The Effect of Outsourcing Pricing Algorithms on Market Competition

• 成果类型: Article
• 署名作者: Harrington, Joseph E., Jr.
• 署名单位: University of Pennsylvania
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2021.4241
• 发表日期: 2022
• 页码: 6889-6906
• 关键词: pricing algorithm; COMPETITION; COMPETITION POLICY; Outsourcing

摘要

A third party developer designs and sells a pricing algorithm that enhances a firm's ability to tailor prices to a source of demand variation, whether high-frequency demand shocks or market segmentation. The equilibrium pricing algorithm is characterized that maximizes the third party's profit given firms' optimal adoption decisions. Outsourcing the pricing algorithm does not reduce competition but does make prices more sensitive to the demand variation, and this is shown to decrease consumer welfare and increase industry profit. This effect is larger when products aremore substitutable.