Competing Pricing Algorithms

In HBSWK, interesting article on competing pricing algorithms, below the intro, reading:

Warring Algorithms Could be Driving Up Prices

Companies increasingly use software to conduct rapid price changes. Alexander MacKay explains why firms might benefit but consumers should be worried.

The widespread use of pricing algorithms is reshaping the nature of competition in online markets and potentially driving up the prices of retail goods, according to recent research.
These automated, price-adjusting software programs may also be catching the eye of government regulators and antitrust authorities, who fear they could ultimately harm consumers by raising prices above typical competitive levels.

It doesn’t seem too long ago when a price change was a major strategic decision for companies, requiring extensive data analysis, management consensus, coordination with advertising schedules, and other factors in an era when computers were helpful but not critical to pricing strategy. The result: A price change was more an annual or semiannual event. But these days, when companies can analyze consumer data and use technology to raise or lower prices in the blink of an eye, changes can be made not just once a year but multiple times daily.

“WHAT WE SHOW, THEORETICALLY, IS THAT (ALGORITHMIC COMPETITION) LEADS TO HIGHER PROFITS FOR BOTH FIRMS.”

Enter the rise of pricing algorithms, where software monitors prices posted by competitors and makes adjustments using parameters developed by the company’s marketers and strategists.

“They want to react to changing demand and supply conditions,” says study author Alexander J. MacKay, an assistant professor of business administration at Harvard Business School who studies competition, including pricing, demand, and market structure.  .... "