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Collusion by code or algorithmic collusion? When pricing algorithms take over

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  • Lea Bernhardt
  • Ralf Dewenter

Abstract

As algorithmic pricing becomes more widespread, the discussion about the extent to which the use of algorithms results in an increase of collusion also intensifies. While some scholars argue that algorithms are able to collude on their own (algorithmic collusion), others claim that only the use of code to enforce collusion (collusion by code) is a serious threat. In this paper, we discuss both scenarios as well as the conditions under which collusion is likely to occur. As detection and prosecution seems rather challenging, we also discuss possible remedies. These include statistical analyses of market data, an increase in trained staff for competition authorities or even a general ban of specific classes of pricing algorithms. While current competition law seems to be prepared to tackle current issues, it might be adapted for possible future challenges, in case that autonomous algorithms become greater concerns in the future.

Suggested Citation

  • Lea Bernhardt & Ralf Dewenter, 2020. "Collusion by code or algorithmic collusion? When pricing algorithms take over," European Competition Journal, Taylor & Francis Journals, vol. 16(2-3), pages 312-342, September.
    • Handle: RePEc:taf:recjxx:v:16:y:2020:i:2-3:p:312-342
    DOI: 10.1080/17441056.2020.1733344
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    Cited by:

    1. Esmaeili Aliabadi, Danial & Chan, Katrina, 2022. "The emerging threat of artificial intelligence on competition in liberalized electricity markets: A deep Q-network approach," Applied Energy, Elsevier, vol. 325(C).
    2. Aleksandar B. Todorov, 2022. "Algorithmic pricing and concerted behaviour – competitive challenges?," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 90-107.
    3. Haucap, Justus, 2021. "Mögliche Wohlfahrtswirkungen eines Einsatzes von Algorithmen," DICE Ordnungspolitische Perspektiven 109, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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