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Comment by tiedieconderoga | Hacker News Reader

The problem is that people aren't rational, and they don't have perfect information.

So the history of finance and commerce has been a cat-and-mouse game where the cats find new ways to cheat people, and the mice try to recognize and prevent those schemes.

One example: cartels. If an industry is dominated by a small number of large players, they can collude to set prices and stifle competition through regulatory capture, acquisitions, cornering supply chains, etc. It works like a monopoly, but no individual member is large enough to pursue as a monopoly. It falls apart with too many members, because the rewards for defecting are high.

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The lack of information (or information asymmetries) are such a huge deal and not often appreciated.

I would pay a lot more for many small electronic gadgets if I knew that they would 1) work better and 2) last longer than the cheap ones. However, It's basically impossible for me to find out how good is the signal on my bluetooth usb stick or how long my plant LED lights are going to last without breaking so I just buy the cheapest since the price doesn't seem to be a very reliable indicator of either of those things. I'm sure there are players on the market who make things that I'd like to buy, but it's impossible for me to find them and verify that they actually do what I want so they are not getting my money.

They don't even need to "collude".

They can just look at what their "competitors" are doing. I raise my prices a little bit. You see me raise the prices a little, and you raise them a little. And then I see that and raise them a little more. Then I do a tiny round of layoffs. You also layoff some people. Then I do a bigger round of layoffs and communicate big profits publicly. And you follow suit.

You and I never talk, never "collude". But we are effectively communicating through our numbers. As long as we have captured a big enough market, we don't need to talk, and we both benefit.

I don't know if there's even a term for this kind of "tacit collaboration". Perhaps "anticompetition"?

Yeah exactly. What we're looking at here are similar actors reacting to the same incentives. Pepsi raised prices because they can and their shareholders demanded it. Coke raised prices because they can and their shareholders demanded it. Thus 80% (or whatever) of soda worldwide increased in price, without collusion. So you have the failure case of collusion without the cause, which sucks because we didn't really consider that this failure case might have two causes (which, I would argue that we should have, probably back in like 1920).

It's an important first step to realize this is happening. Larry Summers was like, "I don't think suddenly corporations got more greedy", implying that because corporations have been maximally greedy the whole time that that can't be the cause of additional inflation.

But it can be that it causes a new, unfortunate reaction with a new set of incentives, and this is exactly the situation we find ourselves in. It used to be OK (well, not really but let's stipulate) for corporations to be maximally greedy, but now it's not.

So what's the next step? I don't really know. People float stuff like a tax on profits or price controls. I generally think those are probably too blunt, though I could get behind a tax on profits I guess. I might prefer some kind of blanket industry regulation ("Hi Coke, Pepsi, we know you didn't mean to exactly but you inadvertently increased the price of 80% of world soda by 20%--please stop") because this kind of thing seems like it can be nuanced and tailored to a specific situation. Maybe also a prohibition on stock buybacks to lower investor pressure to juice short-term profits--but I haven't thought this one through very much.

Corporations were always maximally greedy, but there were times where the markets were not 200% saturated and new demand did not had to be created artificially by mass indoctrination.

I mean, everybody who have seen their neighbor's electric / gas stove wanted one for themselves very quickly to avoid the need to lug wood. And when radio and TV came? Don't even get me started. Fridge, washing machine, dishwasher, vacuum cleaner, camera, car, phone, portable music player, PC, laptop, cell phone...

It all sells / sold really easily just by word of mouth and you just needed to run slightly faster than competitors to capture higher portion of the market. So the incentives were mostly aligned and capitalism delivered value (in those areas).

Now there is no easy way to create a good or service that will instantly save multiple hours per week for almost everybody. No easy way to make luxuries of past like having oneself painted or being served a meal (women must have loved that) available to masses. But still, some that provide meager improvements managed to take off. Robotic vacuums, food (and grocery) delivery services come to mind.

Hence the rush to convert the market shares into an enduring rent.

Eventually corporate landlords will realize that they have the ultimate power and just tax everyone so high that only the basic subsistence is possible, with zero luxury. Maybe then the public will finally reconsider the arrangement.

I didn’t take tooooo many econ classes but it sure seems like there are a lot of monopolies, oligopolies, and potential cartels these days.

When every company has easy access to the entire world, or at least an entire country, the natural direction is towards far fewer, extremely well-capitalized companies eventually squeezing everybody else out. And we're seeing that in almost every industry, for sure.

I'm not that old yet, in my mid-30s, and still during my lifetime I've seen an incredible amount of corporate-consolidation in multiple countries. It's happening in multiple societies, across multiple different industries: food, media, banking/finance, tech, auto manufacturers, etc.

Last time I looked into some companies from my home country that were part of daily life in my childhood I see that most have been acquired by a larger corporation, or became corporations with multiple mergers themselves.

It's been happening pretty fast the past 20 years.

In practice, the markets still work pretty great even without perfect rationality and information. Those are just assumptions for a mathematical model, not something that must always be satisfied lest everything collapse. Econ classes will show you how things can break if these assumptions are not satisfied, but in actual practice, they don’t need to be satisfied perfectly in order for actual operations to match mathematical models very closely.

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