[degamad]

Hypothetical:

Pepsi starts using AI in some magical way that allows them to increase their margins. This allows them to reduce prices while increasing profits. Price-sensitive customers switch from Coca Cola products to Pepsi products. Coca Cola loses some market share, reducing economies of scale, and reducing margins, thus reducing profits. As the cycle repeats, Pepsi moves to dominate the market, and Coca Cola is slowly squeezed down.

[pdimitar]

Realistic and historically accurate:

Pepsi starts collecting the extra profits with zero price reductions.

[fc417fc802]

In a duopoly, probably yes. However in a more competitive environment where several incumbents have achieved a given optimization a race to the bottom is likely to occur because it only takes one of them preferring to increase their relative market share to kick the process off.

[SoftTalker]

The cola market is effectively a duopoly.

[eru]

Barriers to entry ain't exactly high.

[SoftTalker]

sacrificing even more profits that may be had by undercutting coca-cola's price? The CEO would be fired.

[DangitBobby]

Markets generally don't follow Econ 101. There are effects beyond first order when it comes to pricing.

[pdimitar]

Really depends on the concrete numbers and the projections. You could be right, I could be right, I am only saying what I've witnessed historically in general. Greed trumps a lot of other fairly rational courses of action.

[ares623]

Ah yes, magical hypotheticals

[fc417fc802]

Do you have a constructive objection to the described market dynamic?

[pdimitar]

Yes: historically this is not what I have observed businesses doing. They'd fight tooth and nail to reduce expenses for the fatter profits; cost savings are seldom if ever passed to consumers.

[eru]

Obviously they don't voluntarily pass on cost savings to customers. That's why competition is there for.

Btw, check how much RAM costs today per byte than eg 20 years ago. Even including today's AI driven price increases. Or check how much it costs to keep your house light up nice and bright compared to 50 years ago.

[Ekaros]

How much does a car cost now? Surely with automation, robots and general efficiency gains every where in the production chain they should be lot cheaper than they used to be.

The companies seem to rarely keep the cheaper models around too for something. Surely they could sell them for right price.

[eru]

> Surely with automation, robots and general efficiency gains every where in the production chain they should be lot cheaper than they used to be.

And they are! Especially when adjusted for quality and efficiency and how seldom you have to maintain them these days. (Old time-y sitcoms had the males of the show always tinker with their cars for a reason: the stereotype existed because cars _needed_ constant tinkering.)

> Surely they could sell them for right price.

Partially that's because the models from the bad old times are outlawed these days. You couldn't legally sell a Model T these days. Partially because even if you could, you couldn't produce the Model T at the scale that would make it cheap: no one would want such a crappy car at any price.

In the US, they also have annoying tariffs and other import restrictions. So you can't get the cheap and cheerful cars from China (or India or Brazil).

But getting away from cars: for a few decades it was almost a proverb that China would sell you junk for cheap. (And before that Japan had the same reputation. And sometime in the 19th century Germany had that reputation in Britain.)

So if you look around a bit: you can still often buy the low quality stuff from the bad old days, just from a different part of the market.