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  • May 2023
  • Article
  • American Economic Journal: Microeconomics

Competition in Pricing Algorithms

By: Zach Y. Brown and Alexander J. MacKay
  • Format:Print
  • | Pages:48
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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.

Keywords

Pricing Algorithms; Pricing Frequency; Commitment; Online Competition; Price; Information Technology; Competition

Citation

Brown, Zach Y., and Alexander J. MacKay. "Competition in Pricing Algorithms." American Economic Journal: Microeconomics 15, no. 2 (May 2023): 109–156.
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More from the Authors

    • February 2025
    • American Economic Journal: Microeconomics

    Estimating Models of Supply and Demand: Instruments and Covariance Restrictions

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More from the Authors
  • Estimating Models of Supply and Demand: Instruments and Covariance Restrictions By: Alexander MacKay and Nathan H. Miller
  • Why Do Index Funds Have Market Power? Quantifying Frictions in the Index Fund Market By: Zach Y. Brown, Mark Egan, Jihye Jeon, Chuqing Jin and Alex A. Wu
  • LIV Golf By: Alexander J. MacKay
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