Misspecified Explore-then-Exploit Leads to Supra-Competitive Prices

ArXi:2605.16064v1 Announce Type: cross We study whether simple algorithmic pricing systems can systematically produce collusive-like prices in multi-firm markets. We consider firms using an explore-then-exploit pipeline: they randomize prices during an initial exploration phase, then estimate demand from their own historical data and set prices myopically thereafter. The estimation step relies on a misspecified, monopoly-style model that omits competitors' prices.