Algorithmic pricing hands the price decision to software. The system watches inputs such as demand, stock levels, costs and competitors’ posted prices, and adjusts its own price to meet an objective it has been given, usually margin or volume. Airlines, ride-hailing, online retail and fuel stations were early users because their prices are visible and change often.
The risk is competition. When rivals all use pricing software that reacts instantly to each other, a price cut is matched before it can win any customers, so nobody has a reason to cut. Prices can settle higher without anyone agreeing to anything. A 2024 study of German fuel stations found margins rose by almost 40 percent in small markets where every station adopted such software, and competition authorities have taken note.
The control is ordinary governance: write down what the software is told to optimise, keep a human sign-off on changes to that objective, log its decisions, and have competition counsel review the design. A firm that cannot explain its own pricing logic will struggle to defend it.