Hub‐and‐Spoke Collusion With a Third‐Party Pricing Algorithm

ABSTRACT A data analytics company delivers an efficiency by supplying a pricing algorithm that allows prices to more effectively respond to demand variation. In this setting, I consider a new form of hub‐and‐spoke collusion: A data analytics company (hub) coordinates the prices of competitors (spokes) through its pricing algorithm. A novel finding is that the data analytics company's efficiency is a facilitating factor for collusion; a rise in this efficiency increases the supracompetitive markup and the incremental profit from collusion. Thus, markets in which a third party's services are solidly grounded in efficiency still warrant scrutiny by competition authorities because they are more prone to the emergence of collusion and anticompetitive harm.