Competition between Human and Artificial Intelligence in Digital Markets: An Experimental Analysis

9 Pages Posted: 28 Jun 2022 Last revised: 7 Sep 2023

See all articles by Andreas Schauer

Andreas Schauer

University of Regensburg

Daniel Schnurr

University of Regensburg

Date Written: June 17, 2022

Abstract

In digital markets business decisions are increasingly taken by artificial intelligence (AI). Especially in e-commerce, a growing share of retailers uses AI-driven algorithmic pricing, whereas remaining vendors rely on manual price setting. However, policymakers have raised concerns about anti-competitive tacit collusion between humans and AI that could allow firms to soften competition. Therefore, we empirically investigate outcomes that arise when humans and AI repeatedly interact in digital market environments. Based on an economic laboratory experiment in near real-time, we compare the degree of tacit collusion among humans and reinforcement learning algorithms to market settings where only humans or only algorithms compete. Preliminary findings demonstrate that tacit collusion emerges between humans and AI, although at lower levels than in settings with only humans or only algorithms. Altogether, our study sheds light on competition in dig- ital markets where AI plays an increasingly important role and thus bears timely policy and managerial implications.

Keywords: Artificial Intelligence, Algorithmic Pricing, Human-Computer Interaction, Algorithmic Collusion, Reinforcement Learning, IT Policy, AI Regulation, Economics of IS

Suggested Citation

Schauer, Andreas and Schnurr, Daniel, Competition between Human and Artificial Intelligence in Digital Markets: An Experimental Analysis (June 17, 2022). Available at SSRN: https://ssrn.com/abstract=4139527 or http://dx.doi.org/10.2139/ssrn.4139527

Andreas Schauer (Contact Author)

University of Regensburg ( email )

93040 Regensburg
D-93040 Regensburg, 93053
Germany

Daniel Schnurr

University of Regensburg ( email )

Bajuwarenstrasse 4
Regensburg, 93040
Germany

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