Pricing Algorithms Drive Up Costs Without Explicit Collusion, New Research Shows
Summary
New research reveals pricing algorithms automatically drive up consumer costs through learned retaliation against price cuts, creating anti-competitive outcomes without explicit collusion and challenging regulators who traditionally rely on finding direct coordination between companies.
Key Points
- Game theory research reveals that simple pricing algorithms can drive up prices without explicit collusion, as demonstrated when algorithms learn to retaliate against price cuts through trial and error
- Computer scientists prove that even seemingly benign algorithms optimizing for profit can yield bad outcomes for buyers, creating high prices that appear reasonable from the outside
- Regulators face new challenges since traditional approaches rely on finding explicit collusion, but algorithms can achieve the same anti-competitive results without direct communication or coordination