AI for Ads: Dynamic pricing driving or curbing competition?

Competitiveness is having a field day, as global tech majors are coming under scrutiny and more importantly, sanctions, from more and more governments around the world – whether it’s Apple being fined in the EU or Meta in Australia for their product monopolies or Google battling the “most significant antitrust trial of the century” in the US. Closer home, Amazon and Walmart-backed Flipkart have been accused of anti-competition and predatory practices in India just last week. While the reasons for these industry-wide practices are complex and multi-fold, AI is, as elsewhere, becoming a major factor in them. While exchange4media has previously covered the impact of AI technologies on digital ad spends, the advertising industry’s wish list for AI regulations, AI and machine learning algorithms are revolutionizing dynamic pricing strategies in digital advertising and publishing. These technologies allow companies to analyse vast amounts of real-time data on factors like user behaviour, market demand, competitor pricing, and inventory levels to automatically adjust prices for ad space or content access.

Competitiveness is having a field day, as global tech majors are coming under scrutiny and more importantly, sanctions, from more and more governments around the world – whether it’s Apple being fined in the EU or Meta in Australia for their product monopolies or Google battling the “most significant antitrust trial of the century” in the US. Closer home, Amazon and Walmart-backed Flipkart have been accused of anti-competition and predatory practices in India just last week. While the reasons for these industry-wide practices are complex and multi-fold, AI is, as elsewhere, becoming a major factor in them. While exchange4media has previously covered the impact of AI technologies on digital ad spends, the advertising industry’s wish list for AI regulations, AI and machine learning algorithms are revolutionizing dynamic pricing strategies in digital advertising and publishing. These technologies allow companies to analyse vast amounts of real-time data on factors like user behaviour, market demand, competitor pricing, and inventory levels to automatically adjust prices for ad space or content access.

Hitesh Nahata, Director of Data Science & Analytics at MiQ, offers a nuanced perspective on the impact of AIpowered dynamic pricing, saying, “AI-powered dynamic pricing can lead to implicit price collusion, but this is more common in industries nearing market saturation. The dynamic and ever-evolving nature of the programmatic advertising industry has kept it from becoming a large-scale problem.”

Essentially, the mechanics of dynamic pricing are increasingly seeing AI algorithms continuously scan competitors' prices to adjust in real time. While this may seem like a win for users, research shows that as AI algorithms become more widespread, they may actually result in implicit price collusion. Nahata points out that the expanding supply side, with new channels like Connected TV, digital out-of-home, and audio, has led to more inventory availability than ever before. He adds, “As of now, there is no evidence suggesting that these algorithms follow uniform optimization rules, reducing the immediate risk of implicit price collusion in this space.”

However, Sanjeev Jasani, Group COO at Cheil SWA, expresses more concern about potential pricing issues, opining, “As AI gets better at changing prices quickly, we might see some unplanned teamwork between companies. I'd say there's a pretty good chance - like 7 or 8 out of 10 - that prices will start to look very similar. It's not that companies are trying to work together, but when everyone uses similar tech, prices can end up matching.”

For advertisers, AI-powered systems can optimize bid prices for ad placements across platforms, maximizing ROI by finding the ideal balance between cost and performance. Publishers use similar AI tools to set optimal prices for their ad inventory, potentially increasing revenue by charging higher rates during peak demand periods or for high-value audience segments. Gulab Patil, Founder & CEO of Lemma, sees this as a positive development, saying, “Automation in real-time pric