"A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools."
"AI" could soon be making petrol more expensive at times of peak demand like the start of a bank holiday weekend or the school run. Danish data analytics company a2i touts fuel pricing as an ideal implementation of its learning algorithms. The company claims that PriceCast Fuel, its dynamic pricing product, can improve fuel …
Oh AI, as in artificial intelligence. I thought it was A1 pricing, which is a bit like M25 pricing and M1 pricing, or Kensington High Street pricing. Now if petrol stations located just off the motorway where they can actually detect demand changes based on traffic loads, competitor pricing etc. ... that's scary. But then they can build AI into cars that works out if it's more advantageous, price wise, to fill up at an A road services near Milton Keynes rather than wait until you get to Watford and you're pushing the orange/reserve... coupled with your programmed Sat Nav destination, so it can work out the best fuelling stops... Might make a value added feature for a car - saves you £130 per year on average by gaming the fuel prices on programmed journeys using real-time data.
Ha... remember the "operator nobble" button?
I have an AI solution for doing this already for anybody that wants to buy it. Totally foolproof.
Have a weekly top up scheduled, and if in 3 days you've used >50% of the fuel in the hole under the garage then hike the prices by 10%, when 60% used then 20% and so on.
I'd also sell the next petrol station a sign 200 yards in front of the variable priced station advertising "NEXT PETROL STATION: ONLY 5 MILES AWAY. FUEL IS UP TO 10P CHEAPER PER GALLON TOWARDS THE END OF THE WEEK, AND UP TO 50% CHEAPER AT BANK HOLIDAY WEEKENDS".
Substitute petrol for "gas" if your American.
One fuel station would do quite well out of this, and the other should go bust.
"This is not a matter of stealing more money from your customer. It's about making margin on people who don't care, and giving away margin to people who do care"
This suggests that everyone chooses to commute at the same time, ignoring the fact that they are obliged to do so; whether they care, or not, doesn't come in to it.
For the long version, see How to Hold Algorithms Accountable. My own short view is that you need to be able to explain how an algorithm came up with a specific outcome, when such question was to be asked. Also if usually no-one usually asks such questions, because they just might, some day. Then try to put yourself in the customer shoes and see how your explanation is likely to fly.
Clever pricing will always extract more money from non-discerning consumers (look at energy supplier swapping, supermarkets tweaking comparable products up and down, etc) and I'll take my dividends in my pension account without complaining too much. Nothing wrong with commercially gouging a customer in need so long as you don't rely on long term customer loyalty! (Bring in regulation when exploitation has a negative societal impact.)
Behaviours would change though - pull in to the garage forecourt based on the price shown at the road side, queue for a pump and a few minutes later there's an extra 1p a litre on the price as you start filling up - do you put the pump down, or pay, or get the contract law book out? Or how about Singapore style road pricing, where cars pull up on the hard shoulder because the drivers know in a few minutes the price will drop?
In this case, it still looks more like a technology trying to find a problem to solve (and it isn't that much different from supermarket retail pricing, product placement and supply chain management responding to weather data which has been going on for years).
The petrol suppliers will also be able use AI. Calculating a retailer's increased margin between deliveries they could adjust the price of their next bulk delivery.
There's an old joke about a competition between two shops opposite each other in the high street. A big sign advertises bacon at a reduced price. So the other shop then shows a sign undercutting it. The first shop then undercuts that price - and the second shop responds similarly.
This goes on for a while until the shop that started the battle admits defeat. The owner goes into the other shop and asks "how do you sell it so low?". The answer is "we don't actually sell bacon".
You see this effect in reverse in some online book sales. A book's price is continuously raised by maintaining a fixed margin against competitors - who are also doing the same thing.
I'm pretty certain Norway has had dynamic pricing for at least six years (when I bought my car and started noticing this sort of thing).
Sunday nights/Monday mornings are the cheapest time to fill up here. Currently the price of diesel is around 12kr per litre at those times. By Monday evening it's usually back up to 15kr. Mid week it's usually somewhere between 13kr - 15kr.
Somebody writes an phone app to predict when fuel will be cheapest over the next few days. The war of AIs escalates until pricing markup strategy becomes completely random - at which point one retailer gives up and goes with the most competitive pricing they can afford. Others go out of business.
Lets see... one at the local toyota dealer, one at a hotel, and the local shopping centre car park. Heading the other way, there's a carpark a couple of miles away, then at the nissan dealer 5 miles away.
None of which are really places I'm going to either beable to leave the car overnight, or sit there when I get a call out because the car was sat outside my house with out enough charge for the day
The Solar Panels (PV) that generates lots of juice when the sun shines.
My Leaf is charging from the PV array on my roof as I write this reply.
I went almost the whole of april this way. 500+ miles and no grid leccy used.
Oh, and having a PV array is a great way to NOT have a smart meter.
Good luck to the first petrol station foolish enough to try this. We're creatures of habit. We buy the same things from the same places, until they do something that pisses us off.
Price is 5p/litre more expensive because it's peak time? I'll stop at the next one that still has flat pricing. Now that's my regular stop instead.
Yes, delusional dishonesty (even with the faddish AI branding) like this, will get noticed eventually and cause loss of reputation, thus loss of trade in a multi-player market, thus lower or no profit!
Of course smarter petrol station owners will deliberately set a lower price than these fools, in the reasonable expectation of more trade and more overall profit! The gaming petrol stations will eventually get wise to this and can dynamic pricing.
In Oz petrol rockets two weeks before holidays and drops, maybe, 4 weeks after. In bigger cities a price cycle can be detected but rural areas have no discernible pattern what so ever. AI would go nuts here. I also wonder just how much this sort of price gouging would eventually result in enough political will to return to regulated pricing.
You can also expect higher insurance premiums for the day because you were traveling slightly faster than the posted speed limit for more than fifteen seconds. Also, you neglected to use your turn indicators for several lane changes and turns.
Ai = load of bollocks.
Big Data = load of bollocks
Both are nothing more than new ways to detach big payers from big money. Ai is not much smarter than it was 10 years ago. The only thing that has really changed is the ability to throw lots of computing power at lots of data, and charge someone for it. The actual Ai algo's are still thick as a brick.
I get hacked off seeing a DVD £5 cheaper on the same shelf in Tesco the week after I bought it, but if I wait for the price to drop, it gets discontinued. It's like whenever you buy something, there's always some smug git who tells you it was cheaper at some website, or that you have to hunt around for vouchers to attractions to feel you're not being ripped off with the prices on the door.
Life is too short
Just a plain price for stuff.
In the 1980s one of the big petrol companies (I think it was Esso) promised to be the cheapest local station at all times and did a pretty good job of it even though market information was much harder to gather in those days. Any price cut by the local competition was very quickly matched. What was the outcome? Higher petrol prices.
Competitors, once convinced of Esso's determination, became reluctant to cut their margins with no compensating increase in volume. So instead they tried to make more margin on the residual market share they kept. Of course, Esso followed them nearly all the way up and we ended up paying more than ever...
Whether this was before or after the marketing scheme in which Esso made the country ankle deep in faux crystal wine goblets I can't remember...
This is nothing to do with changing costs (just like the conversation around holiday pricing during the school term and in the school holidays) and all to do with greed. It's not like it actually costs more to dispense fuel at peak times. It is cynical and actually bad for the environment since it will mean people making additional journeys in "off-peak" times to fill up (they are already having to travel in peak times for whatever reason).
I'd even go as far as to say it's not even supply and demand (which could be argued for the holiday case, I grudgingly admit) because the demand is still there whether you spread the visits to the petrol station out in time across the day or not.
"Traveling across town for the cheap gas may be a luxury they can't easily afford."
Depends on the price difference. If it costs you £1 in fuel to do the round trip across town to put 50l in to save 50p then only a fool would do it. I'm not sure it would work anyway, but I can see some fuel chains trying it out. Worst case is queues of cars at garages waiting for the price to drop, causing congestion.
"If it costs you £1 in fuel to do the round trip across town to put 50l in to save 50p then only a fool would do it."
And yet, surprisingly enough, there are fools that do it. These are people who don't follow through the headline price by doing the maths to find out what the actual cost to them is (or would have been at the first station). I've known people like that, and in some cases managed to get the point across - but not in all cases.
If they do start using it I would get up early in the morning to get my petrol like so many others thereby wiping out the 5% margin. Have they not seen the queues in the UK when the government adds 2p to a litre? You get every clown putting over £40 in to save 6p overall.
"The company says it isn't ripping off anyone."
Of course and I'm Joan of Arc.
Yup, it's not very Silicon Valley because the plan would run foul of:
California state price gouging laws
The Sherman Antitrust Act(Market Collusion and Price Fixing between competitors via a third party)
The FTC (eventually, after the current presidential term)
And if the "AI" shows any bias, we can throw a nice Berkley discrimination suit in for Kicks.
Lucky for them they are Danish, and piloting it Europe.
At least I have something to shoot back whenever my buddies in the EU bust my chops about their oh so superior privacy laws.
"I can see the Federal Trade Commission (in the USA) step in and regulate how often prices can be changed."
Here in the UK there was a big fuss a while ago about petrol stations hiking the price as soon as crude prices went up, but being a, err, lax, on dripping the forecourt price in line with drops in crude. The companies were threatened in such a way that it does seem to have had an effect. The local place I usually fill up at has prices varying up and down more or less in time with the price of crude, sometimes by a 1p per litre on a weekly to sometimes almost daily basis.
There's at least one phone app called Gas Buddy that shows prices at fuel stations. Users enter the prices, and you can see how long since they've been updated. If word gets around that stations are twiddling prices like this, then the app users will have reason to do more frequent updates. More traffic will go to the non-gougers.
Word can get around pretty quick in a digital world.
If I was driving around and needed fuel the one place I wouldn't buy it at would be a petrol/gas station that didn't advertise its prices. This scheme might work where there are few suppliers and numerous captive consumers but in a free market the lack of sellers' information makes trying to buy something a crapshoot.
"Could soon" be happening?
This is here today, no AI needed.
Locally this past weekend was a holiday. Thursday evening I went to fill up, and I was running low. Gas had jumped from 117.9L earlier in the day to 125.9L
I was lucky enough to catch it right at the turn, and found another station still at the lower price, for a massive savings of $4 Canadian.
1. Determine the make, model, age and state of repair of the car.
2. Read the license plate to determine where the car is registered (rich neighborhood?) or if a rental.
3. Attempt to determine level of remaining fuel (maybe by remotely querying the on-board computers).
4. If possible, estimate, by appearance and behavior of driver, at what price they would refuse to purchase.
How frequently will the pump prices be updated?
If this is daily then I see no problem with the process. If it is minute by minute then it is anti-competitive.
You can imagine petrol companies selling "club membership" to those that want reasonably fixed pricing at their local station
You can also imagine the academics and app makers reverse engineering the pricing process.
Also - why limit the pricing to "demand and supply" parameters when they would really like to use "ability to pay" as the price setting logic. That is brand new Range Rover rocks up to the forecourt so the price to this customer is raised 10%. At the same time a beaten up Nissan Micra arrives and they get a 10% discount.
Where does it stop?
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