AI, Algorithmic Pricing, and Collusion

Advances in artificial intelligence and machine learning and their application to pricing decisions have led to concerns that such innovation could lead to higher prices for consumers. In particular, there are worries that such tools will make it easier for firms within an industry to sustain a collusive outcome. However, we argue that when a close examination of the actual pricing algorithms commonly used by firms, suggests these fears may be overblown. Indeed, in recent research we find that b