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."

Comments

Collusion?

[XanC]

"and even if they do not communicate with one another"

Well that can be the case with people, too, can it not? Except that when people do not communicate with each other, I don't believe that it can be said to be colluding, by definition. So why is it collusion when algorithms do it?

Re:Collusion?

[Layzej]

"and even if they do not communicate with one another"

Well that can be the case with people, too, can it not? Except that when people do not communicate with each other, I don't believe that it can be said to be colluding, by definition. So why is it collusion when algorithms do it?

In most countries (including Europe and the US) such ‘tacit’ collusion, not relying on explicit intent and communication, is not currently treated as illegal, on the grounds that it is unlikely to occur among human agents and that, even if it did occur, it would be next to impossible to detect. The conventional wisdom, then, is that aggressive antitrust enforcement would be likely to produce many false positives (i.e. condemning innocent conduct), while tolerant policy would result in relatively few false negatives (i.e. excusing anticompetitive conduct). With the advent of AI pricing, however, the concern is that the balance between the two types of error might be altered.

Wrong word

[jbmartin6]

That is called equilibrium, not collusion. There once was a similar state in the US with breakfast cereals for a while, until one of the participants decided to break the equilibrium and lower prices to try to gain market share.