Pricing algorithms can drive up prices
By the AFREEQUE newsroom, based on Windhoek Observer
Illustrative image · Sagar Soneji · Pexels · Licence PexelsResearch presented in Windhoek shows that pricing algorithms can encourage higher prices and reduce benefits for consumers. A study of German petrol stations found price increases of 9% in non-monopoly markets and 28% in duopolies, according to Windhoek Observer.
Pricing algorithms can lead to higher prices and reduce benefits for consumers, according to research presented at the 2026 Advancing Competition in Africa Biennial Conference, held in Windhoek. Professor Thomas K. Cheng of the University of Hong Kong examined in particular the risks to competition when companies use automated systems to maintain high prices without direct agreement between competitors, reports the Windhoek Observer.
A 2024 study by Assad and other researchers found that the use of pricing algorithms in fuel distribution in Germany was associated with prices 9% higher in non-monopoly markets and 28% higher in duopoly markets. In over-the-counter medicine sales, a study by Brown and MacKay published in 2023 found a 9.6% increase in the profits of the five major retailers studied, while consumers’ economic benefit declined by 4.1%.
Thomas K. Cheng distinguishes three forms of algorithmic collusion. Facilitating collusion involves using software to implement and monitor an existing price agreement, as in the United States v. Topkins case involving poster sellers on Amazon Marketplace. Coordinating collusion relies on a shared third-party algorithm that collects confidential pricing information and centralises pricing decisions, a mechanism challenged in legal proceedings concerning the US rental market.
The third form, known as autonomous collusion, occurs when a learning-capable algorithm independently identifies that it is more profitable to maintain high prices through tacit coordination than to compete. Cheng believes these mechanisms make it more difficult for competition authorities to identify and address anti-competitive practices.
