Collusion

Category: Bad Actors

We recognize collusion as the behaviour of bad actors. Members of a price cartel, for example, operate in concert to artificially inflate prices. Or scientific authors operating in conspiracy may collude to give each other favourable reviews, even if their work would normally be rejected.

Analytics engines working in concert can become bad actors in their own right. For example, Calvano (et.al., 2020) showed that "algorithms powered by Artificial Intelligence (Q-learning) in a workhorse oligopoly model of repeated price competition.... consistently learn to charge supracompetitive prices, without communicating with one another. The high prices are sustained by collusive strategies with a finite phase of punishment followed by a gradual return to cooperation. This finding is robust to asymmetries in cost or demand, changes in the number of players, and various forms of uncertainty."

Examples and Articles

How pricing algorithms learn to collude
"What we have here really is these self-learning algorithms learning that, okay, we're going to set a high price and the reason why they don't veer from that, is they've learned that there's going to be a retaliatory punishment by the other, self-learning algorithm. And that's exactly what we think about as collusion." MIT Technology Review. Jennifer Strong, October 27, 2021. Direct Link

Artificial Intelligence and Collusion
"There are risks to consumer welfare associated with AI pricing softwareâ€™s capacity to solve uncertainty (for example, supra-competitive equilibria may not be disrupted by changes in demand)." Direct Link

Algorithmic Collusion & Its Implications for Competition Law and Policy
"The unilateral use of algorithms and algorithmic tacit collusion raises enforcement challenges for the competition authorities." Direct Link

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