Research paper explores impact of AI on pricing decisions

Research paper explores impact of AI on pricing decisions

March 14, 2024| By Bret Ellington

Simon Business School is proud to announce the publication of a new research paper co-authored by Professor Jeanine Miklos-Thal, the Fred H. Gowen Professor of Economics and Management who is also a CEPR research fellow. The paper, titled AI, Algorithmic Pricing, and Collusion appeared in Competition Policy International (CPI). According to their website CPI is “an independent knowledge-sharing organization focused on the diffusion of the most relevant information and content on the subjects of antitrust, competition law, and technological regulation.”

The paper delves into the complex intersection of artificial intelligence (AI), machine learning, and pricing decisions, addressing concerns about their potential impact on consumer prices.

In recent years, advancements in AI and machine learning have raised questions about whether such innovations could facilitate collusive pricing practices among firms, ultimately leading to higher prices for consumers. However, the paper challenges these fears by providing a detailed examination of the actual pricing algorithms commonly used by firms.

Through extensive research, Professor Miklos-Thal and her co-author, Catherine Tucker, the Sloan Distinguished Professor of Management at MIT Sloan and an NBER research associate, argue that while certain pricing algorithms may raise competition concerns, others may actually undermine firms' ability to sustain collusive prices. The paper emphasizes the importance of understanding the nuances of different pricing algorithms and their implications for competition in the marketplace.

This groundbreaking paper sheds light on the complexities of pricing decisions in the age of AI and machine learning, underscoring the need for a nuanced understanding of pricing algorithms to ensure fair competition and consumer welfare.

Read the full paper here:

AI, Algorithmic Pricing, and Collusion

Bret Ellington