Hacker News Reader

Comment by paulddraper | Hacker News Reader

> The algorithm helped Amazon improve its profits on items across shopping categories, and because of the power the company has in e-commerce, led competitors to raise their prices and charge customers more...In instances where competitors didn’t raise their prices to Amazon’s level, the algorithm—which is no longer in use—automatically returned the item to its normal price point.

> The company also used Nessie on what employees saw as a promotional spiral, where Amazon would match a discounted price from a competitor, such as Target.com, and other competitors would follow, lowering their prices. When Target ended its sale, Amazon and the other competitors would remain locked at the low price because they were still matching each other...

Soooooo....it used the algorithm to raise prices, but also lower them?

Anyone want to try their hand at an actual headline?

View on HN

Cory Doctorow disagrees (1) that the consumer welfare theory of monopolies is valid and (2) that monopolies which dominate industries are economically desirable [0]. I found it interesting to realize that most modern antitrust theory - that consumer harm is the only reasonable basis for government intervention in monopolies - appears to lack historical basis in the law. For instance, the consumer welfare standard severely downplays the importance of free and fair competition among businesses as a means for class advancement.

> This is the “consumer welfare” standard, a theory as economically bankrupt as it is historically unsupportable. Let’s be clear here: The plain language of America’s antitrust laws make it very clear that Congress wanted to block monopolies because it worried about the concentration of corporate power, not just the abuse of that power. This is inarguable: Think of John Sherman stalking the floor of the Senate, railing against autocrats of trade, declaiming that “we should not endure a King over the production, transportation, and sale of the necessaries of life.” These are not the statements of a man who liked most monopolies and merely sought to restrain the occasional monopolist who lost sight of his duty to make life better for the public.

[0]: https://archive.ph/aTv47

The internet provider for my home is a true monopoly. I have no other choice. I can't click around in my browser, or futz with the cables in the walls and choose a competitive internet provider. I live in an area with moderate population density, so there could be more competition, but the local municipality negotiated exclusive rights for one provider. My provider knows it, they probably paid handsomely for the exclusive rights, and that's why they charge $95 a month for unreliable and slow service.

When my uncle had a heart attack, he wasn't in a position to shop ambulances, emergency departments, surgeons, cardiologists or anesthesiologists. As with internet providers, emergency healthcare is not a competitive market, and that's reflected in extortionate pricing.

It seems like reducing consumer harm should be the primary objective of regulators.

> It seems like reducing consumer harm should be the primary objective of regulators.

You're not wrong, but the definition of "consumer harm" used in practice hinges on short-termism and is price-centered right now. "This won't raise prices...for now, at least" is, by itself, an alarmingly strong argument in this arena, irrespective of market health or sustainability of competition.

The Biden administration has made some steps to counter that, we'll see if it's really a thing.

Personally I’d love it if companies like Comcast, AT&T, Wells Fargo, BofA, et. al would need to compete enough that they stop being extractive and manipulative assholes at a minimum. Or at least stop being periodic criminal enterprises. Perhaps even fair and honest market participants?

I guess I need to cut back on the heroin.

https://www.starlink.com/ is not available where you are?

It’s unreliable with cloud coverage, adds latency, and may not match bandwidth with good offerings (for example my uncapped 1GBPS symmetric fiber for $60/mo thru Sonic). It also is run by Musk which can be a turnoff for many.

I'm using Starlink in Nebraska. It is reliable with cloud coverage. I have only lost connectivity for 5-10 minutes during the fiercest part of the worst thunderstorms.

In my testing about four months ago, Starlink had between one and seven outages per day lasting more than 10 minutes each. It was not reliable, and it's even more costly than the local monopoly.

My reply wasn't asking for help to find an internet service provider. There are actual monopolists extracting monopoly rents right this minute. They're causing genuine consumer harm right now, so stopping this harm should be the priority of regulators.

Where there is no ability to access competitive offerings, these actual monopolists are a different league of economic pathology from markets where consumers can access competition by clicking around in their browsers.

Yes, Doctorow's article talks in the end about the exceptional nature of universal computing which means that competition is always an option.

But yours isn't a hard case of monopoly either, the main thing preventing you from creating a competing ISP is your local laws, which are failing antitrust to the point one wonders how they ever came to be ?!?

(We also shouldn't discount the importance of network effects.)

Has anyone who ever suggests Starlink as the solution to any given fixed-line ISP problem ever actually used the service in a range of typical homes for a meaningful amount of time?

I have the latest dish model, live on a one acre property with a relatively large clearing, and I still struggle with the extremely wide field of view of the clear sky (no trees, hills or other occluding items) which it needs - I simply can’t get 24hrs of uninterrupted service, and performance is extremely variable. This is even after mounting it some 25ft in the air to reduce occlusion issues as much as possible. Starlink needs an unobstructed view right down to surprisingly low on the horizon for 24 hours of solid service, which many, many homes simply won’t be able to provide.

Starlink is incredible for what it is, but it’s not magic and becomes very hard to use reliably in urban areas at least with the current dishes and tech stack they are using. In many urban neighbourhoods it will be close to impossible to get a reliable 24 hrs of service unless you can knock down your neighbours homes and trees too.

Starlink is best used in situations where there are almost no other options, or as a backup connection to another more reliable one, for most people. It is not a great replacement for almost any fixed line service, if you have that option. Perhaps this changes in future, but people should stop just suggesting starlink in its current form as the panacea to all ISP problems.

Occlusion appears to be the single biggest enemy of starlink, and it’s super easily occluded - so much so, the app helps you measure/approximate the occlusion in your intended use space via your phones cameras before you buy.

> I have no other choice

There are approximately ~1 gazllion wireless internet providers where I live.

1) Great! You don't live where the previous poster does, apparently.

2) For many people, wireless and wireline internet providers are not substitutable.

#2 what is it about those people that make it that way?

Latency. Bandwidth. The critical components of a network connection.

You couldn’t get me to put up with 5G latencies because I play multiplayer video games and you couldn’t get me to put up with 5G bandwidth because I need to ship hundreds-of-gigabytes video files around and I’m not putting up with sub-gigabit upload speeds.

My goodness man :D

Just be glad you weren't around 15 years ago

I had symmetrical gigabit FiOS in 2010. (I still have it today.)

Even if I didn't have symmetric gigabit, I also was working with 720p and 1080p video up until about 2013 and not 6K. Requirements shift over time.

why doesn't your provider charge $200 a month then?

any other examples of local monopolies

Because people would be unable to afford/pay it

The time to shop for emergency services is obviously before you need them. typically though some kind of insurance.

Maybe that is not legally possible where you are, but there is nothing inherent about emergency services resulting in extortionate pricing.

Where in the world are you that you get to choose your emergency services provider? Certainly not the USA.

While discussion is specifically about the USA, it's worth noting that for each of these two problems, there exist plenty of places in the world that don't have one or even both of them.

I'm talking about how societies can be organized, not claiming that US society in October 2023 is organized that way.

> I found it interesting to realize that most modern antitrust theory - that consumer harm is the only reasonable basis for government intervention in monopolies - appears to lack historical basis in the law. For instance, the consumer welfare standard severely downplays the importance of free and fair competition among businesses as a means for class advancement.

This feel similar to the myth of shareholder primacy. In both cases, the "agreed on standard" has little to no basis in the law, but happens to enrich the powerful and well connected over the little man.

https://corpgov.law.harvard.edu/2019/08/22/so-long-to-shareh...

> myth of shareholder primacy

FWIW that's just logic.

Whether it's de jure or de facto, the owners of something will own it to their interests.

Yep, why would anyone own anything that negatively impacts them.

If you had 100 dollars would you invest it into a company where the CEO could just take the entire company hostage and potentially make you lose your entire investment?

> Yep, why would anyone own anything that negatively impacts them.

That's a false dichotomy. You can own something (or a share) and the purpose of it need not be "return as much value as possible, via buybacks, in the next quarter".

Uh, so why would I choose to own that?

To earn a return on your investment. Maximizing that return in the next quarter by threatening to take a controlling stake in the company falls into this category of course, but it's silly to think it is the exclusive mode. The point the other poster is trying to make is that it's absurd to pretend the options are 'unilateral control of the company is determined by shares' and 'shareholders are being negatively impacted by their investment'.

Ownership guarantees some legal rights, but it doesn't mean that all value is yours to consume. Employees, partners and customers are all going to fight for the value that is created and will use whatever leverage they have to get it.

Of course owners don't get all of the value. Otherwise, there wouldn't be employees or customers.

Everyone shares.

Company actions maximize company value. Employee actions maximize employee value. Customer actions maximize customer value.

So often it's "buyer beware" when it comes to consumers, it seems like it should likewise be the job of the investor to be smart about what companies they invest in if they want to avoid a CEO who would run a business into the ground just for funsies. The risk of potentially losing your entire investment is something every investor has to accept as being possible with carefully considered and wise investments making it less likely to occur.

> So often it's "buyer beware" when it comes to consumers, it seems like it should likewise be the job of the investor to be smart about what companies they invest in if they want to avoid a CEO who would run a business into the ground just for funsies

It's pretty much like that already, the CEO can run the company into the ground for funsies if they are insane.

But if the investor catches the CEO doing this they have the right to sue to prevent it from happening and the legal system and shareholder primacy are what allow for this. Otherwise, what does the concept of ownership even mean if the owner can't decide what is done with the business?

Even without a right to sue or shareholder primacy shareholders can get a crazed CEO fired, screw with their pay, etc.

Well, people buy both Google and Facebook stock where the founders still have a controlling interest and could theoretically do anything they wanted

If you look into the actual historical basis of shareholder primacy, you'll find everything is a bit more complicated than you think it is. Shareholder primacy has an old idea, coming from a the 1919 court case Dodge v. Ford Motor Co. The facts of the case were as follows:

1. The Dodge brothers - minority shareholders in Ford Motors, wanted to set up their own automotive company. They planned to use the money from Ford's dividends to support their company.

2. Henry Ford would have liked to keep his monopoly on affordable cars. He cancelled the dividend and claimed he's going to spend the money on improving society (by selling the Model T even cheaper) as a thinly veiled excuse.

3. The courts in Michigan saw what's happening and forced Ford to issue dividends.

As you can see in that case case, it was the lack of shareholder primacy that enriched the powerful. In the last 20 centuries of human history the powerful have always crushed the little man with the excuse they are serving the public interest. Beware of anything that empowers powerful individuals (like corporate CEOs and directors) to take arbitrary actions in the name of "social responsibility".

How did Ford cancel the dividend without shares?

The did have shares.

> In the last 20 centuries of human history the powerful have always crushed the little man with the excuse they are serving the public interest.

Was this not happening before the estimated birth of Jesus of Nazareth?

I was thinking more of the "people's" party of the Roman republic which replaced electoral government with divine monarchy in 27 BC. It's a rather fragrant example of what I'm describing as well as the first one I know of, but I doubt it's the first time it actually happened.

Christianity couldn't have been a tool of the rich and powerful in the first century, because it only began acquiring powerful followers around the third century crisis.

What is the reasonable alternative to shareholder primacy? Removing shareholders as a check on the executives would create an all powerful CEO similar to the structure of tech companies with dual class shares but at all companies. I don't think that's a good thing.

Also, why would investors want to invest in a company where they could not remove a ad CEO that isn't delivering returns? They would probably just reinvent shareholder primacy through investment contracts.

Do shareholders actually act as a substantial check on companies though? And it's this a check towards positive behavior, or negative behavior (for the company, society, etc.)?

A CEO or board of directors that angers the majority of shareholders (or an outspoken minority) doesn’t last long. That correlation is absolutely clear.

Which means most CEOs and boards focus on managing shareholders at least as much as anything else they do.

I agree. Unfortunately the majority of shareholders are rich dudes who just care about their numbers going up. The whole thing is psychopathic.

They certainly wouldn’t be rich dudes for long if they were okay with the numbers going down!

What do you suggest we optimize for instead? "their numbers going up" is at least objective.

Everyone who has money in the stock market via their retirement funds care if the stock goes up

THEIR numbers going up, is the part you may be overlooking in that.

Care to clarify?

I'm assuming the person I replied to was insinuating that the people with an influential amount of voting stock are adequate representatives of the interests of small fry investors building up for retirement. My response is that if the former has the option to increase their share of wealth at the expense of the latter (like rearranging the leadership in a way that promotes short term gain at the expense of long term gain), they will take it. They're interested in their numbers, not any particular company, or the health of the market, or retirees.

Thank you for asking for clarification. I realize I responded precipitously and was too cryptic to contribute anything meaningful to the discussion.

If they didn't why would anybody be complaining about "shareholder primacy?"

And it's a check towards their own interests. Just like the CEO acts in his own interests. I can't for the life of me understand why anyone thinks the CEO is more likely to act in the best interest of employees or society than the shareholders are.

> I can't for the life of me understand why anyone thinks the CEO is more likely to act in the best interest of employees or society than the shareholders are.

Probably because shareholders can just care about money in the immediate term and don't need to actually care about any one company or its long term success. They may never know or even interact with the employees of that company on any meaningful level, and may have investments in several other companies including direct competitors so that if any one company tanks they'll still have other investments making them money hand over fist.

A CEO, particularly when they're a founder, might actually care about the company doing well and may personally know the people working for the company. They might care a lot more about the employees they work closely with on a daily basis as opposed to a shareholder who just watches numbers go up and down while deciding when best to sell. The CEO's day to day will change drastically if their company fails. A shareholder whose company does poorly just adjusts what they buys/sell the same as any other day.

A CEOs compensation is mostly stock so that doesn't make any sense. But even if that weren't true, the idea that shareholders don't care about long term prospects or don't mind when the company tanks because they have other investments is one of the most outlandish financial takes I have ever heard.

When shareholders can trade in nanoseconds to exploit random anomalies in stock prices it's harder to imagine them deeply caring about their investments in the long term. Because CEOs don't have the option to jump ship at nearing the speed of light, it's reasonable to conclude that they might just care a bit more.

HFTs and day traders inventory accounts for negligible percentage of shares. The vast majority of shares in all publicly traded companies are held by long term investors. Short term holders have no impact on corporate decision making.

Was really glad the article you linked mentioned Robert Bork, because it's important to realize (a) this shift to the consumer-welfare standard is relatively new in US jurisprudence, like since the late 70s, and (b) if you consider, like I do, that Robert Bork was a Grade-A Turd for numerous reasons (can start by looking into the Saturday Night Massacre), you can see how this reading of the law is well in-tune with lots of other shitty ideas from Bork.

For more info: https://en.wikipedia.org/wiki/The_Antitrust_Paradox

It's well known that the consumer welfare focus only started in the late 70s, thanks in big part to Robert Bork's (the one whose SCOTUS nomination famously failed) "The Antitrust Paradox".

If you are interested in a book length version of this argument, I'd recommend Goliath by Matt Stoller: https://www.simonandschuster.com/books/Goliath/Matt-Stoller/...

Only on HN do I read something like this.

You are smarter than me.

Thank you for allowing me to be here on HN.

The theory that consumer harm is the only reasonable basis for government intervention in monopolies seems pretty silly on its face, since many cases of customer harm would be impossible to predict because the counterfactual is by definition unknowable. The whole point (according to Textbook Free Market Econ 101) is that competitors would try to find new ways of producing existing things for cheaper and producing new things that are better than existing things.

[deleted]

this is silly. antitrust came from the Standard Oil days. the name itself is in reference to Standard's novel approach of using a trust as the root of its organizational hierarchy. notoriously, Standard Oil dominated the market by vertically integrating for efficiency, and then telling any competitor in the geographical area they were about to expand into "either merge with us on really shitty terms, or we'll sell at-cost until we kill your business (because at-cost for us is in-the-red for you)."

Standard Oil would be labeled "pro consumer" by today's crowd: cheap prices, and highly standardized products that you could rely on wherever you travel (like McDonald's or Starbucks is today). the notion that antitrust can be boiled down to "consumer harm" is new. the history isn't vague, and thereby neither is the "theory". the legislation, i'm not sure about, but since it's rooted in those two things and vagaries are easily cleared up by consulting the former.

If this were an HFT algo, there would absolutely be an investigation by the SEC. You cannot place orders with the intent to artificially manipulate the price. This is obviously not a regulated exchange, but the end result is similar, so I understand why it is an issue.

This isn't HFT, and Amazon isn't placing any orders. Going "I'm gonna lower my prices so competitors have to do it too to remain competitive" is not illegal iirc, and I don't think it should it be.

This part in specific only benefits consumers.

Loss leader pricing when used to force other businesses to close is quite illegal in the US[1] - when used for other reasons the legality varies on a state by state basis in the US... it is illegal in quite a few places. I'm not particularly familiar with international laws here.

1. https://www.ftc.gov/advice-guidance/competition-guidance/gui...

There was a pretty big fight over this not too long ago.

Is there evidence that Nessie was used to sell items below cost?

Given Amazon's retail profit margins....the answers must be yes, right?

Why?

Because Amazon is using AWS to literally carry every division they have. I don't think retail has ever been profitable for them, happy to be proven wrong; but some of their newer ventures in hardware: Alexa, Kindle, Fire TV, Ring, and Echo have all been losers. If each were normal companies they would all likely be going out of business, bankrupted, or chopped up for parts for PE.

It's no different than Google using ads to subsidize failing ventures in order to gain market share.

I think "literally carry every division they have" is incorrect; on a margins basis, Ads are significantly more performant than AWS, although AWS wins on volume of profits and still has great margins.

Beyond that, I don't think this kind of analysis is meaningful because it fails to account for second order effects. For example, even if retail is breakeven on a net basis, it still subsidizes a gigantic fleet of machines used to power retail from which AWS came from. Negotiating in bulk to build data centers with a significantly larger internal customers leads to better unit economics for the AWS side of the build out even if retail is break even on a first order basis or even has losses. The same argument can be made for ads as well. Amazon is great at monetizing infrastructure /because/ they can sell not just significant volumes of the end product, but and the infrastructure used to deliver it.

I think you could make the same argument for Google, which is that technically, they should be able to use the second order effects of assets they've needed to put together to run search and ads to sell better infrastructure. Theoretically, this should mean that GCP is king, but it doesn't. I'm not sure there's an obvious answer to this question, or even a great clue behind first mover advantage AWS had in cloud.

It is certainly my gut feeling that Amazon is evil as hell but I think that I'd really like to see an actual investigation by folks who study this stuff to know whether Amazon was using their pricing predatorily or not. People, especially executives, are dumb - there's bound to be an email somewhere about John congratulating Fred about managing to shut down Plug's Stuff Hut a small family business if that was the intent and these actions were being made to accomplish this goal.

However, I thing that your last point is not relevant. What-about-ism has no place in the law or it necessarily creates a slippery slope. If Google is also able to do this and purposefully did it in a predatory manner to accomplish a market advantage they both need to be legally pursued - and GCP not succeeding doesn't necessarily mean that Google didn't try underhanded actions to get it to succeed - it either means those actions weren't enough or they were incompetent (but still malicious). Either way each case needs to be judged on its own.

For a long time (less so recently), Amazon retail made no or essentially no profit.

Gross profit is the measure to look at to determine dumping, not net or EBIDTA.

The profit margin includes costs of reinvestment (such as all the capital costs associated with their fleet of planes etc).

Per-item margin is the metric you need to use to judge whether they're deliberately trying to price out their competitor.

An offer to sell at a particular price is equivalent to an order.

You should run a sales team where you pay commission on how many offers to sell they make.

It’s called predatory pricing. Pricing products to eliminate competition is illegal.

If you sell Widgets and Sprockets, but you have a competitor that only sells Widgets, you can price of your Widgets so low (on 1-2% margins, for example) that the competitor is unable to compete and goes out of business because you can use Sprocket sales to keep your company in business during that time.

Now that the other company is out of business, the price of your Widgets doesn’t matter because you no longer have competition in the market. You’re getting 100% of the potential sales and despite selling on a lower margin, you’re sales volume is now way up making those margins acceptable.

You don’t have to worry about making a better Widget, or improving the Widget making process, because you have no competition. And you’ve priced yours so low, no other company can come in and attempt to enter the market because they can’t compete at your volume and margins.

If there’s a high-demand material needed to make a Widget, you can put pressure on the producer to lower material prices since you are now their primary customer, or purchase the company that produces it and prevent access to the material.

Predatory pricing consolidates market control and can be used to prevent access to the market. Anti-trust laws were designed to prevent this.

> Now that the other company is out of business, the price of your Widgets doesn’t matter because you no longer have competition in the market. You’re getting 100% of the potential sales and despite selling on a lower margin, you’re sales volume is now way up making those margins acceptable.

Please don't re-define words. This is not what's normally called predatory pricing. Predatory pricing is supposed to involve a corporation raising prices after destroying it's competition. The thing you are describing is nothing more than having a low margin strategy.

Is every dropshipper undermining brand-name (high-margin) apparel?

> Predatory pricing is supposed to involve a corporation raising prices after destroying it's competition.

That is not necessary for the definition of predatory pricing.

> Is every dropshipper undermining brand-name (high-margin) apparel?

I don't like this analogy because you're not comparing items of equal quality. They're not fungible.

Perhaps I've let my feeling of decline of quality in brand-name apparel color my argument. Sorry.

> Predatory pricing is supposed to involve a corporation raising prices after destroying it's competition.

Why would you raise prices after? That would just invite competition again. Keep the prices low and competitors away. Maybe raise them to at-cost, but if your Widgets can comfortably cover the cost, then there is no reason to raise prices.

> Why would you raise prices after? That would just invite competition again. Keep the prices low and competitors away.

The assumption of predatory pricing is that it's not easy for a competitor to just show up. Supply chains would be destroyed, capital equipment scrapped, etc and replacing them would be time consuming and expensive.

Sometimes that's a reasonable assumption to make, sometimes it's not. Even if the assumptions are unreasonable, many CEOs won't let mere reason stand in their way.

> Maybe raise them to at-cost, but if your Widgets can comfortably cover the cost, then there is no reason to raise prices.

So, the Widget-making capital would just sit there producing 0 ROI? Someone's gonna object to that. A company pursues market dominance to make money.

Haha. That’s a short-sighted strategy if I ever heard it. Why would you play a long-game like this to play a dumb short-game at the end? No, what you do is make it so you can no longer buy “just Widgets” you can still get your cheap Widgets through us, but you can only get them buy buying a Sprocket & Widget bundle. We are so sure you’ll love our Sprockets too!

Nobody can compete with you on the price and it is clear you can unbundle your Widgets from your Sprockets at any time if you ever feel threatened.

Price discovery isn't manipulation.

Price collusion, however, is. The goal of price discovery is to find the price that the market will bear; it is not to find the price that your so-called competitors will agree to match.

Under what conditions should a business be allowed to change their prices?

I'm OK with a computer making the pricing decision, but like HFT it's the frequency that leads to problems. It's a bit sad that the "free market" has to be regulated like this, but beautiful theories break down when you get to the quantum level.

> , but like HFT it's the frequency that leads to problems.

What problems?

Collusion requires the other party to be in on it. Simply reacting to your competitors' actions, or lack thereof, is not collusion.

>> Collusion requires the other party to be in on it.

The other party is being tested for cooperation. Amazon raises the price and then reverts if competitors don't follow suit. They didn't revert after seeing sales drop or something, it sounds like they reverted based on a lack of "cooperation" from competitors.

This is tricky stuff to define wrong doing. What if a company wants to see the going rate for a product and just looks to Amazon to get an idea? You know, because a lot of people will shop at Amazon by default unless there is a reason not to, like saving a bit of money. These kind of algorithms become anti-consumer the more they get automated, but they may seem reasonable on the surface or in isolation.

If two algorithms are fine in isolation, but when used together cause overall market prices to rise what should we think of that? In the above example, Amazon would raise their price and the competitor would follow but not quite to the level of Amazon. Then if markets really are competitive (and fast) someone else may step in at a lower price than either, but I don't believe a lot of markets are fast or efficient when it comes to lowering prices.

That's not collusion. Collusion requires a secret agreement between two parties to defraud a third party. One party unilaterally deciding to copy another party, regardless of the end affect, is not collusion. Causing market prices to rise is not illegal, so long as you don't do something illegal to cause them to rise.

Now it's possible that there was some separate agreement, for example Amazon and a competitor may have both agreed to raise a price some percentage and then they made small adjustments to look like it was just an automatic response. But the fact that algorithm seems to have accidentally lowered prices on some occasions would seem to suggest it genuinely was acting unilaterally. Or perhaps those failures were a deliberate part of a larger ruse. Ultimately it will be for a jury to decide but the FTC has its work cut out for them.

Sending a signal and waiting for a reply is communication. An agreement doesn't have to be written, or even spoken. Amazon colluded by effectively using the price as a carrier signal.

But it isn't secret communication, which is the necessary requirement for collusion. An agreement doesn't have to be written or even spoken, but the FTC does have to prove that a secret agreement exists, which is really hard to do without a written or spoken record.

Yes it is. It's like holding up "Hey, how about 20$?" on a sign next to your competitor's HQ.

> The goal of price discovery is to find the price that the market will bear; it is not to find the price that your so-called competitors will agree to match.

I'm sorry, huh?

Who exactly do you think is participating in this "market"?

If I place a ton of buy orders just off the top of the book, without the intent to actually buy, other market makers and algos WILL react to the new weighted midprice and raise their offers. This is basic market microstructure supply and demand; if I signal I want to buy A LOT of something, others will raise their prices. When the price gets high enough, I cancel the buy orders and sell at a higher price. This is illegal.

>> In instances where competitors didn’t raise their prices to Amazon’s level, the algorithm—which is no longer in use—automatically returned the item to its normal price point.

This is a form of automated collusion. I'll raise my price and if my competitors don't follow suit I will lower it again. It only works well for them if the competitors are watching prices too and looking for an opportunity to raise theirs. You know it's anti-consumer because of the conditional reversion after watching competitors prices not following.

I have a feeling there is currently a LOT of this going on across all industries in the US. We've seen it rent pricing software, now Amazon, and I think fast food and restaurants are dojng something similar. Food has gotten obscenely expensive expensive outside a grocery store.

"Price matching" is standard practice in virtually every major retailer...

Price matching refers to lowering prices. That's legal, up to the point of predatory pricing.

Raising prices then checking if so-called "competitors" follow is the illegal part - that's automated collusion, definitively illegal.

There is grey area around intent/motive, but the OP article is clearly on the bad side.

(Also, "standard practice" doesn't mean legal or moral)

>Raising prices then checking if so-called "competitors" follow is the illegal part - that's automated collusion, definitively illegal.

This is completely false.

Collusion, legally, requires an agreement between competitors. Tacit collusion is *not* illegal, see Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp. (1993).

Amazon can raise and lower their prices all day, algorithmically or not, as long as they aren't calling up their competitors and telling them to raise their prices too.

Do you think two neighborhood convenience stores are also automatically colluding when they look across the street from one another and raise and low gas prices to match?

That entirely depends on the stores and their ownership.

It is not unkown for 'competitors' to stage cost cutting dramas and pantomine competitive pricing in order to create artifical demand and customer loyalty to either or both scrappy underdogs.

> Anyone want to try their hand at an actual headline?

A better headline would be:

Amazon Used Secret ‘Project Nessie’ Algorithm to Steer Prices

Using the word “steer” instead of the word “raise”.

> Soooooo....it used the algorithm to raise prices, but also lower them?

Lowering prices in the short/medium term to throw out of the market the competition is a way of rising prices in the long term.

By that reasoning no one could lower prices, which is ludicrous. How about showing the lowering was followed by the harm, instead of dreaming of a world where the prices are already raised?

You miss the point: lower the prices is good, lowering to kill competition is bad for users and customers.

Diapers.com is just an example.

What if lowering prices has both consequences?

In the short term I agree, but in the long term, no way the consumers will benefit from the absence of competition.

Amazon 2022 revenue ~343B, of which ~100B is AWS. Walmart revenue ~600B. And that's just one Amazon competitor. Looking at the top 10, Amazon has less than 20% of US retail sales. And there's a long list of retailers past that....

And once you look global, there's plenty more 100B+ revenue retailers, many of which also sell in the US.

I hardly think there is even close to an "absence of competition." Heck, Amazon is not even the biggest US retailer by a large margin. Each of these posts is full of fear and implications the evidence and statistics show to be unfounded.

[1] https://nrf.com/research-insights/top-retailers/top-100-reta...

Every producer lowers prices trying to kill competition. It's a major reason to lower prices, and lowering prices to kill competition is how goods over time become cheaper.

I think you misunderstand the reasons prices actually become lower for many goods over time. Or why some producers get replaced over time by more efficient producers. Without this process there's be no lower prices or more efficient production over time.

I think the difference is that those other companies don't have an "AWS card" to play to subsidize their excursions.

During the diapers war, Amazon was "on track to lose $100 million over three months in the diapers category alone"[0].

Do you call this "efficiency"? How many companies in the world can afford it?

[0] https://arstechnica.com/tech-policy/2020/07/emails-detail-am...

Yes, making the fallacy of picking extreme cases and applying it to every case will get you the result you want.

The proper way to asses things is not to post select evidence, but to pick every example of price lowering at a given time, and see how many become the situation you now describe. So, care to tell us what percent of price lowering incidents end up as extreme? I'd guess well under 1 in a million, but I may be off an order of magnitude in either direction.

By your reasoning, every time a person enters my house I should inform them they may kill me, since once in a while a person does enter a house, then kill the occupant.

However, I'd be a nut to act this way. Because the vast majority of cases does not end up in murder.

So, just like that, bringing up extreme cases for normal actions is also fear mongering nonsense. Yes, this could end up tis way. They could use this as a leverage point to take over the entire planet, enslave all humans, and turn us into Matrix-human-batteries. But continuing to harp on this as if any of it is likely is statistically unwarranted.

So, please answer - what fraction of price lowering events do you think ends up in the situation you keep implying this might be an example of?

I read that differently. Ie "project Nessie raised prices. One place where this was especially impactful was when a competitor temporarily lowered prices forcing Amazon to match, Nessie got them back up quickly"

And amusingly, I read it as "assume 3 parties, Amazon, Target, Y. Target has a sale, so Amazon price matches sale. Y was price matching Amazon. Target ends sale, but Amazon and Y have stuck each other on the lower price."

That is, it makes it sound like Nessie was intended to bust some broken price matching logic that would allow other competitors to stick Amazon at lower prices due to interactions with other parties.

Amazon's price-matching algorithm does nefarious things.

I'd argue that the 'lower prices' just let amazon disperse the cost of markdowns across all of the vendors. Meaning Amazon still benefits from the lower pricing because they get possibly extra sales but only absorb the cost on 'their' products which were still matched to their 'competition' who were stuck matching Amazon.

> price-matching algorithm

Half the stores I walk into have price matching.

> Anyone want to try their hand at an actual headline?

"Amazon Used Secret ‘Project Nessie’ Algorithm To Attempt Market Price Manipulation"

This is straight out of FTC Chairwoman Lina Khan’s original article Amazon’s Antitrust Paradox https://www.yalelawjournal.org/note/amazons-antitrust-parado.... Amazon is willing to match any competitor’s price in order to build market share while not triggering predatory pricing antitrust review (which did not consider network effects). But the price is low only as long as the competitor is there. When small competitors finally give up (since they cannot offer the same free shipping variety as Amazon) and drop out of the market, Amazon will raise the price in the long run and capture monopolistic profits. Repeat for each new market that they compete in.

This is important.

Not just that amzn algorithmically finds the optimal market clearing price.

They may be finding an optimal dumping price to reduce competition and then an optimal profit maximizing price to capture monopoly profits.

If true, this would be a clear violation of anti trust law, despite being algorithmically implemented at scale. Unclear if intentionality matters for the law - even if the algorithms learned this behavior implicitly as the solution to a legal objective, it could be illegal.

This theorical talk of monopolistic profits does fit the market reality. There are at least a dozen retailers for every type of product Amazon sells.

Can you provide an example of a product where Amazon enjoys a monopoly (or even something close to a monopoly)?

Well what is your definition of monopoly? Amazon, like other big tech, like to use their highly profitable BUs (Amazon AWS, Google ads, Meta ads) to prop up other failing BUs. This is extremely anti competitive.

We should not be shepherding a new tech baron era, but enforce competition in markets. Competition should be the highest thing we value in an economy. This experiment of consolidations, mergers, and acquisitions since the 80s has been disastrous. We're reaching the point where we should break up nearly every multinational conglomerate, they've abused too much and suffered too little.

What definition of “market” would you classify Amazon as a monopoly?

yonron's comment made a specific claim: "Amazon will raise the price in the long run and capture monopolistic profits."

aga98mtl pointed out this isn't actually true in practice.

It sounds like you're describing a different form of potentially anti-competitive behavior, which is not the same as the one yonron accused Amazon of.

Amazon is certainly leveraging anti-competitive power here, but I think your justification is wildly off-track. Our goal shouldn't be to force FAANG into a frenzy where they constantly depose one-another, but to stimulate the market for competitive growth. Making companies less-certain about new or novel releases would be the worst way to do that.

Some of the world's most innovative products were designed by subsidized Business Units. The original Mac Lisa wouldn't have been developed if it wasn't propped-up by the success of the wildly-popular Apple II/IIc. Even though it failed, there's not a single nerd on either side of the Apple row that would call that anticompetitive or a mistaken product.

Can you name one product of note that you can only get from Amazon?

"Soooooo....it used the algorithm to manipulate the market price of items by way of their dominance as an e-commerce storefront"

Normally I'm the first one out the gate to remind people that the legal standard in the US for monopoly isn't size or impact on competition but consumer harm... Amazon could strangle all alternative product channels, but if they do so by legitimately finding a breakthrough that delivers product to people with 10x efficiency, that's (a) not actionable in the US and (b) great news, system works as intended, A++ would let winner win again.

... but in this case? Amazon has massive access to otherwise-secret price knowledge that they require sellers provide to participate in the marketplace. More than people realize and more than is shown in the UI (I did some work for a company that specialized in providing that data).

If they used it to feed this algorithm, there's a real solid case that they used their unique market position to make things more expensive for no consumer benefit, and the antitrust case writes itself.

"Amazon used it's influence to control the market"

Amazon Uses Computers to Aid In Price Discovery; FTC In Uproar.

"Led competitors to raise their prices and charge customers more" is serious, yet it's glossed over. If Amazon is truly telling competitors to raise prices, that's collusion in of itself.

The rest of this is just "Amazon uses pricing algorithm."

Reply on news.ycombinator.com