Learning to Charge More: How Q-Learning Firms Lock In Supracompetitive Prices

Cristian Chica, Yinglong Guo and Gilad Lerman

Papers from arXiv.org

Abstract: There is growing experimental evidence that $Q$-learning agents can learn to charge supracompetitive prices. We ask when such behavior persists, whether it emerges, and which strategies support it. In a repeated pricing game in which firms condition on the previous period's price profile, we give conditions on the learned action values under which supracompetitive prices become an absorbing state once experimentation ends. We then show that under softmax exploration these conditions are reached with positive and explicitly bounded probability, both from a random and from an all-zero initial $Q$-table. In the latter case firms lock in supracompetitive prices because they never learn that undercutting pays; the same mechanism can lock in the competitive price, so the long-run outcome is selected by the exploration path. Finally, we give sufficient conditions on the learned table under which the induced strategy is naive collusion, a grim trigger strategy or an increasing-price strategy; grim trigger strategies are subgame perfect under a standard discounting condition, whereas naive collusion is generally not an equilibrium.

Date: 2025-05, Revised 2026-11
New Economics Papers: this item is included in nep-com, nep-gth and nep-mic
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