Inadvertently Picking the Highest Possible Intrinsic Price - Consumers Are Watching Scientists Too
What's the price and why? How come all the sellers raised their price today when the oil barrel prices tanked this week, and OPEC increased supply, you might ask? Well, there is a lot more to pricing policy and pricing theory than meets the eye.
Let's discuss all this and try to find out why? There was an interesting piece in Physorg (dot) com on June 21, 2012 titled; "High gas prices may be explained by self-organized cartel behavior," by Lisa Zyga which mathematically and computationally showed how gasoline prices had an upward bias due to behavior in ad hoc self-forming cartel like fashion, even when the participants didn't know they were doing it.
The article also stated; "Rapid increases and unpredictable fluctuations in gas prices annoy many drivers, especially since it may seem that oil companies are secretly conspiring to keep prices high by forming a cartel in an effort to increase their profits.
But a new study shows that cartel-like price dynamics of certain commodities, such as gasoline, can emerge spontaneously in a strategic model without any collusion among the sellers.
The finding doesn't necessarily mean that companies don't intentionally form cartels, but the possibility of self-organized cartel formation could have implications for market regulations.
" Now then, most customers, clients, and consumers can't stand the idea of cartels, monopolies, or those who are engaged in price-fixing.
It just seems like a conspiracy against the buyers, and a complete spit in the face on free-market capitalism.
And to that I do agree, wholeheartedly indeed.
Nevertheless, sometimes the price creeping upward has little to do with collusion, or secret backdoor deals, it just comes from sellers observing price points of their competitors, and realizing they are leaving money on the table if they to do not raise the price of their own goods or services.
This mathematical upward bias is unfortunate for consumers, but before we throw the entrepreneur out with the bathwater, or start regulatory or criminal proceedings, or investigations while sending out propaganda to every media outlet perhaps we need to consider all this prior to pointing those fingers.
We see this all the time with rental car agencies, airlines, hotels, gasoline prices, and at the grocery store as well.
Of course, although this research did not talk about the lowering of prices that to happens quite often.
In fact, just the other day on June 20, 2012 there was an article in the Wall Street Journal that noted when Southwest Airlines lowered their prices due to the oil prices coming down, by the end of the day every airline had matched those prices.
Two weeks before that there was an article in the WSJ that FedEx was going to raise their prices 7%, and I'm quite certain that all the other competitors also increased their price within a week regardless of their fuel hedges.
This isn't collusion, these are fierce competitors, but that's how things work in free markets.
Indeed I hope you will please consider all this and think on it.
Let's discuss all this and try to find out why? There was an interesting piece in Physorg (dot) com on June 21, 2012 titled; "High gas prices may be explained by self-organized cartel behavior," by Lisa Zyga which mathematically and computationally showed how gasoline prices had an upward bias due to behavior in ad hoc self-forming cartel like fashion, even when the participants didn't know they were doing it.
The article also stated; "Rapid increases and unpredictable fluctuations in gas prices annoy many drivers, especially since it may seem that oil companies are secretly conspiring to keep prices high by forming a cartel in an effort to increase their profits.
But a new study shows that cartel-like price dynamics of certain commodities, such as gasoline, can emerge spontaneously in a strategic model without any collusion among the sellers.
The finding doesn't necessarily mean that companies don't intentionally form cartels, but the possibility of self-organized cartel formation could have implications for market regulations.
" Now then, most customers, clients, and consumers can't stand the idea of cartels, monopolies, or those who are engaged in price-fixing.
It just seems like a conspiracy against the buyers, and a complete spit in the face on free-market capitalism.
And to that I do agree, wholeheartedly indeed.
Nevertheless, sometimes the price creeping upward has little to do with collusion, or secret backdoor deals, it just comes from sellers observing price points of their competitors, and realizing they are leaving money on the table if they to do not raise the price of their own goods or services.
This mathematical upward bias is unfortunate for consumers, but before we throw the entrepreneur out with the bathwater, or start regulatory or criminal proceedings, or investigations while sending out propaganda to every media outlet perhaps we need to consider all this prior to pointing those fingers.
We see this all the time with rental car agencies, airlines, hotels, gasoline prices, and at the grocery store as well.
Of course, although this research did not talk about the lowering of prices that to happens quite often.
In fact, just the other day on June 20, 2012 there was an article in the Wall Street Journal that noted when Southwest Airlines lowered their prices due to the oil prices coming down, by the end of the day every airline had matched those prices.
Two weeks before that there was an article in the WSJ that FedEx was going to raise their prices 7%, and I'm quite certain that all the other competitors also increased their price within a week regardless of their fuel hedges.
This isn't collusion, these are fierce competitors, but that's how things work in free markets.
Indeed I hope you will please consider all this and think on it.