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Left To Their Own Devices, Pricing Algorithms Resort To Collusion (popularmechanics.com)

Posted by msmash on from the closer-look dept.

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."

9 of 128 comments (clear)

  1. Collusion? by XanC · · Score: 3, Interesting

    "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?

    1. Re:Collusion? by Shaitan · · Score: 4, Insightful

      "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.

    2. Re:Collusion? by Layzej · · Score: 3, Interesting

      "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.

    3. Re:Collusion? by swillden · · Score: 3, Insightful

      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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    4. Re:Collusion? by dryeo · · Score: 5, Insightful

      It's a good example of how the market does not always result in the cheapest prices.

      --
      https://en.wikipedia.org/wiki/Inverted_totalitarianism
  2. Collusion? by mpercy · · Score: 5, Insightful

    "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."

  3. the 1970s called... by goombah99 · · Score: 5, Informative

    There's case studies many economics classes use of how the airlines in the 1970s would evade the collusion in restraint of trade laws. Basically, they developed a process for proposing fare changes. They would announce a scheduled fare increase a month in advance. If the other company followed suit they would enact it if they didn't they would retract it or post a fare decrease shortly after that.
    It worked quite well till the regulators figured it out. Braniff (deceased high end airline) was the ringleader.

    These pricing algorithms just accomplish this one time scales of hours rather than months.

    but it's just old wine in new bottles. No one invented anything or changed anything. But the amplification and universality of it made the problem worse.

    But what actually makes this interesting is that it may also be an emergent behavior as opposed to either intentional programming or an untended artifact of some algorithm. THat is, if an AI is simply asked to maximize profit in a multi-agent system it's entirely possible it will learn this tit for tat strategy. Humans do in cooperation-games in behavior theory.

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  4. Wrong word by jbmartin6 · · Score: 4, Interesting

    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.

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  5. Re:Collusion or not by slacktide · · Score: 3, Informative

    No, it's pretty obvious that Amazon DOES NOT adjust adjust pricing on a per-consumer basis, and they do not use your past purchasing history to set pricing specific to you. If they did, then sites like camelcamelcamel would not work. Amazon does adjust pricing over time, but at any given time, all buyers are offered the same price.