The Spoils of Algorithmic Collusion: Profit Allocation Among Asymmetric Firms

Simon Martin, Hans-Theo Normann, Paul Püplichhuisen and Tobias Werner

No 11629, CESifo Working Paper Series from CESifo

Abstract: We study the propensity of independent algorithms to collude in repeated Cournot duopoly games. Specifically, we investigate the predictive power of different oligopoly and bargaining solutions regarding the effect of asymmetry between firms. We find that both consumers and firms can benefit from asymmetry. Algorithms produce more competitive outcomes when firms are symmetric, but less when they are very asymmetric. Although the static Nash equilibrium underestimates the effect on total quantity and overestimates the effect on profits, it delivers surprisingly accurate predictions in terms of total welfare. The best description of our results is provided by the equal relative gains solution. In particular, we find algorithms to agree on profits that are on or close to the Pareto frontier for all degrees of asymmetry. Our results suggest that the common belief that symmetric industries are more prone to collusion may no longer hold when algorithms increasingly drive managerial decisions.

Keywords: algorithmic collusion; Cournot duopoly; asymmetric firms (search for similar items in EconPapers)
JEL-codes: C73 D43 L13 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-ain, nep-com, nep-gth, nep-ind and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_11629

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