🤖 AI Summary
This study investigates how different information disclosure policies—no disclosure, full disclosure, and capped review—implemented by a third-party intermediary affect firms’ Q-learning pricing behavior under stochastic demand, with implications for algorithmic collusion and regulation. Contrary to classical theory, the findings reveal that when firms exhibit high discount factors (i.e., greater patience), no disclosure facilitates collusion more readily than full disclosure. Moreover, the capped review mechanism generally enhances firm profits across most scenarios. These results challenge the conventional assumption that restricting information sharing inherently mitigates algorithmic collusion, underscoring the necessity for regulatory frameworks to account for the learning dynamics and temporal preferences inherent in adaptive pricing algorithms.
📝 Abstract
As firms increasingly adopt AI-powered pricing algorithms, a key and urgent policy concern is how to regulate the potential algorithmic collusion. This paper approaches the regulatory question through the lens of information design and examines how different disclosure rules, committed to by a third-party intermediary, shape learning outcomes when firms delegate pricing to Q-learning algorithms under stochastic demand. We analyze three disclosure rules: no disclosure, full disclosure, and upper censorship. Upper censorship, which truthfully reveals low-demand states while pooling high-demand ones, delivers higher profits than full disclosure, consistent with theoretical predictions. However, we uncover a profit reversal: when the discount factor is high, no disclosure yields higher profits than full disclosure, whereas when the discount factor is low, full disclosure performs better. This pattern is exactly the opposite of what classical collusion theory predicts. Overall, these findings show that Q-learning agents respond systematically to the information structure and further suggest that restricting information sharing may backfire when algorithms are sufficiently patient, highlighting the need to reassess regulatory approaches in AI-mediated markets.