Algorithmic price recommendations and collusion: experimental evidence
Algorithmic price recommendations and collusion: experimental evidence
This paper investigates the collusive and competitive effects of algorithmic price recommendations on market outcomes. These recommendations are often non-binding and common in many markets. We develop a theoretical framework and derive two algorithms that recommend collusive pricing strategies. Utilizing a laboratory experiment, we find that sellers condition their prices on the recommendation of the algorithms. The algorithm with a soft punishment strategy lowers market prices and has a pro-competitive effect. The algorithm that recommends a subgame perfect equilibrium strategy increases the range of market outcomes, including more collusive ones.
Bertrand Oligopoly, collusion, experiment, human-machine interaction
298-316
Hunold, Matthias
abdebc54-bbfc-4d6a-addc-2b2ebea711e6
Werner, Tobias
b1f092c4-e6b8-42e1-b615-4e150cd4b165
7 July 2025
Hunold, Matthias
abdebc54-bbfc-4d6a-addc-2b2ebea711e6
Werner, Tobias
b1f092c4-e6b8-42e1-b615-4e150cd4b165
Hunold, Matthias and Werner, Tobias
(2025)
Algorithmic price recommendations and collusion: experimental evidence.
Experimental Economics, 28 (2), .
(doi:10.1017/eec.2025.9).
Abstract
This paper investigates the collusive and competitive effects of algorithmic price recommendations on market outcomes. These recommendations are often non-binding and common in many markets. We develop a theoretical framework and derive two algorithms that recommend collusive pricing strategies. Utilizing a laboratory experiment, we find that sellers condition their prices on the recommendation of the algorithms. The algorithm with a soft punishment strategy lowers market prices and has a pro-competitive effect. The algorithm that recommends a subgame perfect equilibrium strategy increases the range of market outcomes, including more collusive ones.
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algorithmic-price-recommendations-and-collusion-experimental-evidence
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More information
Accepted/In Press date: 4 April 2025
Published date: 7 July 2025
Keywords:
Bertrand Oligopoly, collusion, experiment, human-machine interaction
Identifiers
Local EPrints ID: 505955
URI: http://eprints.soton.ac.uk/id/eprint/505955
ISSN: 1386-4157
PURE UUID: 6a2c8c10-532a-4d74-b125-5336c838931f
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Date deposited: 24 Oct 2025 16:35
Last modified: 15 Nov 2025 03:26
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Contributors
Author:
Matthias Hunold
Author:
Tobias Werner
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