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The gas station scenario has a lot of similarities with the iterated prisoner's dilemma game; "defecting" here means lowering the price. The rational strategy i
by codeflo 9y ago
The gas station scenario has a lot of similarities with the iterated prisoner's dilemma game; "defecting" here means lowering the price. The rational strategy is for the owners to cooperate (and retaliate if someone defects). In that case, the effects of price collusion can happen even without any actual collusion.
In reality, human beings rarely implement a strategy that's game theoretically optimal, but algorithms might.
- colechristensen 9y agoWith algorithms you can "actually" collude without humans conspiring with one another. If pricing is public humans (or algorithms) can reverse engineer competitors using the public pricing data, the communication channel for that collusion _is_ the pricing data. Multiple parties doing the equivalent of prisoners' dilemma cooperating independently and secret from each other by reverse engineering each others pricing algorithm is exactly the same as colluding in a smoke filled room.