Algorithmic Pricing and Competition: Empirical Evidence from the German Retail Gasoline Market

We provide the first empirical analysis of the relationship between algorithmic pricing (AP) and competition by studying the impact of adoption in Germany’s retail gasoline market, where software became widely available in 2017. Because adoption dates are unknown, we identify adopting stations by te...

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Bibliographic Details
Published in:The Journal of political economy 2024-03, Vol.132 (3), p.723-771
Main Authors: Assad, Stephanie, Clark, Robert, Ershov, Daniel, Xu, Lei
Format: Article
Language:English
Subjects:
Algorithms
Duopoly
Endogenous
Gasoline
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Summary:We provide the first empirical analysis of the relationship between algorithmic pricing (AP) and competition by studying the impact of adoption in Germany’s retail gasoline market, where software became widely available in 2017. Because adoption dates are unknown, we identify adopting stations by testing for structural breaks in AP markers, finding most breaks to be around the time of widespread AP introduction. Because station adoption is endogenous, we instrument using headquarter adoption. Adoption increases margins but only for nonmonopoly stations. In duopoly and triopoly markets, margins increase only if all stations adopt, suggesting that AP has a significant effect on competition.
ISSN:0022-3808
1537-534X
DOI:10.1086/726906