Artificial Intelligence Algorithmic Pricing And Collusion

Download or read book Artificial Intelligence, Algorithmic Pricing and Collusion written by Emilio Calvano and published by . This book was released on 2018 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: Pricing algorithms are increasingly replacing human decision making in real marketplaces. To inform the competition policy debate on possible consequences, we run experiments with pricing algorithms powered by Artificial Intelligence in controlled environments (computer simulations). In particular, we study the interaction among a number of Q-learning algorithms in the context of a workhorse oligopoly model of price competition with Logit demand and constant marginal costs. We show that the algorithms consistently learn to charge supra-competitive prices, without communicating with each other. The high prices are sustained by classical collusive strategies with a finite punishment phase followed by a gradual return to cooperation. This finding is robust to asymmetries in cost or demand and to changes in the number of players.