Vertical tacit collusion in AI-mediated markets

TL;DR

This paper uncovers a new form of market failure called vertical tacit collusion, where AI shopping agents exploit biases to harm consumers, highlighting regulatory challenges as AI retail tools become widespread.

Contribution

It introduces the concept of vertical tacit collusion in AI-mediated markets and demonstrates its potential for significant consumer harm through simulation calibrated to real AI biases.

Findings

Vertical tacit collusion causes more than double the consumer harm of independent strategies.

It arises without coordination, evading traditional antitrust detection.

The study highlights an urgent regulatory gap as AI shopping agents become mainstream.

Abstract

AI shopping agents are being deployed to hundreds of millions of consumers, creating a new intermediary between platforms, sellers, and buyers. We identify a novel market failure: vertical tacit collusion, where platforms controlling rankings and sellers controlling product descriptions independently learn to exploit documented AI cognitive biases. Using multi-agent simulation calibrated to empirical measurements of large language model biases, we show that joint exploitation produces consumer harm more than double what would occur if strategies were independent. This super-additive harm arises because platform ranking determines which products occupy bias-triggering positions while seller manipulation determines conversion rates. Unlike horizontal algorithmic collusion, vertical tacit collusion requires no coordination and evades antitrust detection because harm emerges from aligned incentives rather than agreement. Our findings identify an urgent regulatory gap as AI shopping agents reach mainstream adoption.