Professor MacKay combines theory and measurement to deliver new insights about price competition and consumer preferences. In current and published papers, his research addresses how strategic pricing decisions may be influenced by algorithms, long-term contracts, vertical restraints, and dynamic consumer behavior. His work considers the broader implications for firms and for competition authorities.
Professor MacKay has examined how individuals form beliefs and preferences over time, and he has studied the implications of evolving preferences for firm markups. For example, dynamic consumer behavior, which can arise from switching costs or brand loyalty, influences not only a firm's pricing in isolation, but it also affects strategic interactions with rival firms. Thus, the impacts of mergers, entry, and exit, may hinge on the degree to which consumers dynamically adjust their preferences over time.
An important angle of Professor MacKay’s research is the heterogeneity in beliefs and preferences across individuals. Why do different people make very different decisions given the same set of opportunities? And how do these differences change over time? A shift in the distribution of preferences can cause a significant change in market outcomes. Therefore, firms that are better able to forecast how tastes and beliefs are evolving may be able to make better strategic decisions.
His research suggests new considerations for regulators when it comes to price competition. In examining the use of pricing algorithms in online markets, he shows that the adoption of higher-frequency algorithms by one or more firms can allow all firms to charge higher markups, without resorting to tacit or explicit collusion. Thus, unregulated pricing technology may allow firms to increase prices, even to the collusive levels, without using classic collusive strategies.