Algorithmic Pricing Can Produce Collusive-Like Supra-Competitive Prices
A study released on arXiv (2605.16064) shows that basic pricing strategies using an explore-then-exploit method can regularly set prices higher than the Nash equilibrium. In the exploration stage, businesses mix up their prices and gauge demand based only on their own data, ignoring their competitors, which is somewhat like a defective monopoly. The research, using fluid-limit ODE analysis, found that when companies explore prices within similar ranges close to the Nash price, they tend to set higher prices. In cases of equal exploration, prices can even reach monopoly levels. These results were confirmed through simulations reflecting a real multifamily rental market.
Key facts
- Study published on arXiv with ID 2605.16064
- Firms use explore-then-exploit pipeline with misspecified demand model
- Supra-competitive prices arise when firms explore similar price ranges on same side of Nash price
- Prices can reach monopoly levels under symmetric exploration
- Simulations calibrated to real multifamily rental market
- Analysis uses fluid-limit ordinary differential equation
- Algorithmic pricing can produce collusive-like outcomes without explicit collusion
- Estimation step omits competitors' prices
Entities
Institutions
- arXiv