Citation

Discussion Paper Details

Please find the details for DP13405 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Artificial intelligence, algorithmic pricing and collusion

Author(s): Emilio Calvano, Giacomo Calzolari, Vincenzo Denicolò and Sergio Pastorello

Publication Date: December 2018

Keyword(s): artificial intelligence, Collusion, Pricing-Algorithms, Q-Learning and Reinforcement Learning

Programme Area(s): Industrial Organization

Abstract: Increasingly, pricing algorithms are supplanting human decision making in real marketplaces. To inform the competition policy debate on the possible consequences of this development, we experiment with pricing algorithms powered by Artificial Intelligence (AI) in controlled environments (computer simulations), studying the interaction among a number of Q-learning algorithms in a workhorse oligopoly model of price competition with Logit demand and constant marginal costs. In this setting the algorithms consistently learn to charge supra-competitive prices, without communicating with one another. The high prices are sustained by classical 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 and to changes in the number of players.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13405

Bibliographic Reference

Calvano, E, Calzolari, G, Denicolò, V and Pastorello, S. 2018. 'Artificial intelligence, algorithmic pricing and collusion'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13405