As a result of Big Data and AI, firms can condition prices on high frequency data, tailor prices to narrow submarkets, and more effectively learn in order to discover the most profitable pricing rules. While there are potential efficiency benefits from these advances, concerns have been raised about possible consumer harm. Enhanced price discrimination fueled by customer-specific data may result in a transfer of surplus from consumers to firms. Automated pricing could make markets more efficient by increasing the speed of response to demand and supply changes but could also undermine price competition. Learning algorithms could discover more profitable pricing rules but that could be because they facilitate collusion. Competition authorities have expressed concern with the growing role of algorithmic pricing and there is an active policy debate as to whether legal and enforcement regimes are equipped to deal with it. This talk reviewed the emergence and effect of algorithmic pricing in a variety of markets including pricing by platforms such as Uber, bidding at Google sponsored search auctions by digital marketing agencies, and the use of a third party’s pricing algorithm such as at Amazon Marketplace and in retail gasoline markets. Also explored was a recent case in which firms colluded by coordinating their pricing algorithms and the prospect of collusion autonomously achieved by AI.
Professor Joseph Harrington is the Patrick T. Harker Professor at The Wharton School of the University of Pennsylvania. He is considered one of the world’s leading authorities on collusion and cartels. Prof. Harrington has published more than 80 scholarly papers and given keynote lectures on five continents including addresses at the annual meetings of the European Association for Research in Industrial Economics, the Chilean Economic Association, and the German Economic Association.
He has presented before or advised more than a dozen competition authorities including those of Japan, New Zealand, Norway, South Africa, and the U.S. He has served as President of the Industrial Organization Society and been a member of the editorial boards of all major journals in industrial organization. He is the author or co-author of Economics of Regulation and Antitrust, The Theory of Collusion and Competition Policy, and the forthcoming Hub-and-Spoke Cartels: Why They Form, How They Operate, and How to Prosecute Them. Reflecting his general interest in strategic decision-making, he has also written Games, Strategies, and Decision Making.