Clone of Management Science Research Centre (MSRC) Seminar: Diego Aparicio

Diego Aparicio

IESE

Algorithmic Pricing and Price Variability

Date: Friday, November 14, 2025
Time: 11:00 AM - 12:00 PM
Location: Bronfman Building, Room 375

Abstract

Artificial Intelligence (AI) automates human decisions. Algorithmic pricing---an AI application for scalable price determination---is now prevalent in ride-hailing, travel, drugs, gasoline, and online retail. A common thread across all these implementations is heightened price variability due to frequent price adjustments made by the algorithms. We study the impact of this algorithmic pricing-induced price variability on consumer behavior. Using granular clickstream data from an online grocery retailer in the U.S. that implemented algorithmic pricing, we find that increased price variability exacerbates consumer price sensitivity. While extant literature shows that firms are better off using algorithmic pricing, these findings are economically consequential as AI pricing triggers side effects that undermine those gains, i.e., a more price-sensitive demand offsets some of the expected benefits of algorithmic pricing. We confirm the findings of our field study using controlled lab experiments.