Sang Yop Kang (Peking University School of Transnational Law, ECGI (European Corporate Governance Institute), CFA, FRM; European Corporate Governance Institute (ECGI)) has posted Platforms’ AI-Driven Dynamic Pricing: A Law and Economics Analysis (accepted by the German Law Journal) on SSRN. Here is the abstract:
This article examines price discrimination and dynamic pricing on AI-driven platforms through a law-and-economics framework. It explores how AI enables platforms to engage in first-degree price discrimination, systematically extracting consumer surplus. Unlike pre-AI price discrimination, which was closer to price differentiation, AI-driven dynamic pricing exhibits a stronger element of actual discrimination, allowing platforms to perpetually impose punitive pricing based on personalized data. This raises concerns about consumer welfare, as AI-driven dynamic pricing may lead to worse outcomes than traditional monopolies, with full consumer surplus extraction despite unchanged transaction volumes. In addition, this article introduces the concept of platforms in the same relevant market functioning as a de facto single entity, under the AI-driven dynamic pricing. It also explores ideas such as price discrimination akin to ‘racial profiling’ and the impact of platform-driven price discrimination on the erosion of the ‘invisible hand.’ Furthermore, the article discusses the role of government intervention, highlighting potential crowding-out effects and tax-like consequences when platforms are state-operated or subsidized. Even in purely private markets, AI-driven pricing may reduce disposable income, affecting real GDP and purchasing power. Finally, the article considers consumer protection measures, particularly the importance of obtaining consumer consent for the use of personal information in AI-driven pricing strategies.