The Effect of Outsourcing Pricing Algorithms on Market Competition
研究第三方开发并销售定价算法如何影响市场竞争，发现外包算法不减少竞争但使价格对需求变化更敏感，从而降低消费者福利并增加行业利润。
A third party developer designs and sells a pricing algorithm that enhances a firm’s ability to tailor prices to a source of demand variation, whether high-frequency demand shocks or market segmentation. The equilibrium pricing algorithm is characterized that maximizes the third party’s profit given firms’ optimal adoption decisions. Outsourcing the pricing algorithm does not reduce competition but does make prices more sensitive to the demand variation, and this is shown to decrease consumer welfare and increase industry profit. This effect is larger when products are more substitutable. This paper was accepted by Joshua Gans, business strategy.