Competition in Pricing Algorithms

By Zach Y. Brown, Alexander Mackay. Social Science Research Network, 2020

149 citations recorded by the source corpus.

We document new facts about pricing technology using high-frequency data, and we examine the implications for competition. Some online retailers employ technology that allows for more frequent price changes and automated responses to price changes by rivals. Motivated by these facts, we consider a model in which firms can differ in pricing frequency and choose pricing algorithms that are a function of rivals’ prices. In competitive (Markov perfect) equilibrium, the introduction of simple pricing algorithms can increase price levels, generate price dispersion, and exacerbate the price effects of mergers. (JEL D21, D22, D43, G34, L13, L81)

Subfields: Economics and Econometrics, Management Science and Operations Research, Marketing

View Paper: https://www.semanticscholar.org/paper/418da8ade97e26e6531cc4370736e001abe935d4

Citations in the corpus

• Algorithmic Pricing and Competition: Empirical Evidence from the German Retail Gasoline Market (2023, unknown): “An exception is a2i Systems, which outlines its algorithm in Derakhshan et al (2016).(10) It is described as a “multi-agent-system” based on the interaction of two agents: a consumer and a gas station.”