Price Monitoring and Response: A Supply Side Characterization

By: Ayelet Israeli and Eric Anderson

Format:Print
| Language:English

Abstract

With the growth of e-commerce and increasing price transparency, there has been tremendous interest in the adoption and competitive consequences of algorithmic pricing. A premise of algorithmic pricing is that firms monitor competitors' prices and then their pricing algorithms respond. In this paper, we empirically characterize what a major e-commerce retailer knows about competitors' prices as well as the associated price response. A typical view in the literature is that firms have a high degree of knowledge about competitors’ prices. We challenge this view by analyzing a large data set of more than 100,000 products from a large and sophisticated e-commerce retailer, which allows us to characterize the supply side of this market. Our findings suggest that price monitoring is highly focused. Many products have no monitoring and while there are numerous competitors, monitoring is typically among two or three key competitors. We also find that competitive price response is limited, but retailers engage in behavior consistent with price exploration.