Algorithmic pricing is the practice of using formulas to automatically determine prices to maximize profit. When the formulas use personal identifying information in the practice of price determination, it is instead known as surveillance pricing. Algorithmic pricing m…
algorithmic pricing — Definition and meaning
Algorithmic pricing may have antitrust implications due to the potential of common algorithms that, in effect, create common pricing structures across industries. Increased adoption of artificial intelligence technologies raises concerns about broader use of the practice and potentially running afoul of antitrust laws. Algorithmic pricing is primarily regulated by § 1 of the Sherman Antitrust Act, which states that “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” This section outlaws certain common pricing schemes, in which market competitors adopt similar pricing practices. When similar algorithmic pricing methods become adopted across industries, the result may, in some cases, be unlawful. The Federal Trade Commission (FTC), which is responsible for investigating antitrust violations, has expressed interest in pursuing antitrust cases when an industry uses common algorithmic pricing schemes.
Some states have been more proactive about preventing coordination through algorithmic pricing, such as California AB-325 Cartwright Act, which states in part, “It shall be unlawful for a person to use or distribute a common pricing algorithm as part of a contract, combination in the form of a trust, or conspiracy to restrain trade or commerce in violation of [California law].”
The importance of algorithmic pricing
algorithmic pricing appears in U.S. legal practice across multiple practice areas. Knowing what it means — and when it applies — can determine the outcome of motions, filings, and negotiations. For non-lawyers, the value of looking up a precise definition is that legal terms often carry meanings that differ from everyday usage; relying on the common meaning can lead to costly missteps.
How algorithmic pricing is applied
In practice, algorithmic pricing is invoked when parties, judges, or attorneys need to identify the legal status of an issue, the rights of those involved, or the procedural step required next. The definition shown above is sourced from Cornell LII Wex , which is widely cited in U.S. legal practice. Because U.S. law is jurisdictionally layered — federal, state, and sometimes local — the precise application of the term can vary by court, so check the controlling authority for your specific case.