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Artificial Intelligence, Algorithmic Pricing, and Collusion: Calvano et al [AER 2020]

Event Details:

Tuesday, February 22, 2022
6:00pm - 7:00pm PST


Huang Engineering 305
Stanford, CA 94305
United States

This event is open to:


We will have open-ended discussions on the paper Artificial Intelligence, Algorithmic Pricing, and Collusion. Each discussant would have around 5 minutes to present their thoughts on highlights, takeaways, interesting paragraphs in the paper, etc. and we will brainstorm where its results can be useful to our research. 


Title: Artificial Intelligence, Algorithmic Pricing, and Collusion (link here)


Authors: Emilio Calvano, Giacomo Calzolari, Vincenzo Denicolò, Sergio Pastorello

Increasingly, algorithms are supplanting human decision-makers in pricing goods and services. To analyze the possible consequences, we study experimentally the behavior of algorithms powered by Artificial Intelligence (Q-learning) in a workhorse oligopoly model of repeated price competition. We find that the algorithms 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.

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