But the airlines are also doing the opposite of your scenario: they also raise prices instead of lower them via legal "price signaling" via publicized fares[1] in the global reservations system.
Competitors can converge on a higher price instead of a lower price. It's not just one direction. They just need to do it via public price signaling to stay out of legal trouble.
In 2022, Apple Music raised their subscription from $9.99 to $10.99. Spotify then followed them and also raised their price to $10.99. By 2023, they both converged on $10.99. I think right now in 2024, Spotify is $1 higher at $11.99. Nobody should be surprised if Apple Music also raises its to $11.99.
[1] https://www.google.com/search?q=It+is+now+common+for+an+airl....
I don't understand what you're saying. Are you saying that companies are colluding, but not really because the prices are public? Most prices are public, just walk into any supermarket or open Amazon.com and you'll see public prices. If a company bases their price on a competitor's price, that's not collusion, that's just a pricing strategy. If a company is able to price a product above their competitors and still succeed (e.g. by investing more in marketing), that's legal too.
> In 2022, Apple Music raised their subscription from $9.99 to $10.99. Spotify then followed them and also raised their price to $10.99. By 2023, they both converged on $10.99. I think right now in 2024, Spotify is $1 higher at $11.99. Nobody should be surprised if Apple Music also raises its to $11.99.
Streaming is not an example of a healthy market IMO. I don't know the economics of it all, but I know all the streaming services need to pay the same record labels. Whatever is going on there, it's weird that they all cost the same. I currently pay $10.99/month for Tidal, which is the same exact price as most other services. I wouldn't be surprised if there was collusion going on there, maybe even something like RealPage behind the scenes. There's also the factor of Apple and Google's monopolies over apps, and I wonder if undercutting Apple/Youtube is bad for business.
> But the airlines are also doing the opposite of your scenario: they also raise prices instead of lower them via legal "price signaling" via publicized fares[1] in the global reservations system.
The link you posted seems to be a google search page? Not sure what you meant by that.
Yes, but it also runs counter to the idea that free markets tend to drive prices down through competition. In reality, 1 of 2 things happens:
a) companies try to differentiate their products enough to not be direct competitors (e.g. exclusive content on streaming platforms, or platform lock-in), and both/all charge more
b) one company buys the other to kill their competition
No one actually lowers their prices to compete anymore, because we abandoned enforcing anti-trust and anti-monopoly laws decades ago.
The point is that the intuitive wisdom that free market competition lowers prices of goods is not now, nor has it ever been the truism that it's postured as, because the businesses within that market have a huge selection of tools and strategies at their disposal to avoid direct competition.
And this makes sense. Why in the world would you subject your business to the unmediated competition of a free market? Yeah, it's totally possible for you to create a product so innately better that you own the market by virtue of that, but that's like... hard. It's way easier to create brand-lock-in to incentivize your existing customers to stay in your "ecosystem," or to create an innovative unique feature and patent it so your competition can't use it, or use snobby/elitist marketing to make your product more enticing to people who seek status, or shit, go the other way, make it humble and down to earth, and appeal to a sense of "genuineness," or tie yourself to patriotism and put flags all over your product, whatever it might be. There's tons of ways you can make people want your thing that have fuck-all to do with the thing.
I think this is a serious fault in how pro-free-market people tend to think, which is this constant positioning of people as rational actors who will choose the best product for their needs, and it's utter nonsense. People buy stuff for stupid reasons constantly.
This is a fantasy. Give two examples of major markets where competition has increased recently.
The US economy has grown what, 4 times since 1990’s but the number of registered companies has fallen by half.
I can imagine simple hypotheticals like:
A. Two companies that compete with one another in each of markets 1, 2, and 3.
B. Three companies, each with a monopoly on a single market.
I know nothing.
In the real world, Cisco, Meta, Amazon, and Microsoft don't make better products to win, they just buy Splunk, Insta, Whole Foods, and Bethesda.
It doesn't take collusion. It's a result of size alone.
the only question is how much profit to put on top and even then they have to be careful as if they go too low their competetors won't follow and then they have to pay extra for an unscheuled delivery just to fill their tank.
i'm reasonable certian that small stations are illegally colluding in some cases.
“Skimmers” (drastically lower-priced diesel stations) are a real threat to larger chain stations. They don’t put them out of business entirely for a number of reasons, but one is because gas stations ultimately sell more than gas/diesel (e.g. a clean bathroom is often worth a few extra cents per gallon for me, but there’s a lot more than that too). Also any given station can’t sell an infinite amount of fuel. Beyond tank capacity, wait times are a real impact on sales volume, and so if a station offers a price too low (even if still profitable), it is just leaving money on the table.
So not to say collusion doesn’t happen, but one can also arrive at similar pricing with a commodity like gas without it. Especially since fuel margins are typically low.
What RealPage does is distinct because it assures prices are always above and by orders of magnitude what they should be. It also achieves that through private communication which I think is generally accepted as a problem.
If I need to make a left turn across traffic or go around the block I'm not topping off at a station just for 5 cents/gal. (Tho, I might make a mental note & use that station when I'm coming down the other way, when it's easy to in & out.)
Los Angeles in particular is crazy. We have the equivalent to micro-climates with fuel prices. Stations a half mile apart can be 30¢ different. Stations a town apart can be 70–80¢ different.
And there are a couple of stations in Beverly Hills adjacent that are ~$2.50 more than the going rate (no surprise there, tho).
- they could also see their competitor raise their price to from $4.00 to $4.15 (for whatever reason) and decide that they can raise their price as well without losing customers.
In gas prices, there's undercutting to draw business -- which seems natural in a free market. That's often smaller, local players who drive this stage, pricing things just below the nearby competition, but players of all sizes are involved.
But sometimes, the price jumps up -- often by a significant margin, and across the board. This is often at the behest of a big player; when company like Exxon Mobil seemingly-arbitrarily raises gas prices in an area, it tends to set a trend. The smaller players tend to raise prices in accordance with this higher baseline and are happy to see the financial relief.
This may seem counterintuitive in a competitive market, but it does happen anyway. And it's all temporary and cyclical, as we've all seen over and over again. Free markets aren't necessarily stable systems that are free of resonance.
But with 4 or more participants, someone will inevitably betray the others out of greed.
Which was the case in this instance. RealPage required subscribers to use their price suggestion some percentage of the time or they'd risk losing their subscription.
Using your gas station example, a gas station isn't going to look at a competitor selling gas at $4.15 and decide to raise their price to $4.45. They would lower their price to match the competition, otherwise they'd lose sales and make less money. Price fixing would be if both gas stations decided to raise their price to $4.45 at the same time so that customers don't have a choice.