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Left To Their Own Devices, Pricing Algorithms Resort To Collusion (popularmechanics.com)
Reader schwit1 shares a report: When you're browsing online, who sets the prices? An algorithm, most likely. A study from 2015 showed that a third of all items on Amazon [PDF] had prices set by an algorithm, and chances are that percentage has only risen. A new study shows how easy it would be for price-setting algorithms to learn to collude with each other and keep prices at a disadvantage for customers.
This sort of collusion would stem from a certain type of algorithm, the researchers say. Reinforcement algorithms learn through trial and error. In the simplest terms, a walking robot would take a step, fall, and try again. These algorithms have often been used to teach algorithms to win games like Go.
"From the antitrust standpoint," say professors Emilio Calvano, Giacomo Calzolari, and others from the University of Bologna in Italy, "the concern is that these autonomous pricing algorithms may independently discover that if they are to make the highest possible profit, they should avoid price wars. That is, they may learn to collude even if they have not been specifically instructed to do so, and even if they do not communicate with one another."
This sort of collusion would stem from a certain type of algorithm, the researchers say. Reinforcement algorithms learn through trial and error. In the simplest terms, a walking robot would take a step, fall, and try again. These algorithms have often been used to teach algorithms to win games like Go.
"From the antitrust standpoint," say professors Emilio Calvano, Giacomo Calzolari, and others from the University of Bologna in Italy, "the concern is that these autonomous pricing algorithms may independently discover that if they are to make the highest possible profit, they should avoid price wars. That is, they may learn to collude even if they have not been specifically instructed to do so, and even if they do not communicate with one another."
"That is, they may learn to collude even if they have not been specifically instructed to do so, and even if they do not communicate with one another."
I think collusion pretty much requires communication and intent.
Independent algorithms (or people) arriving at the same conclusion from the same data and openly performing actions in their own self-interest without communication is not collusion.
Their actions may look like collusion from the outside, but they fail on most commonly accepted definitions of the word.
E.g. wikipedia
"Collusion is an agreement between two or more parties, sometimes illegal–but always secretive–to limit open competition by deceiving, misleading, or defrauding others of their legal rights, or to obtain an objective forbidden by law typically by defrauding or gaining an unfair market advantage. It is an agreement among firms or individuals to divide a market, set prices, limit production or limit opportunities."
"Independent algorithms (or people) arriving at the same conclusion from the same data and openly performing actions in their own self-interest without communication is not collusion."
If it comes to the same anti-consumer result and the same result as monopoly behavior in a free market it is collusion. Or insert a new word for what is bad and can't be tolerated if we are to have a sound economy.
It doesn't matter if it is one monopoly fixing terms and pricing in an anti-competitive way, 8 companies with common interest doing the same, or 10,000 doing the same. The active communication isn't the issue. And it isn't just pricing, the major chip manufacturers engage in this sort of anti-competative behavior and coordinate on release rates by releasing roadmaps of how far they are planning to go with their capacities and features in advance via unspoken (or possibly spoken behind closed doors) agreement with each other.
"Collusion is an agreement between two or more parties, sometimes illegal–but always secretive–to limit open competition by deceiving, misleading, or defrauding others of their legal rights, or to obtain an objective forbidden by law typically by defrauding or gaining an unfair market advantage. It is an agreement among firms or individuals to divide a market, set prices, limit production or limit opportunities."
An unspoken agreement fits that definition just fine.
Prices do indeed constitute communication, but they are in the open. Something done openly is not collusion.
That's not true. Collusion is defined as "secret or illegal cooperation". It generally is secret because doing illegal things openly is likely to result in getting caught, but that doesn't mean that collusion can never be done in public.
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It's a good example of how the market does not always result in the cheapest prices.
https://en.wikipedia.org/wiki/Inverted_totalitarianism