entry for mass produced goods and few avenues of sale mean that new competitors are exceedingly rare, so there is nobody who needs to gain market share by offering a commodity product at a lower price.
That is called equilibrium, not collusion. There once was a similar state in the US with breakfast cereals for a while, until one of the participants decided to break the equilibrium and lower prices to try to gain market share.
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You can't collude if your'e not talking!
Sounds like I need to go into business with a algorithm that simply undercuts all of them by a penny.
I was wondering about this as I can look up the price of an item, and a few days latter after considering the purchase, the price has increased.
In a time of universal deceit, telling the truth is a revolutionary act. George Orwell
Between drump and the aipac zioners! Wtf is this shiz
The algorithms are communicating with each other through the prices they constantly alter.
In this era of mass production Product A will be Product A regardless of who you buy it from.
If you shop exclusively on Amazon without price checking against Alibaba, ebay, Rakuten, etc., then you deserve to be stung by their AI (Artificially Inflated) prices.
Maybe the whole basic concept upon which we've based our economy is flawed, because just like algorithms, a reasonably intelligent human being is going to come to these same conclusions and artificially price inflate alongside all his compatriots, even if they never get together and discuss it (which, of course, they do, but it wasn't necessary), and then take that extra money that they're making and hire marketing departments that by their very existence (and ultimate collusion without a need for communication as well) end up creating one of the biggest barriers to market entry for newcomers you can make, advertising. Maybe, just maybe, markets do not always act to drive prices down as you're told in elementary school. It might be a bit more nuanced and complicated than that.
Maybe capitalism isn't perfect. Maybe it isn't even close. Maybe it's flawed, maybe even fundamentally so. Maybe it requires "outside regulation" to ever be beneficial to anyone in the first place thus exposing its very fundamentally flawed nature, and always acts to corrupt that outside regulatory influence with an aim at subversion first or rendering ineffective as a backup, at which point things just get progressively worse until they "break" (often in spectacular, violent fashion) and we start the cycle all over again. No? Not a familiar pattern at all? OK, back to your regularly scheduled programming, then.
I guess maybe we'll get around to any sort of fundamental critique of a system that is clearly "neo-slavery", in which capital provides less and less and reaps more and more of the rewards for the worker's labor, oftentimes in the modern era told that this is a fair system because you can go get another job, leaving out how in every single job, there is not and cannot be a fair and equal-power equivalent contract of employment when the employer knows more about the finances and goals of the business than the would-be employee.
Even if all else could be and was equal and all other knowledge was somehow known by both parties (never the case), if you go in with zero knowledge of the business' (and this might be that corporation, or an entire empire of them, that come into play) true finances and the other guy has 100% knowledge of the finances, then literally from second 1 of that "negotiation" it was a sham; that person without the knowledge is just blindly swinging hoping he hits on something that that financier likes, and is in no way having a candid and transparent conversation about what the business believes the value of that employee is/will be (indeed, the would-be employer often does argue that to show their hands at this early point would be negotiation suicide and would never do it; but this is them admitting they've got something on the other guy, this is them admitting this wasn't actually a fair hand of cards, and instead a stacked deck). Lacking that, it becomes literally impossible for any would-be employee to actually effectively negotiate their own compensation, there will always be room and incentive on the part of the would-be employer to lie or provide conservative numbers and estimates, and then pocket the profits made. This is one of 1000's of real-world reasons why there is no equitable power setup at any point in the employee-employer relationship to justify any sort of ethical whitewashing of this system. It is just a newer, slightly more palatable form of slavery; and no slavery can ever be truly palatable to the enslaved, so an eventual rebellion is the obvious and depressingly foreseeable outcome, thus the critique that maybe, just maybe, our entire economic model is flawed at its core. And maybe the one steam-release valve in the room, a functioning representative government, is also AWOL at the moment. Hold on to your butts.
Their price for a certain brand of bottled water varies daily. Sometimes it goes up by 50% or so from the week before. They scrap amazon prices and price it the same.
No mention of AI, I am shocked - and pleased. I have benefited from Amazon algorithm pricing wars at least once, the 3rd party's algorithm kept dropping the price to 3 cents under Amazon, and Amazon countered to simply match that new price each time. Within a day the price fell to my price point.
If you set prices similar to a competitor's, that's not colluding.
Keep in mind these people will throw you in jail if you price too low.
Regulator: It's about fair competition.
Senator: i got my legal donation out of it. Ease off, we are concerned with something else now.
(-1: Post disagrees with my already-settled worldview) is not a valid mod option.
Many people seem to assume that potential customers are powerless against price collusion - but they are not. "Not buying" is almost always an option, so just show sellers of things you consider overpriced the finger and do not buy.
After some time, either those who fixed prices will notice their revenue goes downhill, or somebody will realize there is a market gap to fill when offering at a lower price.
There are plenty of things that I never bought all my life, for the simple reason that I do not consider them worth the price they are offered at (like built-in navigation systems for cars).
So exactly what happens now when competing companies price things; except on an accelerated scale.
Laws are rules for the court, but merely a bottom bar to hit for life. Think beyond laws in your actions always.
Reminds me of the super pac "co-ordination" things that were brought up all the time. IE a candidate would break the law if he sent an e-mail to the superpac saying "can you run some ads in floridia", but they can go on television and say "I hope my superpac runs ads in Florida".
not a crime!
If a handful of robots can set overall prices, then the problem isn't the AI, its the near monopolistic level of control of the market.
After all, even if the bots (or their masters) wanted to avoid a price war, it only takes 1 competitor to break it.
A new study shows how easy it would be for price-setting algorithms to learn to collude with each other and keep prices at a disadvantage for customers.
Not that it is happening, not that they ARE actually colluding, only that it would be easy to do...
Why can't the headlines match the story?
Ken
Equilibrium is when disparate forces in a market reach a balance point, not when 'competitors' refuse to compete. The cereal problem you mentioned was a classic case of refusing to compete. FTC watched those guys for YEARS trying to catch them communicating.
An example of an equilibrium is when prices go low enough that it becomes uneconomical for some participants to stay in the market if prices go any lower, but there is also not enough profit in the market to entice any new entrant (who faces barriers to entry), so prices and market participants stabilize. This is usually a sign of strong competition.
The diagnostic symptom of a cartel (either communicating or not) is sellers making economic profits (as opposed to accounting profits) for a sustained period of time. Economic profits are profits after deducting opportunity costs. If it's more than one company, you are looking at a cartel. If it's only one company, you're looking at a monopoly.
Socialism is evil. You can't possibly be suggesting one of the biggest criticism of Capitalism happens in markets. It's like you are almost suggesting that there are problems with every type of economic system.
So if the computers have taught themselves dodgy business practices, just like corporations, have they passed a sort of group version of the Turing test?
On numerous occasions, I have seen a product on Amazon with the same price on Walmart and/or Target. Then I'll see the price change on Amazon, and lo and behold the price also changed to that same price on Walmart/Target.
So now AI is already able to fully replace CFOs and CEOs. Beware, engineers, you might be next!
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
If the price is too high, I just don't buy.
It's like people thinking algorithms are trained to be biased, when they could simply he observing the best ways to take advantage of the system.
Why do we keep presenting this sort of AI non-sense as a new concept? We've had price-fixing, collusion, anti-competitive behaviour, insider trading, price gouging, and myriad other names for exactly the same thing.
It's never been difficult to rip people off.
It's been illegal.
That's it.
It still is illegal.
Start arresting people.
to mention...
Some CLECs allow or require customers to set or send their own caller ID
There is little, if any, enforcement of tariffs, rules and regulations of CLECs caller ID policy
Subcribers in the US at least, who use ISDN, Supertrunk or other such services are required to send their own caller ID info.
Not all such subscribers comply with the tariffs, rules or regulations to send caller ID.
Such subscribers are also required to send their correct call ID info.
Not all such subscribers send correct caller ID info.
There is little, if any, enforcement of such tariffs, rules and regulations.
ANI is more accurate than Caller ID.
ANI is available only within the network, to n11, and to INWATS customers who pay extra for receiving ANI data.
OK, please stop using that word. It's VERY non-descriptive. Use the type of algorithm, then refer back to it.
That's the result of the misguided ruling by the Supreme Court in the Leegin Creative Leather case. That decision legalized price fixing, which is now euphemistically called "minimum advertised price" or MAP.
MAP is why all the prices you are seeing change at the same time. The maker is fixing the price and the retailers are playing along.