Algorithmic Collusion

In theory, free markets should result in prices that provide the best balance between what consumers will pay for a product, and what producers (and intermediary sellers) will accept for their goods and services.

Even the freest of markets don’t tend to work that way, though, because the real world is complex, and there are countless variables that can influence the price of things.

This includes gaps in knowledge between producer and consumer (which can lead to abusive dynamics that eventually reduce the price consumers are willing to pay for things), the presence of loss-leaders or dumped goods (companies willing to sell their products at a loss, for a time, in order to put their competition out of business), and the difficulty in (and costs associated with) getting the right products in front of the right people (‘right’ in this context meaning the people who actually need said products at the moment in which they’re exposed to them).

That’s not accounting, too, for the many regulations, platform fees, transaction costs, and other hurdles and expenses associated with doing business in the modern world.

Interestingly, it seems like the algorithms used by some sellers to manage their online advertising budgets might also play a role here, messing with the free market concept.