A speculative incentive design: self-determined price commitments as a way of averting monopoly

by MakoYass1 min read28th Apr 202017 comments


EconomicsWorld Optimization

[Epistemic status: A half-baked idea that I only came up with yesterday, but am nonetheless kind of excited by and I expect something like it will end up fitting in somewhere someday.]


Today, there is a lurking leech of a strategy where platform owners keep their margin high until the moment they need to fight off a competitor, then once a competitor emerges, they can easily lower it so that the competitor, with their scale disadvantage, can't win an audience, and is driven out of business. Tech is illegible enough that regulators couldn't reliably see through whatever lie is floated to explain the sudden price decrease, the evil can't truly be policed. The real damage done here is that the hero, the ascendant competitor, would only have been punished for trying, and I say "would", for this reason no hero actually steps up, most of this story doesn't play out, there is no competitor, so there is no price decrease.

There are many obvious examples of platforms we all rely on, which you and I know wouldn't cost anything at this point if competence, economy and generosity were well rewarded, whose maintainers are instead still taking monstrous cuts from all of the commerce that takes place on them. The gaming platform Steam, Uber Eats, Amazon Books, and so many that people outside of their industry don't even hear about, the hiring platforms, the licensed tools.

the thing:

These bad things couldn't happen if, before scaling up a technological platform with highly self-determined prices, platform owners are required to commit to all of their prices, many years in advance, and stick to them.

If a competitor arises who has reason to believe they can beat the committed prices, they can invest the money and enter the market, save in the confidence that the incumbent will not swoop down and take it from them once they're ready to launch.

For the first mover to avoid this, they must commit to prices that progressively decrease, in step with their well informed, insider analysis of the sectors expected propensity to create cheaper alternatives; and if they do it well, this obviates the need for anyone to actually do the redundant work of creating the cheaper alternatives! A company that produces the most convincing possible estimate of possible price decreases from fair competition over time will usually not face competition, nor should they, they will get only, yet all, the profits a fair and competitive market could support.