Algorithmic Collusion in the Skies: The Role of AI in Shaping Airline Competition

Abstract

Since the mid-2010s, U.S. airlines have implemented and expanded the use of artificial intelligence (AI) in a variety of capacities. Given the industry's oligopolistic market structure dominated by a few major carriers, AI-driven pricing algorithms may raise antitrust concerns due to their potential to facilitate coordinated pricing and tacit collusion. This paper reviews recent developments in the economic literature on these issues and examines the mechanisms through which AI-driven pricing algorithms may enable coordinated pricing among airlines. It also surveys existing experimental and empirical evidence on the competitive effects of AI adoption and explores the regulatory challenges posed by algorithmic coordination in the airline industry. The paper concludes with policy recommendations to mitigate potential anticompetitive risks. 

Keywords: Artificial intelligence, Pricing algorithms, Oligopolistic markets, Coordinated pricing, Antitrust

JEL Classification: L41, L13, D43, L40, L50, O33