Arbeitspapier

Algorithmic pricing and competition: Empirical evidence from the German retail gasoline market

Economic theory provides ambiguous and conflicting predictions about the association between algorithmic pricing and competition. In this paper we provide the first empirical analysis of this relationship. We study Germany's retail gasoline market where algorithmic-pricing software became widely available by mid-2017, and for which we have access to comprehensive, high-frequency price data. Because adoption dates are unknown, we identify gas stations that adopt algorithmic-pricing software by testing for structural breaks in markers associated with algorithmic pricing. We nd a large number of station-level structural breaks around the suspected time of large-scale adoption. Using this information we investigate the impact of adoption on outcomes linked to competition. Because station-level adoption is endogenous, we use brand headquarter-level adoption decisions as instruments. Our IV results show that adoption increases margins by 9%, but only in non-monopoly markets. Restricting attention to duopoly markets, we find that market-level margins do not change when only one of the two stations adopts, but increase by 28% in markets where both do. These results suggest that AI adoption has a significant effect on competition.

Language
Englisch

Bibliographic citation
Series: Queen’s Economics Department Working Paper ; No. 1438

Classification
Wirtschaft
Monopolization; Horizontal Anticompetitive Practices
Oligopoly and Other Imperfect Markets
Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
Mining, Extraction, and Refining: Hydrocarbon Fuels
Subject
Artificial Intelligence
Pricing-Algorithms
Collusion
Retail Gasoline

Event
Geistige Schöpfung
(who)
Assad, Stephanie
Clark, Robert
Ershov, Daniel
Xu, Lei
Event
Veröffentlichung
(who)
Queen's University, Department of Economics
(where)
Kingston (Ontario)
(when)
2020

Handle
Last update
10.03.2025, 11:42 AM CET

Data provider

This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.

Object type

  • Arbeitspapier

Associated

  • Assad, Stephanie
  • Clark, Robert
  • Ershov, Daniel
  • Xu, Lei
  • Queen's University, Department of Economics

Time of origin

  • 2020

Other Objects (12)