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  • July 7, 2022
  • Other Article
  • Brookings Series: The Economics and Regulation of Artificial Intelligence and Emerging Technologies

Are Online Prices Higher Because of Pricing Algorithms?

By: Zach Y. Brown and Alexander J. MacKay
  • Format:Electronic
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Abstract

This article reviews recent work examining pricing strategies of major online retailers and the potential effects of pricing algorithms. We describe how pricing algorithms can lead to higher prices in a number of ways, even if some characteristics of these algorithms may appear, at first glance, to increase competition. A key feature of many pricing algorithms is that they automatically react to rivals’ prices. Some have argued that this could facilitate collusion. However, this feature can also soften price competition when rivals do not collude. Even very simple pricing algorithms can raise prices. Finally, we discuss potential policy responses to encourage competition in online retail and other markets with pricing algorithms.

Keywords

Pricing Algorithms; Online Marketplace; Digital Strategy; Internet and the Web; Retail Industry

Citation

Brown, Zach Y., and Alexander J. MacKay. "Are Online Prices Higher Because of Pricing Algorithms?" Brookings Series: The Economics and Regulation of Artificial Intelligence and Emerging Technologies (July 7, 2022).
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About The Author

Alexander J. MacKay

Strategy
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