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Algorithmic Tacit Collusion Is A Limited Threat To Competition

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A recent study by four economists (Calvano et al, 2019) has undoubtedly refueled the public and academic interest in algorithmic tacit collusion. In this study, the researchers find that their “algorithms consistently learn to charge supra-competitive prices, without communicating with one another… this finding is robust to asymmetries in cost or demand, changes in the number of players, and various forms of uncertainty.” Not surprisingly, this research has since been reported in a number of outlets including the Wall Street Journal, Financial Times, MIT Tech Review, among others. What does the study say about the likelihood of algorithmic collusion in the real world? Does it fundamentally change how we should think about tacit collusion in general? These are the questions I address in this note.