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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 formal

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_jan_2021.pdf 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.

lotsofpulp 3y ago
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.
- dclowd9901 3y ago
  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-did-kroger-make-in-profits-last-year/69962158007/ https://www.cincinnati.com/story/money/2023/03/02/how-much-d...
  - gruez 3y ago
    Where are you getting this? This site shows around 2-3% margins. https://www.macrotrends.net/stocks/charts/KR/kroger/profit-margins https://www.macrotrends.net/stocks/charts/KR/kroger/profit-m...
    - PowerfulWizard 3y ago
      I think above grabbed Gross Profit rather than Total Revenue, this page shows a 1.1% profit margin: https://finance.yahoo.com/quote/KR/key-statistics?p=KR https://finance.yahoo.com/quote/KR/key-statistics?p=KR
  - SideQuark 3y ago
    Those numbers are wrong. Yahoo shows their financials: revenue was 122b, 132b, 137b, 148b for years 2020-2023. Normalized the income was respectively 1.4b, 1.7b, 2.3b, and 2.8b.
    - lucas_membrane 3y ago
      Kroger buys other retailers. Their income (and their taxes) will be reduced by (amortization of) the intangible cost of the retailers bought. This is money paid to the shareholders of the retailers who sold out, which should also be counted as income of the retailing sector. Furthermore, we now have an economy in which many so-called industries have a single-winner or have a race to become the single-winner now in progress. So just about every firm that advertises is paying uncompetitive rates for eyeballs in the media markets, every firm that accepts credit cards paying uncompetitive rates for payment processing, and seemingly every firm that wants to have more control over its pricing is paying exorbitant executive compensation for those who are supposed to bring that about. If the firm is at all profitable, the customers pay for all of that, too.
      - lotsofpulp 3y ago
        > Kroger buys other retailers. Their income (and their taxes) will be reduced by (amortization of) the intangible cost of the retailers bought. This is money paid to the shareholders of the retailers who sold out, which should also be counted as income of the retailing sector. This does not make any accounting sense. Profit (net income) is not a function equity, and what if the prior owners lost money on the investment? Also, what intangibles are you referring to in a grocery business? The buildings, real estate, supplies etc are all tangibles.
- bgirard 3y ago
  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.
  - Jensson 3y ago
    Ask yourself why the stores that charges 30% more are still around? Likely they operate in different areas, or they offer some services the cheaper place doesn't, or they have higher quality wares etc. Otherwise everyone would go shop at the cheaper store. Now ask yourself, why doesn't the cheaper store offer those things? Maybe because they costs something?
  - gruez 3y ago
    >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? 1. Individual price discrepancies of "10-30% or more" doesn't really matter. What does matter is overall markups. 2. The stores themselves might be upscale/higher tier, which also makes their stuff more expensive. I'm not talking about whole foods carrying organic products, I'm talking about stores that have better selection, full service butcher/deli, better cleaning, better interior design/decoration, or better location (richer neighborhood).
  - lotsofpulp 3y ago
    >I can't imagine it coming down to a store having higher costs alone. Your other option is assuming there is industry wide financial reporting fraud across multiple businesses and multiple countries for many decades. Stores have different costs due to selling: 1) different quality of goods 2) employing different quality/quantity of workers 3) different locations having different real estate/insurance/tax/labor costs 4) offering fewer or more services/products Etc.
ChadNauseam 3y ago
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.
- dclowd9901 3y ago
  What if they didn’t though? That’s what the software offers. They maintain high profits with very little effort.
  - randomdata 3y ago
    High profit doesn't necessarily mean the players aren't at rock bottom. Some industries need high profits to justify the effort. If all you can eek out is a small profit, you can do just about anything else. 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.
    - evanwise 3y ago
      The only possible reason for barriers to entry is regulation? There are many industries where startup costs are high for reasons intrinsic to the business and margins are relatively low so you are unlikely to get investment from outside sources. Grocery stores for example. You are trying to apply a toy model from econ 101 to explain the behavior of complex real world markets, and when the model doesn't fit you invent bogeymen to blame. This is more like religious fundamentalism than any kind of science.
      - randomdata 3y ago
        Grocery stores are already operating at rock bottom – in most markets, at least. 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.
deleted 3y ago
[deleted]

lotsofpulp 3y ago

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.

dclowd9901 3y ago
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-did-kroger-make-in-profits-last-year/69962158007/ https://www.cincinnati.com/story/money/2023/03/02/how-much-d...
- gruez 3y ago
  Where are you getting this? This site shows around 2-3% margins. https://www.macrotrends.net/stocks/charts/KR/kroger/profit-margins https://www.macrotrends.net/stocks/charts/KR/kroger/profit-m...
  - PowerfulWizard 3y ago
    I think above grabbed Gross Profit rather than Total Revenue, this page shows a 1.1% profit margin: https://finance.yahoo.com/quote/KR/key-statistics?p=KR https://finance.yahoo.com/quote/KR/key-statistics?p=KR
- SideQuark 3y ago
  Those numbers are wrong. Yahoo shows their financials: revenue was 122b, 132b, 137b, 148b for years 2020-2023. Normalized the income was respectively 1.4b, 1.7b, 2.3b, and 2.8b.
  - lucas_membrane 3y ago
    Kroger buys other retailers. Their income (and their taxes) will be reduced by (amortization of) the intangible cost of the retailers bought. This is money paid to the shareholders of the retailers who sold out, which should also be counted as income of the retailing sector. Furthermore, we now have an economy in which many so-called industries have a single-winner or have a race to become the single-winner now in progress. So just about every firm that advertises is paying uncompetitive rates for eyeballs in the media markets, every firm that accepts credit cards paying uncompetitive rates for payment processing, and seemingly every firm that wants to have more control over its pricing is paying exorbitant executive compensation for those who are supposed to bring that about. If the firm is at all profitable, the customers pay for all of that, too.
    - lotsofpulp 3y ago
      > Kroger buys other retailers. Their income (and their taxes) will be reduced by (amortization of) the intangible cost of the retailers bought. This is money paid to the shareholders of the retailers who sold out, which should also be counted as income of the retailing sector. This does not make any accounting sense. Profit (net income) is not a function equity, and what if the prior owners lost money on the investment? Also, what intangibles are you referring to in a grocery business? The buildings, real estate, supplies etc are all tangibles.
bgirard 3y ago
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.
- Jensson 3y ago
  Ask yourself why the stores that charges 30% more are still around? Likely they operate in different areas, or they offer some services the cheaper place doesn't, or they have higher quality wares etc. Otherwise everyone would go shop at the cheaper store. Now ask yourself, why doesn't the cheaper store offer those things? Maybe because they costs something?
- gruez 3y ago
  >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? 1. Individual price discrepancies of "10-30% or more" doesn't really matter. What does matter is overall markups. 2. The stores themselves might be upscale/higher tier, which also makes their stuff more expensive. I'm not talking about whole foods carrying organic products, I'm talking about stores that have better selection, full service butcher/deli, better cleaning, better interior design/decoration, or better location (richer neighborhood).
- lotsofpulp 3y ago
  >I can't imagine it coming down to a store having higher costs alone. Your other option is assuming there is industry wide financial reporting fraud across multiple businesses and multiple countries for many decades. Stores have different costs due to selling: 1) different quality of goods 2) employing different quality/quantity of workers 3) different locations having different real estate/insurance/tax/labor costs 4) offering fewer or more services/products Etc.

ChadNauseam 3y ago

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.

dclowd9901 3y ago
What if they didn’t though? That’s what the software offers. They maintain high profits with very little effort.
- randomdata 3y ago
  High profit doesn't necessarily mean the players aren't at rock bottom. Some industries need high profits to justify the effort. If all you can eek out is a small profit, you can do just about anything else. 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.
  - evanwise 3y ago
    The only possible reason for barriers to entry is regulation? There are many industries where startup costs are high for reasons intrinsic to the business and margins are relatively low so you are unlikely to get investment from outside sources. Grocery stores for example. You are trying to apply a toy model from econ 101 to explain the behavior of complex real world markets, and when the model doesn't fit you invent bogeymen to blame. This is more like religious fundamentalism than any kind of science.
    - randomdata 3y ago
      Grocery stores are already operating at rock bottom – in most markets, at least. 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.

deleted 3y ago

[deleted]