Dynamic Pricing Algorithms, Consumer Harm, and Regulatory Response

57 Pages Posted: 15 Dec 2021

See all articles by Alexander MacKay

Alexander MacKay

Harvard University - Business School (HBS)

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 apps, 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. Thus, 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 can-not 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). Available at SSRN: https://ssrn.com/abstract=3979147 or http://dx.doi.org/10.2139/ssrn.3979147

Alexander MacKay

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Boston, MA 02163
United States

HOME PAGE: http://alexandermackay.org/

Samuel Weinstein (Contact Author)

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

55 Fifth Ave.
New York, NY 10003
United States

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