Alex MacKay

Pricing algorithms that provide a speed advantage and commitment can be worse for consumers than full collusion, from Zach Y. Brown and Alexander MacKay https://www.nber.org/papers/w34070

Algorithmic Coercion with Faster Pricing Founded in 1920, the NBER is a private, non-profit, non-partisan organization dedicated to conducting economic research and to disseminating research findings among academics, public policy makers, an...

Link here: www.nber.org/papers/w34070

New NBER WP on algorithmic "coercion."

Unlike collusion, coercion can be achieved by a single firm's pricing algorithm.

It can be worse for consumers than collusion.

@nber.org

Rivals' prices, and the ability to monitor them, play a special role in pricing algorithms. Zach Brown and I discuss the research and the implications in the latest CPI Antitrust Chronicle on Surveillance Pricing.

Read the article here:
tinyurl.com/2pj93aat

Thank you!

Link here: alexandermackay.org/files/Algori...

This is joint work with Zach Brown. Comments welcome.

I'll wrap up this thread with a question:

What are some examples where you think pricing speed matters?

This has implications for the pricing technology that platforms make available to sellers on the platform. Platforms that prioritize profits might allow some sellers faster pricing algorithms, as this softens competition without explicit coordination.

Coercion can happen even with naive rivals that use simple learning rules. An algorithm that is linear in the rival’s price can lead the rival to set prices well above the competitive level - even when the rival isn’t aware of the algorithm.

In a few ways, coercive equilibrium is more robust than traditional collusion. It doesn't require all firms to be forward-looking or understand dynamic strategies. This suggests a broad scope for high-speed algorithms to strategically raise prices in practice.

The intuition: faster pricing provides the algorithmic firm with a “stick” to punish rivals, while commitment across periods enables the algorithmic firm to lead with a high price: the “carrot.”

The coercive equilibrium can be worse for consumers than the collusive or multi-product monopoly outcome. This is because the algorithmic firm can push a rival’s price above the joint profit maximizing level.

In our model, this firm uses a pricing algorithm that enables faster pricing and multi-period commitment. This yields a "coercive equilibrium" where the algorithmic firm maximizes profits subject to its rival's incentive compatibility constraint.

New paper on “Algorithmic Coercion”: We find that a single firm using a pricing algorithm can induce its rivals to set substantially higher prices, even when rivals maximize short-run profits and cannot collude.

The 2025 AEJ Best Paper Awards Have Been Announced Learn more about the papers chosen as the 2025 AEJ Best Papers.

Press release here: www.aeaweb.org/news/2025-ae...

I want to take a moment to share some UVA pride: this week, my colleague Emma Harrington received one of the four AEJ Best Paper Awards from the American Economic Association, for her AEJ: Applied paper with Natalia Emanuel on remote work.

As we say down in Cville, Wahoo-wa!

Hey two "best papers" from UVA Econ! I don't mind bragging a bit! Congrats to Emma and @amackay.bsky.social!

www.aeaweb.org/about-aea/ho...

100% what @florianederer.bsky.social said - big congratulations to all of the @aeajournals.bsky.social Best Paper award winners, especially Zach Brown & @amackay.bsky.social for their terrific paper on #algorithms and #competition! #economics #AI #econsky

Congratulations to all the winners, especially to Zach Brown & @amackay.bsky.social for their work on algorithmic pricing.

This is joint work with @doepper.com @natehmiller.bsky.social @joelstiebale.bsky.social

(Open access) preprint available here:
t.co/DLaL19YIV5

The changing markups have different implications for consumers across the income distribution. One point we emphasize in the paper is that markups are equilibrium objects that are determined by supply and demand, which can make assessing the welfare impacts more nuanced.

We look at other mechanisms, such as changing demographics, market concentration, and product quality, but we do not find that these can explain much of the markup trends we observe.

We document other trends that seem consistent with a decline in consumer price sensitivity over this period, including less time spent shopping and fewer use of coupons.

We find a declining consumer price sensitivity and falling marginal costs are the biggest drivers of increasing markups. Falling marginal costs do not translate one-for-one to lower prices because the markets are not perfectly competitive.

We use our estimates to evaluate different mechanisms. Though markups increase, real prices increase only slightly. The biggest source of increased markups is falling marginal costs. (Note the scales.)

Forthcoming at the Journal of Political Economy: We find that consumer product markups increased more than 25 percent from 2006 to 2019.

One contribution is an approach to estimate IO-style models at scale, yielding flexible consumer preferences and estimates of marginal costs.

Contract Duration and the Costs of Market Transactions (August 2022) - The optimal duration of a supply contract balances the costs of re-selecting a supplier against the costs of being matched to an inefficient supplier when the contract lasts too long. ...

This is from an appendix of my AEJ Micro paper on contract duration and the costs of procurement.

www.aeaweb.org/articles?id=...

People are paying a lot more attention to US government procurement data. The raw entries you get from usaspending.gov [or "FPDS"] are not very accurate. They are often off by an order of magnitude.

Here's a procedure to get a better measure.
alexandermackay.org/files/Append...

Please see here for a longer thread outlining the paper. We'd be happy to hear how the method is working for you. Questions and comments are welcome.

x.com/_amackay/sta...

More broadly, our results could be used to teach about the meaning of (biased) OLS coefficients or about interpreting price and quantity data. For instance, we show how the relative variation of quantities and prices can be informative about consumer price sensitivity.

Estimating Models of Supply and Demand: Instruments and Covariance Restrictions (February 2025) - We consider the identification of empirical models of supply and demand with imperfect competition. We show that a restriction on the covariance between unobserved demand and cost sh...

Happy to see this paper with @natehmiller.bsky.social in print! In the paper, we address identification of the price coefficient in models of supply and demand. We show how a covariance restriction between demand and cost shocks can resolve endogeneity.

www.aeaweb.org/articles?id=...