If you shop online, there’s a good chance the price you pay for stuff is determined by a computer algorithm, reported the Wall Street Journal. As of 2015, over one third of the 1,600 best-selling items sold on Amazon came from sellers who used algorithms to set their price.
Emilio Calvano, an economist at the University of Bologna in Italy, has been studying the economic effects of algorithms. In 2016, he hopped on a scooter with his colleague Giacomo Calzolari and scooted across the historic city to their university’s computer science department.
To prove that the algorithms were colluding and not just randomly landing, in unison, on inflated prices, the researchers forced one algorithm in each simulation to cut its price. The algorithms then engaged in a price war, but eventually returned together to higher prices.
The study, published in December by the Centre for Economic Policy Research, is an important advance in the literature on pricing algorithms, says Joseph Harrington, a professor of business economics and public policy at the University of Pennsylvania’s Wharton School.
“It was a study I was hoping to see,” he says. “This work is the first step toward establishing that algorithms can collude in reasonably complex environments.”
The Wall Street Journal concluded that the researchers are aware of such concerns and are currently at work on a paper that seeks to address policy issues associated with algorithmic collusion.
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