Competition in Pricing Algorithms

66 Pages Posted: 31 May 2021 Last revised: 11 May 2023

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: May 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.

Suggested Citation

Brown, Zach and MacKay, Alexander, Competition in Pricing Algorithms (May 2021). NBER Working Paper No. w28860, Available at SSRN: https://ssrn.com/abstract=3856840

Zach Brown (Contact Author)

University of Michigan ( email )

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

Alexander MacKay

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Boston, MA 02163
United States

HOME PAGE: http://alexandermackay.org/

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