"Imagine a town with two widget merchants. Customers prefer cheaper widgets, so the merchants must compete to set the lowest price. Unhappy with their meager profits, they meet one night in a smoke-filled tavern to discuss a secret plan: If they raise prices together instead of competing, they can both make more money. But that kind of intentional price-fixing, called collusion, has long been illegal. The widget merchants decide not to risk it, and everyone else gets to enjoy cheap widgets."
"For well over a century, US law has followed this basic template: Ban those backroom deals, and fair prices should be maintained. These days, it's not so simple. Across broad swaths of the economy, sellers increasingly rely on computer programs called learning algorithms, which repeatedly adjust prices in response to new data about the state of the market. These are often much simpler than the "deep learning" algorithms that power modern artificial intelligence, but they can still be prone to unexpected behavior."
"Yet a widely cited 2019 paper showed that algorithms could learn to collude tacitly, even when they weren't programmed to do so. A team of researchers pitted two copies of a simple learning algorithm against each other in a simulated market, then let them explore different strategies for increasing their profits. Over time, each algorithm learned through trial and error to retaliate when the other cut prices-dropping its own price by some huge, disproportionate amount."
Two-price competition can incentivize merchants to raise prices together, but explicit collusion is illegal. Sellers increasingly use simple learning algorithms that repeatedly adjust prices based on market data. Experiments with identical algorithms in simulated markets produced tacit collusion: algorithms learned through exploration to retaliate against price cuts by dramatically undercutting the other, creating incentives to keep prices high. Such tacit algorithmic coordination can raise consumer prices without any explicit agreement. Traditional antitrust enforcement, focused on proving intentional collusion, struggles to detect or address algorithmic tacit collusion, posing regulatory and consumer-protection challenges.
Read at WIRED
Unable to calculate read time
Collection
[
|
...
]