The Algorithm Running Up French Fry Prices — Half as Interesting

Quick Overview

The price of McDonald's fries increased 138% in 10 years, not due to inflation, but an alleged "potato cartel" using algorithmic price fixing via a program called "PotatoTrac" to coordinate price increases among major frozen potato producers like Lamb Weston, McCain Foods, Simplot, and Cavendish Farms, controlling 97% of the market. This practice, also seen in other industries like rental housing with "RealPage," allows companies to fix prices without direct collusion, leading to higher consumer costs.

Summary

Key Points: McDonald's medium fries increased 138% in price over the last decade, with a 47% rise in just the last two years (July 2022-July 2024). This price surge is attributed to an alleged "potato cartel" rather than general inflation. The "potato cartel" consists of four major frozen potato processors: Lamb Weston (40%), McCain Foods (30%), J.R. Simplot Co. (20%), and Cavendish Farms (7%), collectively controlling 97% of the market. These companies allegedly engage in "algorithmic price fixing" using a third-party program called "PotatoTrac." "PotatoTrac" aggregates commercially sensitive data (supply cost, sales figures, marketing details) from all four companies and provides identical pricing advice, allowing them to coordinate price increases without direct communication. This practice has led to synchronized price hikes across the industry, with no company attempting to undercut another. Similar algorithmic price-fixing schemes are being investigated or sued in other industries, including meat, sugar, ride-sharing, airlines, hotels, insurance, and rental housing (e.g., RealPage).

Context: The video investigates the significant increase in French fry prices, arguing it's not solely due to inflation but rather a sophisticated form of price manipulation. It draws parallels to historical monopolies like Standard Oil and explains how cartels operate to fix prices. The core of the argument centers on a modern, algorithm-driven method of price fixing that allows major companies to coordinate without direct illegal collusion, impacting various consumer goods and services beyond just French fries.