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The Game Theory of How Algorithms Can Drive Up Prices | Quanta Magazine

quantamagazine.org · 1,107 words · saved by 1 readers

Recent findings reveal that even simple pricing algorithms can make things more expensive.

Imagine a town with two widget merchants. Customers prefer cheaper widgets, so the merchants must compete to set the lowest price. Unhappy with their meager profits, they meet one night in a smoke-filled tavern to discuss a secret plan: If they raise prices together instead of competing, they can both make more money. But that kind of intentional price-fixing, called collusion, has long been illegal. The widget merchants decide not to risk it, and everyone else gets to enjoy cheap widgets. For well over a century, U.S. law has followed this basic template: Ban those backroom deals, and fair…

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