{"paper":{"title":"Misspecified Explore-then-Exploit Leads to Supra-Competitive Prices","license":"http://creativecommons.org/licenses/by/4.0/","headline":"Firms using explore-then-exploit pricing with misspecified demand models converge to prices above the Nash equilibrium.","cross_cats":["cs.AI","econ.TH"],"primary_cat":"cs.GT","authors_text":"Farrell Wu, Jackie Baek, Vivek F. Farias","submitted_at":"2026-05-15T15:29:23Z","abstract_excerpt":"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. We characterize when this pipeline converges to supra-competitive prices above the Nash equilibrium, via a fluid-limit ordinary differential equation analysis. We show th"},"claims":{"count":4,"items":[{"kind":"strongest_claim","text":"The explore-then-exploit pipeline converges to supra-competitive prices above the Nash equilibrium when firms explore within similar price ranges on the same side of the Nash price; prices can reach monopoly levels under symmetric exploration.","source":"verdict.strongest_claim","status":"machine_extracted","claim_id":"C1","attestation":"unclaimed"},{"kind":"weakest_assumption","text":"That the demand estimation step uses a misspecified monopoly-style model that omits competitors' prices and that exploration occurs within similar ranges on the same side of the Nash price.","source":"verdict.weakest_assumption","status":"machine_extracted","claim_id":"C2","attestation":"unclaimed"},{"kind":"one_line_summary","text":"Misspecified explore-then-exploit pricing with monopoly-style demand estimation leads to supra-competitive prices when firms explore similar price ranges on the same side of the Nash price.","source":"verdict.one_line_summary","status":"machine_extracted","claim_id":"C3","attestation":"unclaimed"},{"kind":"headline","text":"Firms using explore-then-exploit pricing with misspecified demand models converge to prices above the Nash equilibrium.","source":"verdict.pith_extraction.headline","status":"machine_extracted","claim_id":"C4","attestation":"unclaimed"}],"snapshot_sha256":"482b7a5205eb24b80182584cf263980dee259c25f2041ecc7e2a63cea45fb766"},"source":{"id":"2605.16064","kind":"arxiv","version":1},"verdict":{"id":"af73a398-b80e-4651-a599-9d8ca8d26861","model_set":{"reader":"grok-4.3"},"created_at":"2026-05-19T18:01:19.182846Z","strongest_claim":"The explore-then-exploit pipeline converges to supra-competitive prices above the Nash equilibrium when firms explore within similar price ranges on the same side of the Nash price; prices can reach monopoly levels under symmetric exploration.","one_line_summary":"Misspecified explore-then-exploit pricing with monopoly-style demand estimation leads to supra-competitive prices when firms explore similar price ranges on the same side of the Nash price.","pipeline_version":"pith-pipeline@v0.9.0","weakest_assumption":"That the demand estimation step uses a misspecified monopoly-style model that omits competitors' prices and that exploration occurs within similar ranges on the same side of the Nash price.","pith_extraction_headline":"Firms using explore-then-exploit pricing with misspecified demand models converge to prices above the Nash equilibrium."},"integrity":{"clean":true,"summary":{"advisory":0,"critical":0,"by_detector":{},"informational":0},"endpoint":"/pith/2605.16064/integrity.json","findings":[],"available":true,"detectors_run":[{"name":"doi_title_agreement","ran_at":"2026-05-19T18:31:18.753263Z","status":"completed","version":"1.0.0","findings_count":0},{"name":"doi_compliance","ran_at":"2026-05-19T18:10:13.053252Z","status":"completed","version":"1.0.0","findings_count":0},{"name":"ai_meta_artifact","ran_at":"2026-05-19T17:33:41.547325Z","status":"skipped","version":"1.0.0","findings_count":0},{"name":"claim_evidence","ran_at":"2026-05-19T16:41:55.518378Z","status":"completed","version":"1.0.0","findings_count":0}],"snapshot_sha256":"5aeb1c06e00794b14862e558dcd4ec4cb2dc44e57e9363f6ef68925692036de1"},"references":{"count":31,"sample":[{"doi":"","year":2023,"title":"I. Abada and X. Lambin. Artificial intelligence: Can seemingly collusive outcomes be avoided? Management Science, 69 0 (9): 0 5042--5065, 2023","work_id":"84ad780e-1085-48f5-8d28-e9ab91c09a2c","ref_index":1,"cited_arxiv_id":"","is_internal_anchor":false},{"doi":"","year":2024,"title":"I. Abada, X. Lambin, and N. Tchakarov. Collusion by mistake: Does algorithmic sophistication drive supra-competitive profits? European Journal of Operational Research, 318 0 (3): 0 927--953, 2024","work_id":"08da7e31-b218-4480-a4bf-ff14ca73a089","ref_index":2,"cited_arxiv_id":"","is_internal_anchor":false},{"doi":"","year":2021,"title":"A. Aouad and A. V. den Boer. Algorithmic collusion in assortment games. Available at SSRN 3930364 , 2021","work_id":"4f8980ac-3670-499e-a3cc-ce74c1cab639","ref_index":3,"cited_arxiv_id":"","is_internal_anchor":false},{"doi":"","year":2024,"title":"E. R. Arunachaleswaran, N. Collina, S. Kannan, A. Roth, and J. Ziani. Algorithmic collusion without threats. arXiv preprint arXiv :2409.03956 , 2024","work_id":"dff9a443-2102-4039-b170-e20f845dc9f4","ref_index":4,"cited_arxiv_id":"","is_internal_anchor":false},{"doi":"","year":2022,"title":"J. Asker, C. Fershtman, and A. Pakes. Artificial intelligence, algorithm design, and pricing. AEA Papers and Proceedings , 112: 0 452--456, 2022","work_id":"6ddcd172-42ac-47df-92a4-a86a24905aee","ref_index":5,"cited_arxiv_id":"","is_internal_anchor":false}],"resolved_work":31,"snapshot_sha256":"ec650d265a75411e4777a6d29ad65ccec5ef36124a8f5310a530eceb644e6a2b","internal_anchors":0},"formal_canon":{"evidence_count":1,"snapshot_sha256":"8a84cb9c0059bea5ed79d0eb2d4957c23834a195d737e1c2b9e4193cfd4c8ee1"},"author_claims":{"count":0,"strong_count":0,"snapshot_sha256":"258153158e38e3291e3d48162225fcdb2d5a3ed65a07baac614ab91432fd4f57"},"builder_version":"pith-number-builder-2026-05-17-v1"}