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Do Price Comparison Sites Increase Competition?
Do Price Comparison Sites Increase Competition?

Do Price Comparison Sites Increase Competition?

If you were asked a question about whether price comparison sites or apps result in more competitive prices, you would probably say “yes”.   But there is a “no” case which as time goes by, may drive prices in the opposite direction.

 

 

Consider a world where an increasing number of large companies use artificial intelligence machine learning to monitor competitor’s prices and recommend or even set prices automatically. What do you think may happen?

Pricing computers develop intelligence by experimenting with price decreases and increases, and the competitor’s reactions, and collect data on sales and resulting profits. At the same time, the competitors are also analysing and learning.

One outcome may be that the pricing computers algorithms over time realise that there are no winners if the competitor’s computers keeps reacting to price reductions, which is driving the overall profitability of a particular market segment down. Price drops, principally in a market of a small number of competitors, could become infrequent compared with price increases.

This sounds like collusion, but as the companies are only using market available information, and not actually colluding with their competitors, it would be difficult for the authorities to control.

It is already happening in many markets and the encouragement of government bodies to ensure pricing is transparent resulting in many good pricing search engines may be having the opposite affect to the initial intention.

So next time you are searching for the best price and find a great price comparison site, think about what the competitors in the market are doing with the same information. While you are learning about the different prices for a product, they are learning about you and the market competitor’s reactions, and analysing the best move forward, which may be up.

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