The Challenge of Third Party Pricing Algorithms for Competition Policy

Abstract

The development of algorithmic pricing has led to a growing market in the supply of pricing algorithms by data analytic companies. While there is an efficiency rationale for a firm outsourcing its pricing decision, anticompetitive concerns have been expressed when competitors in a market adopt a pricing algorithm from the same third party. In the U.S., these concerns have resulted in private litigation claiming a third party (who developed the pricing algorithm) and firms (who adopted it) had an unlawful agreement, and the U.S. Congress has recently proposed legislation to restrict how third parties use firms' data when setting prices. This seminar will discuss some issues and challenges from third party pricing algorithms. It will model the design decision of a third party and use the resulting theory to develop a test for the presence of an unlawful agreement. Some exploratory research will examine recently proposed remedies.