Browsing by Author "Misra, Kanishka"

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    Collusive Outcomes via Pricing Algorithms
    (Oxford University Press, 2021) Hansen, Karsten T.; Misra, Kanishka; Pai, Mallesh M.
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    Frontiers: Algorithmic Collusion: Supra-competitive Prices via Independent Algorithms
    (INFORMS, 2021) Hansen, Karsten T.; Misra, Kanishka; Pai, Mallesh M.
    Motivated by their increasing prevalence, we study outcomes when competing sellers use machine learning algorithms to run real-time dynamic price experiments. These algorithms are often misspecified, ignoring the effect of factors outside their control, for example, competitors’ prices. We show that the long-run prices depend on the informational value (or signal-to-noise ratio) of price experiments: if low, the long-run prices are consistent with the static Nash equilibrium of the corresponding full information setting. However, if high, the long-run prices are supra-competitive—the full information joint monopoly outcome is possible. We show that this occurs via a novel channel: competitors’ algorithms’ prices end up running correlated experiments. Therefore, sellers’ misspecified models overestimate the own price sensitivity, resulting in higher prices. We discuss the implications on competition policy.