Competition in Pricing Algorithms

65 Pages Posted: 22 Nov 2019 Last revised: 2 Oct 2021

See all articles by Zach Brown

Zach Brown

University of Michigan

Alexander MacKay

Harvard University - Business School (HBS)

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2021

Abstract

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 generate price dispersion, increase price levels, and exacerbate the price effects of mergers.

Keywords: Pricing Algorithms, Pricing Frequency, Online Competition

JEL Classification: L40, D43, L81, L13, L86

Suggested Citation

Brown, Zach and MacKay, Alexander, Competition in Pricing Algorithms (October 1, 2021). Available at SSRN: https://ssrn.com/abstract=3485024 or http://dx.doi.org/10.2139/ssrn.3485024

Zach Brown

University of Michigan ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

Alexander MacKay (Contact Author)

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Boston, MA 02163
United States

HOME PAGE: http://alexandermackay.org/

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