Algorithmic pricing

Christos has suggested this week’s topic of Competition and Algorithmic pricing.┬áHis suggestion is motivated by these two recent papers:

Mackay and Brown (2021) ‘Competition in Algorithmic Pricing‘ and Assad et al (2020) on the use of algo pricing in German retail gasoline markets

This is hardly a novel concern, back in 2017, the OECD pulled together a roundtable on the potential for algorithms to lead to collusion. In 2018, the UK Competition and Markets Authority put out an excellent background paper clearly laying out the potential use of algorithms to ‘facilitate collusion and personalised pricing’.

In just the past weeks, we have seen the Chinese competition authorities move against algorithmic pricing, and the recent Harvard Business Review has a cautionary tale about some of the pitfalls of algorithmic pricing.

How much of a concern is algorithmic pricing? Are there certain sectors or situations where it is particularly problematic?

Is it time for governments to take action? How?