Emergent Effective Collusion in an Economy of Perfectly Rational Competitors

TL;DR

This paper reveals that perfectly rational competitors in a simple market model tend to synchronize their production, leading to collusion-like outcomes, which contrasts with traditional economic theory predictions.

Contribution

It demonstrates that rational agents can spontaneously synchronize and collude without explicit collusion, challenging standard assumptions in economic models.

Findings

Agents' production levels synchronize without collusion

Market converges to monopoly price due to synchronization

Randomness breaks the emergent collusion

Abstract

We consider a simple model of rational agents competing in a single product market described by simple linear demand curve. Contrary to accepted economic theory, the agents' production levels synchronise in the absence of conscious collusion, leading to a downward spiraling of market total production until the monopoly price level is realised. This is in stark contrast to the standard predictions of an ideal rational competitive market. Some form of randomness in the form of agent irrationality, or non-synchronous updates is needed to break this emergent "collusion"