Machine learning can be an effective tool to set competitive prices.
Artificial intelligence has its limits on how to set the most effective prices due to variables beyond the seller's control.
Over the long term, supracompetitive pricing can result.
CATONSVILLE, MD, January 12, 2021 - Machine learning and artificial intelligence (AI) are perfectly suited to help companies and marketers monitor and set prices based on real-time dynamic pricing. But new research has identified some possible unintended consequences of AI in this area.
Machine learning algorithms don't always account for factors outside of the seller's control, such as competitor prices. Researchers found that if AI algorithms are setting prices over the long term, a monopolistic price effect is possible, essentially creating a collusive pricing environment in the marketplace. This represents a challenge for policymakers as the researchers show that independent AI pricing algorithms can result in supracompetitive market outcomes.