School of Economics

  Invites you to a

Microeconomics Theory seminar presented by

Soumen Banerjee
(Southwestern University of Finance and Economics)

Combating Algorithmic Collusion: A Mechanism Design Approach

Tuesday 15 August 2023
4.00pm – 5.00pm

 Seminar Room 650

A02 Social Sciences Building
Camperdown Campus

The University of Sydney NSW 2006

Zoom: 886 6819 8131

Passcode: 047972

Attention has recently been focused on the possibility of artificially intelligent sellers

on platforms colluding to limit output and raise prices. Such arrangements (cartels),

however, feature an incentive for individual sellers to deviate to a lower price (cheat) to

increase their own profits. Stabilizing such cartels therefore requires credible threats of

punishments, such as price wars. In this paper, I propose a mechanism to destabilize

cartels by protecting any cheaters from a price war by guaranteeing a stream of profits

which is unaffected by arbitrary punishments, only if such punishments actually oc-

cur. Equilibrium analysis of the induced game predicts a reversion to repeated static

Nash pricing. When implemented in a reinforcement learning framework, it provides

substantial reductions in prices (reducing markups by 40% or more), without affect-

ing product variety or requiring the platform to make any payments on path. This

mechanism applies to both the sale of differentiated goods on platforms, and the sale

of homogeneous goods through direct sales. The mechanism operates purely off-path,

thereby inducing no welfare losses in practice, and does not depend on the choice of

discount factors.

  For further information contact: Microeconomics Theory seminar series coordinators Dr Mengke Wang (mengke.wang@sydney.edu.au) & Dr Mert Kimya (mert.kimya@sydney.edu.au)

For all upcoming seminars in School of Economics see Our events and Calendar