Pricing in Two-Sided Platforms with Artificial Intelligence
DOI:
https://doi.org/10.24215/18521649e040Keywords:
two-sided platforms, artificial intelligence, algoritmic pricingAbstract
I analyze the effect of using artificial intelligence algorithms in two-sided platform markets. When the algorithms rely solely on the firm's payoff values, the resulting prices are significantly higher than the theoretical equilibrium, a phenomenon known in the literature as algorithmic collusion. However, when the algorithms have access to more information, I find that market prices are similar to the theoretical predictions.
References
Armstrong, M. (2006). Competition in two-sided markets. The RAND Journal of Economics, 37(3), 668–691.
Asker, J., Fershtman, C. y Pakes, A. (2022). Artificial intelligence, algorithm design, and pricing. AEA Papers and Proceedings, 112, 452–456. https://doi.org/10.1257/pandp.20221059
Assad, S., Clark, R., Ershov, D. y Xu, L. (2024). Algorithmic pricing and competition: Empirical evidence from the German retail gasoline market. Journal of Political Economy, 132(3), 723-771. https://doi.org/10.1086/726906
Brown, Z. Y. y MacKay, A. (2023). Competition in pricing algorithms. American Economic Journal: Microeconomics, 15(2), 109–156. https://doi.org/10.1257/mic.20210158
Calvano, E., Calzolari, G., Denicolo, V. y Pastorello, S. (2020). Artificial intelligence, algorithmic pricing, and collusion. American Economic Review, 110(10), 3267–3297. https://doi.org/10.1257/aer.20190623
Competition and Markets Authority. (2018). Pricing algorithms: Economic working paper on the use of algorithms to facilitate collusion and personalised pricing. Crown.
Harrington, J. E. (2018). Developing competition law for collusion by autonomous artificial agents. Journal of Competition Law & Economics, 14(3), 331–363. https://doi.org/10.1093/joclec/nhy016
Johnson, J. P., Rhodes, A. y Wildenbeest, M. (2023). Platform design when sellers use pricing algorithms. Econometrica, 91(5), 1841–1879. https://doi.org/10.3982/ECTA19978
Jullien, B., Pavan, A. y Rysman, M. (2021). Handbook of industrial organization. En K. Ho, A. Hortaçsu y A. Lizzeri (Eds.), Two side markets, pricing and network effects (pp. 485–592). https://doi.org/10.1016/bs.hesind.2021.11.007
Klein, T. (2021). Autonomous algorithmic collusion: Q-learning under sequential pricing. The RAND Journal of Economics, 52(3), 538–558. http://dx.doi.org/10.1111/1756-2171.12383
Reisinger, M. (2014). Two-part tariff competition between two-sided platforms. European Economic Review, 68, 168–180. https://doi.org/10.1016/j.euroecorev.2014.03.005
Rochet, J.-C. y Tirole, J. (2003). Platform competition in two-sided markets. Journal of the European Economic Association, 1(4), 990–1029. https://doi.org/10.1162/154247603322493212
Waltman, L. y Kaymak, U. (2008). Q-learning agents in a Cournot oligopoly model. Journal of Economic Dynamics and Control, 32(10), 3275–3293. https://doi.org/10.1016/j.jedc.2008.01.003
Downloads
Published
Issue
Section
License
Copyright (c) 2025 Alejandro Cichevski
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
The material published in the journal is distributed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) license. This license requires proper credit to be given, a link to the license to be provided, and changes to be indicated. It does not permit commercial use of the work, and if the work is remixed, transformed, or otherwise modified, distribution of such modification is not allowed.
