AI pricing algorithms under platform competition

IF 3.7 4区 管理学 Q2 BUSINESS Electronic Commerce Research Pub Date : 2024-02-28 DOI:10.1007/s10660-024-09821-w
J. Manuel Sanchez-Cartas, Evangelos Katsamakas
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Abstract

Platforms play an essential role in the modern economy. At the same time, due to advances in artificial intelligence (AI), algorithms are becoming more widely used for pricing and other business functions. Previous literature examined algorithmic pricing, but not in the context of network effects and platforms. Moreover, platform competition literature has not considered how algorithms may affect competition. We study the performance of AI pricing algorithms (Q-learning and Particle Swarm Optimization) and naïve algorithms (price-matching) under platform competition. We find that algorithms set an optimal price structure that internalizes network effects. However, no algorithm is always the best because profitability depends on the type of competing algorithms and market characteristics, such as differentiation and network effects. Additionally, algorithms learn autonomously when an equilibrium is unstable and avoid it. When algorithm adoption is an endogenous strategic decision, several algorithms can be adopted in equilibrium; we characterize the conditions for the various outcomes and show that the equilibrium and platform profits are sensitive to algorithm design changes. Overall, our research suggests that AI algorithms can be effective in the presence of network effects, and platforms are likely to adopt a variety of algorithms. Lastly, we reflect on the business value of AI and identify opportunities for future research at the intersection of AI algorithms and platforms.

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平台竞争下的人工智能定价算法
平台在现代经济中发挥着至关重要的作用。与此同时,由于人工智能(AI)的进步,算法正越来越广泛地用于定价和其他商业功能。以往的文献对算法定价进行了研究,但没有结合网络效应和平台进行研究。此外,平台竞争方面的文献也没有考虑算法会如何影响竞争。我们研究了平台竞争下人工智能定价算法(Q-learning 和粒子群优化)和天真算法(价格匹配)的表现。我们发现,算法设定的最优价格结构能将网络效应内部化。然而,没有一种算法总是最佳的,因为盈利能力取决于竞争算法的类型和市场特征,如差异化和网络效应。此外,算法会自主学习不稳定的平衡,并避免这种平衡。当算法的采用是一种内生的战略决策时,几种算法可以在均衡状态下被采用;我们描述了各种结果的条件,并表明均衡状态和平台利润对算法设计的改变很敏感。总体而言,我们的研究表明,人工智能算法在存在网络效应的情况下是有效的,平台有可能采用多种算法。最后,我们对人工智能的商业价值进行了反思,并确定了未来在人工智能算法与平台交叉领域的研究机会。
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来源期刊
CiteScore
7.50
自引率
12.80%
发文量
99
期刊介绍: The Internet and the World Wide Web have brought a fundamental change in the way that individuals access data, information and services. Individuals have access to vast amounts of data, to experts and services that are not limited in time or space. This has forced business to change the way in which they conduct their commercial transactions with their end customers and with other businesses, resulting in the development of a global market through the Internet. The emergence of the Internet and electronic commerce raises many new research issues. The Electronic Commerce Research journal will serve as a forum for stimulating and disseminating research into all facets of electronic commerce - from research into core enabling technologies to work on assessing and understanding the implications of these technologies on societies, economies, businesses and individuals. The journal concentrates on theoretical as well as empirical research that leads to better understanding of electronic commerce and its implications. Topics covered by the journal include, but are not restricted to the following subjects as they relate to the Internet and electronic commerce: Dissemination of services through the Internet;Intelligent agents technologies and their impact;The global impact of electronic commerce;The economics of electronic commerce;Fraud reduction on the Internet;Mobile electronic commerce;Virtual electronic commerce systems;Application of computer and communication technologies to electronic commerce;Electronic market mechanisms and their impact;Auctioning over the Internet;Business models of Internet based companies;Service creation and provisioning;The job market created by the Internet and electronic commerce;Security, privacy, authorization and authentication of users and transactions on the Internet;Electronic data interc hange over the Internet;Electronic payment systems and electronic funds transfer;The impact of electronic commerce on organizational structures and processes;Supply chain management through the Internet;Marketing on the Internet;User adaptive advertisement;Standards in electronic commerce and their analysis;Metrics, measurement and prediction of user activity;On-line stock markets and financial trading;User devices for accessing the Internet and conducting electronic transactions;Efficient search techniques and engines on the WWW;Web based languages (e.g., HTML, XML, VRML, Java);Multimedia storage and distribution;Internet;Collaborative learning, gaming and work;Presentation page design techniques and tools;Virtual reality on the net and 3D visualization;Browsers and user interfaces;Web site management techniques and tools;Managing middleware to support electronic commerce;Web based education, and training;Electronic journals and publishing on the Internet;Legal issues, taxation and property rights;Modeling and design of networks to support Internet applications;Modeling, design and sizing of web site servers;Reliability of intensive on-line applications;Pervasive devices and pervasive computing in electronic commerce;Workflow for electronic commerce applications;Coordination technologies for electronic commerce;Personalization and mass customization technologies;Marketing and customer relationship management in electronic commerce;Service creation and provisioning. Audience: Academics and professionals involved in electronic commerce research and the application and use of the Internet. Managers, consultants, decision-makers and developers who value the use of electronic com merce research results. Special Issues: Electronic Commerce Research publishes from time to time a special issue of the devoted to a single subject area. If interested in serving as a guest editor for a special issue, please contact the Editor-in-Chief J. Christopher Westland at westland@uic.edu with a proposal for the special issue. Officially cited as: Electron Commer Res
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