Pricing Algorithms -- A Survey of the Literature and an Examination of their Use on the Swedish Gasoline Market

Richard Friberg

No 19830, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper provides an overview of the theoretical and empirical literatures on the effect of algorithm use on prices, focusing on the type of algorithms relevant for gasoline markets. Against this background we examine pricing and algorithm use on the Swedish gasoline market 2021-2023, relying on detailed information of what algorithms that are used by what station at what time. Only a handful of stations are using AI. Pricing at these AI stations change markedly when AI is adopted, resulting in many more price changes. On average margins are somewhat lower with AI but AI stations charge relatively higher prices during the afternoon peak in demand. In contrast use of rule-based pricing algorithms is pervasive and three out of the four major chains use rule-based algorithms from external algorithm providers. Examining of duopoly markets (stations with only one competitor within a 10-minute drive) suggest that algorithms are faster to respond to price decreases than manual pricing.

Keywords: Algorithmic; pricing (search for similar items in EconPapers)
JEL-codes: D22 D43 L13 L71 (search for similar items in EconPapers)
Date: 2025-01
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