Algorithms in the marketplace: An empirical analysis of automated pricing in e-commerce

Abstract

We analyze algorithmic pricing on the largest online marketplace in the Netherlands and Belgium. Based on two months of pricing data for around 2800 products, we find no significant correlation between the use of algorithms and an increase in prices of the Buy Box (the most prominently displayed offer for a product). We document that the presence of an algorithmic seller in monopoly markets goes hand-in-hand with lower prices. This effect is likely due to algorithms correcting excessively high human-set prices. We describe several characteristic algorithmic pricing patterns. While some of these pricing patterns are consistent with algorithmic collusion, such practice appears to be a fringe phenomenon. Overall, our findings call for careful policy with respect to pricing algorithms that remains alert to the possibility of algorithmic collusion but recognizes that pricing algorithms may benefit consumers.