Algorithmic collusion: A critical review
This addresses concerns for antitrust regulators and economists about the feasibility of algorithmic collusion, highlighting incremental insights by integrating computer science perspectives.
The paper critically reviews the literature on algorithmic collusion, finding that while self-learning algorithms are unlikely to form cartels in real markets due to practical challenges, centralized pricing algorithms in hub-and-spoke arrangements may already require legislative action.
The prospect of collusive agreements being stabilized via the use of pricing algorithms is widely discussed by antitrust experts and economists. However, the literature is often lacking the perspective of computer scientists, and seems to regularly overestimate the applicability of recent progress in machine learning to the complex coordination problem firms face in forming cartels. Similarly, modelling results supporting the possibility of collusion by learning algorithms often use simple market simulations which allows them to use simple algorithms that do not produce many of the problems machine learning practitioners have to deal with in real-world problems, which could prove to be particularly detrimental to learning collusive agreements. After critically reviewing the literature on algorithmic collusion, and connecting it to results from computer science, we find that while it is likely too early to adapt antitrust law to be able to deal with self-learning algorithms colluding in real markets, other forms of algorithmic collusion, such as hub-and-spoke arrangements facilitated by centralized pricing algorithms might already warrant legislative action.