Dynamic pricing is reducing consumer surplus, and in the limit of perfect AI pricing algorithms and no competition it would go to zero. If most nonfungible goods were subject to perfect price discrimination, what would the world look like? I genuinely have little idea.
There must be increased firm profits but consumer surplus will only come from commodities. So even the firm owners have nothing to spend their wealth on that actually gives them >ε utility more than sitting at home, making sandwiches from commodity bread and cheese and watching commodity TV.
Does economic growth continue to happen or does it all get eaten by advertising or something?
If so does consumer utility increase, and by what mechanism? Does everyone have so much money to spend on commodities that they become incredibly high quality and other goods have to drop in price?
You might like this blog post on ‘the inefficiency of perfect price discrimination’. (Everyone, including me, hates links to LLM shared queries …but here is chatgpt fleshing out the math.)
Someone points out that in the case of one firm and one person, it’s mathematically impossible to get perfect price discrimination because the owner’s willingness to spend will be arbitrarily high if all the profits flow back to them. Not sure what this means for the larger case.
Dynamic pricing is reducing consumer surplus, and in the limit of perfect AI pricing algorithms and no competition it would go to zero. If most nonfungible goods were subject to perfect price discrimination, what would the world look like? I genuinely have little idea.
There must be increased firm profits but consumer surplus will only come from commodities. So even the firm owners have nothing to spend their wealth on that actually gives them >ε utility more than sitting at home, making sandwiches from commodity bread and cheese and watching commodity TV.
Does economic growth continue to happen or does it all get eaten by advertising or something?
If so does consumer utility increase, and by what mechanism? Does everyone have so much money to spend on commodities that they become incredibly high quality and other goods have to drop in price?
You might like this blog post on ‘the inefficiency of perfect price discrimination’. (Everyone, including me, hates links to LLM shared queries …but here is chatgpt fleshing out the math.)
Someone points out that in the case of one firm and one person, it’s mathematically impossible to get perfect price discrimination because the owner’s willingness to spend will be arbitrarily high if all the profits flow back to them. Not sure what this means for the larger case.