Download This PaperCompetition in Pricing Algorithms
65 Pages Posted: 22 Nov 2019 Last revised: 2 Oct 2021
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Competition in Pricing Algorithms
Competition in Pricing Algorithms
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
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