No need for conspiracy: Self-organized cartel formation in a modified trust game

TL;DR

This paper studies how spontaneous cartel-like behavior emerges in a modified trust game where sellers adapt their pricing strategies, leading to unpredictable fluctuations without explicit collusion.

Contribution

It introduces a model showing how cartel formation can arise spontaneously from individual payoff maximization in a trust game.

Findings

Emergent cartel organization occurs above a critical update rate.

Cartel formation is not due to explicit collusion but arises spontaneously.

The dynamics exhibit large fluctuations and unpredictability.

Abstract

We investigate the dynamics of a trust game on a mixed population where individuals with the role of buyers are forced to play against a predetermined number of sellers, whom they choose dynamically. Agents with the role of sellers are also allowed to adapt the level of value for money of their products, based on payoff. The dynamics undergoes a transition at a specific value of the strategy update rate, above which an emergent cartel organization is observed, where sellers have similar values of below optimal value for money. This cartel organization is not due to an explicit collusion among agents; instead it arises spontaneously from the maximization of the individual payoffs. This dynamics is marked by large fluctuations and a high degree of unpredictability for most of the parameter space, and serves as a plausible qualitative explanation for observed elevated levels and fluctuations of certain commodity prices.