Competition in Pricing Algorithms

Zach Brown and Alexander MacKay

No 28860, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D43 L13 L81 L86 (search for similar items in EconPapers)
Date: 2021-05
New Economics Papers: this item is included in nep-big, nep-com, nep-cwa, nep-ind and nep-reg
Note: IO LE
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Citations: View citations in EconPapers (22)

Published as Zach Y. Brown & Alexander MacKay, 2023. "Competition in Pricing Algorithms," American Economic Journal: Microeconomics, vol 15(2), pages 109-156.

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