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Have you ever wondered why prices might change online? It could be an algorithm

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Posted at 11:11 AM, Sep 02, 2022

If you're shopping online and see one price, then come back later and see a different price, it’s likely due to a pricing algorithm.

The computer program factors in supply, demand and competitors' prices to adjust the price in real-time. This has been going on for a while, but researchers say it's happening more often now.

And they expect this trend to continue to grow.

“The cost of adopting these algorithms is increasingly falling,” said Alexander MacKay with the Harvard Business School. “You know, a lot of companies have their own pricing algorithms, but you can also buy them from third-party providers and they offer a sort of plug-and-play solution to dynamically adjust your prices.”

He said you can try to beat the system by watching websites to figure out the times of day or days of the week when prices are lower.

You may think that these algorithms would get websites competing to have the lowest price. MacKay's research has found it doesn't work like that.

“Because now they know that any price that they make is going to be beat out by this firm with the more sophisticated algorithm,” said MacKay. “And so that softens price competition; they essentially know in some sense they sort of give up on price competition and they have to compete in other ways.”

But MacKay says it would help if there was regulation saying companies can't use the prices of competitors directly in their pricing algorithms. He would also like to see limits on how often retailers can set their prices.