We document new facts about pricing technology using high-frequency data, and we examine the implications for competition. Some online retailers employ technology that allows for more frequent price changes and automated responses to price changes by rivals. Motivated by these facts, we consider a model in which firms can differ in pricing frequency and choose pricing algorithms that are a function of rivals' prices. In competitive (Markov perfect) equilibrium, the introduction of simple pricing algorithms can increase price levels, generate price dispersion, and exacerbate the price effects of mergers.
Brown, Zach Y., and Alexander MacKay.
"Competition in Pricing Algorithms."
American Economic Journal: Microeconomics,
Firm Behavior: Theory
Firm Behavior: Empirical Analysis
Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
Oligopoly and Other Imperfect Markets
Retail and Wholesale Trade; e-Commerce