Algorithms And Competition: Friends Or Foes?

By Antonio Capobianco & Pedro Gonzaga – 

Big data and technologically advanced tools, such as pricing algorithms, are increasingly diffused today in everyone’s life, and are changing the competitive landscape in many markets and sectors. While the size of this phenomenon is to a large extent unknown, there is a growing number of firms using computer algorithms to improve their pricing models, customize services and predict market trends. This phenomenon is undoubtedly associated to important efficiencies, which benefit firms as well as consumers in terms of new, better and more tailored products and services. However, a widespread use of algorithms has also raised concerns of possible anticompetitive behavior as they can make it easier for firms to achieve and sustain collusion without any formal agreement or human interaction. This article focuses on whether algorithms can make tacit collusion easier not only in oligopolistic markets, but also in markets which do not manifest the structural features that are usually associated with the risk of collusion.