Antitrust 101: Tacit Collusion

Since everyone here seems to misunderstand how collusion works: Monitoring your competitor‘s prices to undercut them is the opposite of collusion - that‘s how competition is supposed to work, everyone trying to give the better price!

It is similar to a prisoner‘s dilemma, with a Nash equilibrium at consumer-friendly prices. Tacit collusion, on the other hand, makes use of the iterated nature of the "game“, and utilizes a tit-for-tat strategy: If you undercut me, I‘ll set prices even lower at uneconomical levels for some time, to punish you for it. If you take the hint and set a high price, I‘ll reward you by matching it and we both rake in that sweet margin.

Of course, a real-world tacit collusion strategy is more complex, and algorithmic pricing certainly helps with implementing it - especially as it makes it easier to commit to a strategy ahead of time, which is very useful from a game theoretic standpoint.

> Whether tacit collusion—where firms effectively behave as though they are colluding without any direct communication expressing agreement

Basically the Nash equilibrium.

IMO, tacit collusion is the underlying scheme by which we communicate (transfer meaning between people)

tl;dr: algorithmic pricing may provide a covert collusion channel, unaddressed by existing law.