Hal Varian: belief

Transcript context

…Do we need to worry more about algorithmic price collusion, not done by humans, possibly not intended as collusion in any way, but nonetheless, in a modeled sense, being quite a bit like collusion? And what should the law do? Well, you have these examples like rapid-response equilibrium. We have built in this assumption that the consumers move faster than the firms in our textbook models. What happens is, you see two gas stations competing with each other. One gas station cuts its price. All the consumers flow to the lower-price station, and we get this great competition. But it could be a different model. It could be a situation where the gas stations move more rapidly than the consumers, and one cuts its price. The other immediately matches the price, so there’s been no benefit from price cutting, and the consumers haven’t had a chance to respond. There, we end up with an equilibrium model where you can sustain a super competitive price. I think there are situations where you can have algorithmic price discrimination. You could think about the — But not just collusion.…

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