Algorithmic Collusion Without Threats

Authors Eshwar Ram Arunachaleswaran , Natalie Collina , Sampath Kannan , Aaron Roth , Juba Ziani



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Author Details

Eshwar Ram Arunachaleswaran
  • Department of Computer and Information Science, University of Pennsylvania, Philadelphia, PA, USA
Natalie Collina
  • Department of Computer and Information Science, University of Pennsylvania, Philadelphia, PA, USA
Sampath Kannan
  • Simons Institute for the Theory of Computing, University of California, Berkeley, CA, USA
Aaron Roth
  • Department of Computer and Information Science, University of Pennsylvania, Philadelphia, PA, USA
Juba Ziani
  • ISyE, Georgia Tech, Atlanta, GA, USA

Acknowledgements

We thank Rakesh Vohra and Deke Hill for valuable discussions on the subject of algorithmic collusion. SK was on leave from the University of Pennsylvania and serving as the Associate Director of the Simons Institute for the Theory of Computing at the time of writing of this paper. Finally, we would like to thank the ITCS reviewers for their helpful comments and feedback.

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Eshwar Ram Arunachaleswaran, Natalie Collina, Sampath Kannan, Aaron Roth, and Juba Ziani. Algorithmic Collusion Without Threats. In 16th Innovations in Theoretical Computer Science Conference (ITCS 2025). Leibniz International Proceedings in Informatics (LIPIcs), Volume 325, pp. 10:1-10:21, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2025) https://doi.org/10.4230/LIPIcs.ITCS.2025.10

Abstract

There has been substantial recent concern that automated pricing algorithms might learn to "collude." Supra-competitive prices can emerge as a Nash equilibrium of repeated pricing games, in which sellers play strategies which threaten to punish their competitors if they ever "defect" from a set of supra-competitive prices, and these strategies can be automatically learned. But threats are anti-competitive on their face. In fact, a standard economic intuition is that supra-competitive prices emerge from either the use of threats, or a failure of one party to correctly optimize their payoff. Is this intuition correct? Would explicitly preventing threats in algorithmic decision-making prevent supra-competitive prices when sellers are optimizing for their own revenue? 
No. We show that supra-competitive prices can robustly emerge even when both players are using algorithms which do not explicitly encode threats, and which optimize for their own revenue. Since deploying an algorithm is a form of commitment, we study sequential Bertrand pricing games (and a continuous variant) in which a first mover deploys an algorithm and then a second mover optimizes within the resulting environment. We show that if the first mover deploys any algorithm with a no-regret guarantee, and then the second mover even approximately optimizes within this now static environment, monopoly-like prices arise. The result holds for any no-regret learning algorithm deployed by the first mover and for any pricing policy of the second mover that obtains them profit at least as high as a random pricing would - and hence the result applies even when the second mover is optimizing only within a space of non-responsive pricing distributions which are incapable of encoding threats. In fact, there exists a set of strategies, neither of which explicitly encode threats that form a Nash equilibrium of the simultaneous pricing game in algorithm space, and lead to near monopoly prices. This suggests that the definition of "algorithmic collusion" may need to be expanded, to include strategies without explicitly encoded threats.

Subject Classification

ACM Subject Classification
  • Theory of computation → Algorithmic game theory
Keywords
  • Algorithmic Game Theory
  • Algorithmic Collusion
  • No-Regret Dynamics

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