[paul80808]

Pricing software offers implicit collusion by providing competitors a way to agree on a price that is equivalent to monopoly prices, without them need to formally meet and agree on a price - which would be easily prosecutable.

There are examples in many markets, here is a well-researched example that comes to mind: https://economics.yale.edu/sites/default/files/clark_acex_ja...

This paper discusses how algorithmic pricing produces outcomes that are equivalent to collusion-based pricing in the German gasoline market.

Recent experiences with grocery pricing across North America and Europe look very similar to me. I know some computer scientists who have worked with major grocery retailers to implement fairly sophisticated automatic pricing tools. The goals they work towards are typically fairly simple metrics, like average spend. Even though the goal isn't to gouge consumers, it's easy to see how how this might be the unintended result.

[ChadNauseam]

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.

[NoMoreNicksLeft]

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.

[hansvm]

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, ....)

[cmiles74]

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.

[dclowd9901]

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

[lotsofpulp]

Retail business profit margins are 1% to 5%. Mathematically, how can the prices be any lower without the business failing? Hence we see similar prices everywhere.

Grocery stores especially have 1% or 2% profit margins, so logically, the things they sell must be priced as low as they can. And also why a mom and pop grocery store cannot compete with Walmart/Kroger/Costco/Target/etc, you need those huge economies of scale otherwise your prices will be uncompetitive.

[bgirard]

How can grocery store have a 1% to 2% profit margin, when the price of the same item across grocery store chains can vary by 10-30% or more? I can't imagine it coming down to a store having higher costs alone.

[dclowd9901]

In 2022, Kroger made $2.2B on $34.8B sales. That’s more than 6% _profit_, never mind margins. These companies are making way more margin than you are saying they are.

Edit: looks like that was just the quarter — still 1% profit which means margins must be far higher. Margins in retail, by the way, are mark-up over wholesale cost.

Source: https://www.cincinnati.com/story/money/2023/03/02/how-much-d...