Efficiently Breaking the Folk Theorem by Reliably Communicating Long Term Commitments

David Levine

No 18808, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Abstract The introduction of artificially intelligent algorithms in pricing decisions by firms has triggered a literature in industrial organization asking if the use of these algorithms will lead to collusive outcomes. In a simple repeated game environment it is shown that if algorithms can be reliably communicated or inferred the folk theorem breaks and the long-run outcome must be collusive.

Date: 2024-02
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