Pricing Decision: Competition or collusion?

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Have you ever read something that made you go “Hmmmm”, then sent you on a what-if thought journey? That happened to me this morning when I read the most interesting HBR post How Pricing Bots Could Form Cartels and Make Things More Expensive by Maurice E. Stucke and Ariel Ezrachi. The article focuses on big data dynamic pricing and bots. The authors suggest that algorithmic collusion is possible by data analysis, the speed of dynamic pricing and probability predictions.

The current law The Robinson–Patman Act of 1936 (or Anti-Price Discrimination Act, Pub. L. No. 74-692, 49 Stat. 1526 (codified at 15 U.S.C. § 13)) is a United States federal law that prohibits anticompetitive practices by producers, specifically price discrimination. In 1936 the authors would not have dreamed of the degree of information collaboration, speed of response and ability to instantly provide global dynamic pricing. In April 2016, The White House issued an executive order and report on the state of competition in the U.S. It is interesting to note that the report focused on the decline in competition in the United States and identified several signs of competition decline since the 1970s.

When we think of artificial intelligence, bots and learning machines, it’s not hard to imagine a time where the probability of collusion is in our future. Since existing loss depends on humans and trust, this will be a whole new area requiring some governance. The HBR article goes on to say that algorithms to machine are somewhat neutral, they don’t generate fear or intimidation nor do they disable the opportunity for the machines to collaborate or collude.

It’s interesting to think that pricing decisions in the future are likely to be made by machines with sophisticated algorithms. As an observer, I wonder how long it will take the legal system to develop governance. It’s not difficult to understand how machines with logic and no fear of retribution can be programmed to quickly align prices and impact markets. This is an interesting development in the current space that I had thought of before. I’d be interested in hearing the thoughts of others.

Technology advancement or opportunity to collude–what do you think?

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One response to “Pricing Decision: Competition or collusion?

  1. Hi Bill. I liken this to technological advances in warfare. Every time a new weapon comes out, it may well change the balance in the short run, but eventually an effective defense is found for it, and vice-versa.

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