Browsing by Subject "Kollusion"

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Consumer prices : effects of learning algorithms and pandemic-related policy measures
(2023) Buchali, Katrin; Schwalbe, Ulrich
When it comes to product prices, two major topics have dominated the public debate in recent years: One is pricing with the help of artificial intelligence, and the other is the price level, which has risen more than usual with the onset of the COVID-19 pandemic. Higher prices create a loss of consumer surplus and possibly total welfare, which is the reason this topic has become ubiquitous in political discussions. This dissertation contributes to the debate by extending the existing literature on algorithmic pricing, which is said to facilitate personalized pricing, as well as collusive behavior and to enhance the general understanding of how government measures enforced during the COVID-19 pandemic contributed to (short-time) price developments. Thereby, the first part of the thesis addresses the concern that tacit collusion might occur if firms employ learning algorithms, as several simulation studies have demonstrated that algorithms using reinforcement learning are able to coordinate their pricing behavior and, as a result, achieve a collusive outcome without having been programmed for it. We discuss several conceptual challenges as well as challenges in the real-world application of algorithms and show by or own simulations that resulting market prices strongly depend on the type of algorithm or heuristic that is used by the firms to set prices. In the subsequent part of the thesis we examine how a self-learning pricing algorithm performs when faced with inequity-averse consumers. From our simulations we can conclude that consumers sense of fairness, which have prevented firms from engaging in price discrimination in the past years, can be incorporated into firms pricing decisions with the help of learning algorithms, making differential pricing strategies more feasible. The discussion surrounding the above-average price levels in many countries during the COVID-19 pandemic is extended in the third part of the thesis. We present empirical evidence for the impact of government-imposed restrictions and, as a consequence of their enforcement, reduced mobility on consumer prices during the COVID-19 pandemic. We show that the stringency of government measures had a positive and significant impact on consumer prices mainly in the food sector, which means that more stringent measures induced higher consumer prices in these categories.