Pricing Algorithms and Implications for Competition

Pricing algorithms are an increasingly integral topic of policy discussion. Last November, as part of the Federal Trade Commission's (“FTC”) Hearings on Consumer Protection and Competition, I had the privilege of participating in a distinguished panel on pricing algorithms and collusion. The panelists were Ai Deng, Joe Harrington, Kai-Uwe Kühn, Sonia Kuester Pfaffenroth, Maurice E. Stucke, and myself, with Ellen Connelly and James Rhilinger as moderators. The video for this panel clearly illustrates the divergence of opinions on this topic. What are pricing algorithms? Put simply, pricing algorithms are computer models which predict the optimal (generally “profit maximizing”) price given various inputs. These inputs would include signals of prevailing market demand and supply conditions, and could include the prices charged by competitors for similar (substitutable) or complimentary goods