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Consumers lose, margins win when robots set the prices | Wall Street Journal

One recent afternoon at a Shell-branded station on the outskirts of Rotterdam, in The Netherlands, the price of unleaded fuel started ticking higher, rising more than US3.5c by closing time. It didn’t take long for a competing station down the road to raise its price about the same amount.

The two stations are among thousands of companies that use artificial intelligence software to set prices. In doing so, they are testing a fundamental precept of the market economy.

In economics textbooks, open competition between companies selling a similar product, like petrol, tends to push prices lower. These kinds of algorithms determine the optimal price sometimes dozens of times a day. As they get better at predicting what competitors are charging and what consumers are willing to pay, there are signs they sometimes end up boosting prices together.

Advances in AI are allowing retail and wholesale firms to move beyond “dynamic pricing” software, which has for years helped set prices for fast-moving goods, such as airline tickets or flat screen televisions. Older pricing software often used simple rules, such as ­always keeping prices lower than a competitor.

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Consumers lose, margins win when robots set the prices.