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Tacit collusion by pricing algorithms.

This article contributes to the debate about the potential of pricing algorithms to collude and earn supra‐competitive profits without explicit communication. By simulating competition among seven algorithms, we demonstrate that: (1) algorithms can reach supra‐competitive prices in a reasonably shor...

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Published in:Economic Inquiry Vol. 63; no. 4; pp. 1036 - 1066
Main Authors: Bhole, Bharat, Surana, Sunita
Format: Article
Published: Wiley-Blackwell Oct2025
Subjects:
Profiteering
Collusion
Online Access:View this record in EBSCOhost
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        atl: Tacit collusion by pricing algorithms.
      aug:
        au:
          Bhole, Bharat
          Surana, Sunita
        affil:
          Department of Economics, Rochester Institute of Technology, Rochester New York,, USA
          Forensic Economics Inc., Rochester New York,, USA
      su:
        Profiteering
        Collusion
      sug:
        subj:
          Profiteering
          Collusion
      keyword:
        algorithmic pricing
        Bertrand competition
        tacit collusion
        algorithmic pricing
        Bertrand competition
        tacit collusion
      ab: This article contributes to the debate about the potential of pricing algorithms to collude and earn supra‐competitive profits without explicit communication. By simulating competition among seven algorithms, we demonstrate that: (1) algorithms can reach supra‐competitive prices in a reasonably short time, taking less than 1/1,000th $1/1,00{0}^{\text{th}}$ the time taken by algorithms in recent studies; and (2) tacit collusion among the algorithms is robust to the choice of different algorithms by competing firms. These results address the main criticisms concerning the practical relevance of recent studies that demonstrate algorithmic collusion. The top‐performing algorithms possess properties of niceness, forgiveness, provocability, and flexibility.
      pubtype: Academic Journal
      doctype: Article
      src: R
    language: English
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