Dynamic Pricing Algorithms, Consumer Harm, and Regulatory Response

100 Wash. U. L. Rev. 111 (2022)

64 Pages Posted: 15 Dec 2021 Last revised: 28 Sep 2022

See all articles by Alexander MacKay

Alexander MacKay

University of Virginia - Department of Economics

Samuel Weinstein

Yeshiva University - Benjamin N. Cardozo School of Law

Date Written: December 6, 2021

Abstract

Pricing algorithms are rapidly transforming markets, from ride-sharing, to air travel, to online retail. Regulators and scholars have watched this development with a wary eye. Their focus so far has been on the potential for pricing algorithms to facilitate explicit and tacit collusion. This Article argues that the policy challenges pricing algorithms pose are far broader than collusive conduct. It demonstrates that algorithmic pricing can lead to higher prices for consumers in competitive markets and even in the absence of collusion. This consumer harm can be initiated by a single firm employing a superior pricing algorithm. Higher prices arise from the automated nature of algorithms, impacting any market where firms price algorithmically. Pricing algorithms that are already in widespread use may allow sellers to extract a massive amount of wealth from consumers. Because this consumer harm arises even when firms do not collude, antitrust law cannot solve the problem. This Article looks to the history of pricing innovation in the early twentieth century to show how government can respond when new pricing technologies and strategies disrupt markets. It argues for pricing regulation as a feasible solution to the challenges non-collusive algorithmic pricing poses, and it proposes interventions targeted at when and how firms set prices.

Keywords: algorithms, pricing, competition, antitrust, technology, consumer protection, law and economics, innovation

JEL Classification: D4, D43, K00, K20, K21, K23, L00, L11, L13, L40, L50, L51, O33

Suggested Citation

MacKay, Alexander and Weinstein, Samuel, Dynamic Pricing Algorithms, Consumer Harm, and Regulatory Response (December 6, 2021). 100 Wash. U. L. Rev. 111 (2022), Available at SSRN: https://ssrn.com/abstract=3979147 or http://dx.doi.org/10.2139/ssrn.3979147

Alexander MacKay

University of Virginia - Department of Economics ( email )

237 Monroe Hall
P.O. Box 400182
Charlottesville, VA 22904-418
United States

Samuel Weinstein (Contact Author)

Yeshiva University - Benjamin N. Cardozo School of Law ( email )

55 Fifth Ave.
New York, NY 10003
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
998
Abstract Views
4,428
Rank
47,734
PlumX Metrics