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Platform-Enabled Algorithmic Pricing

Author

Listed:
  • Shota Ichihashi

    (Department of Economics, Queen's University, Kingston, ON, Canada)

Abstract

I study a model of platform-enabled algorithmic pricing. Sellers offer identical products, to which consumers have heterogeneous values. Sellers can post a uniform price outside the platform or join the platform and delegate their pricing decision to the platform's algorithm. I show that the platform can offer a pricing algorithm to attract sellers, stifle off-platform competition, and earn a positive profit. Prohibiting the platform from using consumer data for its algorithm increases consumer surplus but decreases total surplus. A transparency requirement, which mandates the platform to share its data and algorithms with sellers, restores the first-best outcome for consumers.

Suggested Citation

  • Shota Ichihashi, 2025. "Platform-Enabled Algorithmic Pricing," Working Papers 25-03, NET Institute.
    • Handle: RePEc:net:wpaper:2503
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    File URL: http://www.netinst.org/Shota_25-03.pdf
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    References listed on IDEAS

    as
    1. Dirk Bergemann & Alessandro Bonatti & Nicholas Wu, 2025. "How Do Digital Advertising Auctions Impact Product Prices?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 92(4), pages 2330-2358.
    2. Stephanie Assad & Robert Clark & Daniel Ershov & Lei Xu, 2024. "Algorithmic Pricing and Competition: Empirical Evidence from the German Retail Gasoline Market," Journal of Political Economy, University of Chicago Press, vol. 132(3), pages 723-771.
    3. O’Connor, Jason & Wilson, Nathan E., 2021. "Reduced demand uncertainty and the sustainability of collusion: How AI could affect competition," Information Economics and Policy, Elsevier, vol. 54(C).
    4. Jeanine Miklós-Thal & Catherine Tucker, 2019. "Collusion by Algorithm: Does Better Demand Prediction Facilitate Coordination Between Sellers?," Management Science, INFORMS, vol. 65(4), pages 1552-1561, April.
    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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