Convergence to collusion in algorithmic pricing

Kevin Michael Frick

Papers from arXiv.org

Abstract: Artificial intelligence algorithms are increasingly used by firms to set prices. Previous research shows that they can learn to collude, but how quickly and reliably they can do so has remained an open question. I study average-reward soft actor-critic algorithms that set continuous prices in the workhorse environment of this literature: a repeated Bertrand duopoly with symmetric firms, deterministic logit demand, and constant marginal costs, where agents observe only market prices and their own profits. The algorithms can converge to a collusive outcome within 50,000 periods, and in 36% of simulations learned punishments make one-period deviations unprofitable, so that high prices are mutual best responses. Successful simulations show cooperative behaviour supported by reward-punishment schemes that discourage deviations. When high prices are not supported by punishments, profitable deviations are typically on the order of hundredths of a percent.

Date: 2026-04, Revised 2026-10
New Economics Papers: this item is included in nep-ain, nep-cmp, nep-com, nep-gth, nep-ind and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://arxiv.org/pdf/2604.15825 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2604.15825

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().