This economic research paper describes how pricing algorithms are used by firms and explores whether, and under what conditions, the use of pricing algorithms could lead to competition concerns. 2. The paper was prompted by external debate about the role of algorithms in online markets. The main aim was to ensure that the CMA has a good understanding of the existing literature and evidence on the effects of competition on algorithms. We have also carried out a small amount of primary evidence gathering to fill some of the gaps in the literature. We have focused on economic rather than legal analysis. 3. We have found evidence of widespread use of algorithms to set prices particularly on online platforms. For example, many sellers on Amazon use pricing algorithms. As well as simple pricing rules provided by the platforms themselves, some third-party firms sell more sophisticated pricing algorithms to retailers or directly take on the role of pricing using computer models on behalf of their clients. 4. Algorithms can also allow firms to offer different prices to different consumers depending on the information they hold about them. We found limited evidence of this type of personalised pricing in practice, although algorithms are already used to personalize ranking, advertising and perhaps discounts. Increasing data availability, coupled with more sophisticated algorithms, can be expected to increase the scope for firms to engage in personalised pricing in future. 5. There are good reasons to think that the use of pricing algorithms can benefit consumers in many situations. For example, algorithms can reduce transaction costs for firms, reduce frictions in markets, and give consumers greater information on which to base their decisions. 6. A main concern expressed in the literature is that algorithms might facilitate collusive outcomes, leading to consumers paying higher prices. In practice, the concern about collusion covers a broad spectrum of different potential issues. It is important to distinguish between: