Delegate Pricing to Algorithms: When Slow and Steady Wins the Race

Galit Ashkenazi-Golan, Edward Plumb, Clemens Possnig and Yufei Zhang

Papers from arXiv.org

Abstract: We study the strategic design of learning algorithms in a canonical continuous-time pricing game. We introduce a meta-game in which firms select learning rates for a gradient dynamic, evaluating payoffs as the discounted sum of profits accrued along the entire learning path. We uncover a fundamental dichotomy driven by stage-game incentives: if the stage game exhibits strategic substitutability, each firm strictly prefers faster learning. Under strategic complementarity, however, an excessively fast algorithm accelerates the rival's competitive response, destroying transitional profit margins. Even though the competitive price is a dominant action in the stage game and convergence to this price is guaranteed, we prove that firms design sluggish algorithms in equilibrium.

Date: 2026-10, Revised 2026-10
New Economics Papers: this item is included in nep-com, nep-des, nep-gth and nep-mic
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