Interpreting and Countering Collusion in Deep-Learning Pricing Algorithms
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arXiv
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| Formato: | Preprint |
| Publicado: |
2023
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| _version_ | 1866914572662734848 |
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| author | Banerjee, Soumen |
| author_facet | Banerjee, Soumen |
| contents | Algorithmic pricing raises a question of interpretation as well as intervention: when autonomous deep-learning pricing systems sustain supracompetitive prices, what strategic pattern have they learned, and how might market institutions alter it? This paper develops an interpretable framework for studying learned collusion in repeated pricing environments. The framework embeds strategic deep learning networks in a differentiated-products Bertrand market and compresses recent price histories into finite states that record price levels, rival price movements, and movement persistence. This state representation preserves the dynamic information relevant for reward and punishment while making learned behavior economically interpretable. In the baseline environment, agents learn supracompetitive prices and exhibit a coherent collusive asymmetry: they punish rival price cuts and accommodate rival price increases. The paper then uses this framework to study an order-book mechanism that assembles temporary buyer commitments and allocates them to sellers willing to make sufficiently deep undercuts, partially insulating those undercutters from retaliatory punishment. The mechanism lowers realized prices in the main symmetric-cost design and remains effective in the main robustness exercises. Further analysis shows that this price reduction operates through the intended channel: qualifying undercuts become less exposed to subsequent punishment, reducing the continuation loss that sustains high-price states. The results show how interpretable learning frameworks can connect algorithmic pricing outcomes to economic mechanisms, and how market design can target the enforcement channel behind learned collusion. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2303_02576 |
| institution | arXiv |
| publishDate | 2023 |
| record_format | arxiv |
| spellingShingle | Interpreting and Countering Collusion in Deep-Learning Pricing Algorithms Banerjee, Soumen Theoretical Economics Algorithmic pricing raises a question of interpretation as well as intervention: when autonomous deep-learning pricing systems sustain supracompetitive prices, what strategic pattern have they learned, and how might market institutions alter it? This paper develops an interpretable framework for studying learned collusion in repeated pricing environments. The framework embeds strategic deep learning networks in a differentiated-products Bertrand market and compresses recent price histories into finite states that record price levels, rival price movements, and movement persistence. This state representation preserves the dynamic information relevant for reward and punishment while making learned behavior economically interpretable. In the baseline environment, agents learn supracompetitive prices and exhibit a coherent collusive asymmetry: they punish rival price cuts and accommodate rival price increases. The paper then uses this framework to study an order-book mechanism that assembles temporary buyer commitments and allocates them to sellers willing to make sufficiently deep undercuts, partially insulating those undercutters from retaliatory punishment. The mechanism lowers realized prices in the main symmetric-cost design and remains effective in the main robustness exercises. Further analysis shows that this price reduction operates through the intended channel: qualifying undercuts become less exposed to subsequent punishment, reducing the continuation loss that sustains high-price states. The results show how interpretable learning frameworks can connect algorithmic pricing outcomes to economic mechanisms, and how market design can target the enforcement channel behind learned collusion. |
| title | Interpreting and Countering Collusion in Deep-Learning Pricing Algorithms |
| topic | Theoretical Economics |
| url | https://arxiv.org/abs/2303.02576 |