Collusion

Most warnings about algorithmic collusion tell the same story: sellers using AI to set prices end up coordinating—without explicit communication—to keep prices higher than competition would allow. This is what regulators fear: supra-competitive prices, reduced consumer welfare, and harder-to-detect anti-competitive behavior. A new study, however, flips the narrative on its head. By analyzing multi-dimensional decision-making—where reinforcement learning (RL) agents set both prices and advertising bids on a platform like Amazon—the authors uncover a surprising outcome: in markets with high consumer search costs, algorithmic “collusion” can lower prices below competitive benchmarks. ...

As large language models (LLMs) evolve from passive tools into autonomous market participants, a critical question emerges: can they secretly coordinate in ways that harm fair competition? A recent paper titled Evaluating LLM Agent Collusion in Double Auctions explores this unsettling frontier, and its findings deserve attention from both AI developers and policy makers. The study simulates a continuous double auction (CDA), where multiple buyer and seller agents submit bids and asks in real-time. Each agent is an LLM-powered negotiator, operating on behalf of a hypothetical industrial firm. Sellers value each item at $80, buyers at $100, and trades execute when bids meet asks. The fair equilibrium price should hover around $90. ...