Algorithmic Collusion with Imperfect Monitoring

24 Pages Posted: 11 Feb 2021

See all articles by Emilio Calvano

Emilio Calvano

University of Bologna - Department of Economics; University of Toulouse 1 - Department of Economics; CSEF - Center for Studies in Economics and Finance

Giacomo Calzolari

European University Institute - Economics Department (ECO); Centre for Economic Policy Research (CEPR); University of Bologna

Vincenzo Denicolò

University of Leicester

Sergio Pastorello

University of Bologna - Department of Economics

Date Written: January 2021

Abstract

We show that if they are allowed enough time to complete the learning, Q-learning algorithms can learn to collude in an environment with imperfect monitoring adapted from Green and Porter (1984), without having been instructed to do so, and without communicating with one another. Collusion is sustained by punishments that take the form of "price wars" triggered by the observation of low prices. The punishments have a finite duration, being harsher initially and then gradually fading away. Such punishments are triggered both by deviations and by adverse demand shocks.

JEL Classification: D43, D83, L13, L41

Suggested Citation

Calvano, Emilio and Calzolari, Giacomo and Denicolò, Vincenzo and Pastorello, Sergio, Algorithmic Collusion with Imperfect Monitoring (January 2021). Available at SSRN: https://ssrn.com/abstract=3783964

Emilio Calvano (Contact Author)

University of Bologna - Department of Economics ( email )

Bologna
Italy

University of Toulouse 1 - Department of Economics ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

CSEF - Center for Studies in Economics and Finance ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

Giacomo Calzolari

European University Institute - Economics Department (ECO) ( email )

Villa la Fonte
Via delle fontanelle 18
San Domenico di Fiesole, Florence 50014
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

University of Bologna ( email )

Piazza Scaravilli 2
I-40126 Bologna
Italy

HOME PAGE: http://sites.google.com/view/giacomo-calzolari

Vincenzo Denicolò

University of Leicester

University Road
Leicester, LE1 7RH
United Kingdom

Sergio Pastorello

University of Bologna - Department of Economics ( email )

Via Saragozza, 8
Bologna, 40125
Italy
+39 051 2098144 (Phone)
+39 051 2098040 (Fax)

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