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Pricing Algorithms

10 March 2020

Companies are increasingly using algorithms to improve their price structures, to size their production or distribution at market demand or to forecast its trends.

Their use often occurs in markets where:

the costs of providing services to consumers vary considerably (for example, in terms of loans or insurance),

demand fluctuates much faster than the supply (for example, for hotel or ridesharing services), or

companies have a wide range of products for which they need to determine prices, and price algorithms bring significant cost advantages (for example, in retail).

Without neglecting their positive effects, the competition authorities are concerned at this moment about the possibility that pricing algorithms can be used in ways that produce anti-competitive effects on the market.

In practice and studies developed by the competition authorities so far, we have noticed several situations in which the use of algorithms may have anti-competitive impact, such as:

algorithms which monitor observance of an anti-competitive agreement;

algorithms which implement an anti-competitive agreement; or

algorithms which, although acting independently, lead to coordination of market behaviour.

Read about it here.