Legal Challenges to Algorithmic Pricing May Undermine Market-Process Improvements
Recent private and government antitrust challenges to individual firms’ use of “algorithmic pricing” may discourage the use of algorithms, and thereby reduce market efficiency, to the ultimate detriment of producers and consumers. A proposed U.S. Justice Department (DOJ) settlement with RealPage—a provider of commercial revenue-management software and services for the conventional multifamily rental-housing industry—is an exercise in micromanagement that could deter the development of welfare-enhancing algorithms. New state laws go even further in limiting the use.
Federal and state antitrust enforcers and legislators may want to reconsider their algorithm-skeptical positions, which if maintained could retard technology-driven improvements in the working of U.S. markets. In assessing recent government litigation aimed at limiting algorithmic-pricing freedom, keep in mind that the government’s record in seeking to regulate business pricing is dismal and rife with economically harmful failures, as reflected in shortages, black markets, inflation, and reduced innovation.
Simply put, price controls undermine the economy. They prevent market participants from reacting to constantly changing market conditions, thereby misallocating resources, and reducing the quality of goods and services over time. “Softer” forms of pricing oversight through antitrust litigation may be less draconian, but it should not be assumed that they are without economic costs.