Yet again, a federal court has embraced sponsored research and advocacy to legitimize an obvious case of implicit collusion that results in higher prices for consumers. See https://business.cch.com/ald/GibsonvCendynGroupLLC8182025.pdf. In the 9th Circuit’s rationale, if any and all hotels in Las Vegas use the same software to determine profit maximizing rates, antitrust law is not violated, because each hotel owner voluntarily opted to use the software and made no commitment to comply with its pricing recommendation.
In the real world, ventures would rather not devote sleepless afternoons enhancing consumers’ value proposition, if an expedient and less profit risky alternative exists. This used to be called “conscious parallelism,” a horizontal restraint of trade when competitors collude.
Collusion can occur outside of smoke-filled room occupied by competitors. The algorithm makes the calculation, and the competitors buy into the premise that higher prices will not encourage market entry and greater supply, which typically would create downward pressure on prices.
All Las Vegas hotels, wireless carriers, airlines, et al cannot possibly have the same operating costs, so that they all are bound to accept the same market-driven price, so-called price taking. Until algorithmic pricing became the go-to strategy, a wider range of prices typically arose. Now, it’s easier and more profitable for just about every hotel to tack on a resort, amenity, or destination fee, in addition to items like parking that used to be free or bundled in the base rate.
Why should Southwest Airlines offer free baggage, open seating and other components that can be separately priced by an algorithm? For that matter, why have a publicly available rate for carriage when an algorithm can “size up” individual potential passengers and determine a customized rate based on calculated demand and price elasticity?
Why should TMobile offer anything cheaper and innovative when a higher price umbrella offers higher profits?
Where have all the marketplace mavericks gone? It looks like shopping for algorithms and clever antitrust lawyers and economists.
