For the sake of a more informed discussion, here is a copy of the actual paper:<p><a href="https://a.qoid.us/SSRN-id3310310.pdf" rel="nofollow">https://a.qoid.us/SSRN-id3310310.pdf</a><p>(Couldn’t find it on Sci-Hub, so I paid $5 for it.)<p>Edit: in particular, it addresses a question I had after seeing the original article and graph… or tries to:<p>> On the face of it, one may wonder whether the algorithms are effectively punishing the deviation, or whether instead the price cuts simply serve to regain market share. Looking only at the non-deviating firm’s behavior, in fact, it is hard to tell these alternative explanations apart. But if you focus on the behavior of the deviating firm, the difference becomes perfectly clear. Given that in the deviation period (i.e., period τ = 1) the rival has stuck to its old price, in period τ = 2 the deviating algorithm, which meanwhile has regained control of the pricing, has no reason to cut its price endogenously unless it is taking part in the punishment itself. If its only concern were to maintain its market share, the deviating algorithm would cut its price only in period τ = 3, i.e. after observing the rival’s price reduction in period τ = 2. Actually, however, in period τ = 2 the deviating algorithm prices almost exactly the same as the other. This clearly shows that the deviating algorithm is responding not only to its rival’s but also to its own action. Such self-reactive behavior is often crucial to achieve genuine collusion, and it would be difficult to rationalize otherwise.<p>The problem with this explanation is that the “AI” algorithm they’re using is ridiculously simple. They talk about its input being “the set of all past prices in the last k periods”… and then, for their main experiment, they <i>set k to 1</i>! So unless I’m misunderstanding something, the input at each round literally consists of both players’ chosen prices from the immediately previous round; the algorithm has no memory beyond that. So all it knows is that its price is lower than its competitor’s; how is it in any way surprising that it would decide to increase the price for the next round?<p>And yes, I mean increase – the authors seem to claim it “cut its price endogenously”, but on the graph, the price clearly increases at τ = 2 compared to τ = 1. It does keep its price “cut” compared to two rounds ago, before the intervention, but again that’s not surprising since it only has memory of the last round.<p>Am I missing something?