On the collusion sustainability condition in dynamic pricing for perishable products with trigger strategies

As firms have come to utilise algorithms to set prices for goods and services, a growing concern has arisen that cartels may be more easily agreed upon and implemented, or that new forms of consulted action may occur that are not being captured by current competition laws. It is not desirable from the standpoint of consumer protection for the selling price of each firm to be set above the competitive price due to a cartel. In this study, we formulate a dynamic pricing model to clarify under what market conditions multiple firms in competition may engage in collusive behaviour. Collusion here refers to a situation in which each firm sets its price so that the total revenue of all firms is maximised. If one firm sets a price different from the collusive price to maximise its own revenue, all firms set competitive prices in the subsequent sales periods. Under the assumption that each firm adopts such a triggering strategy, we show that collusion is likely to persist in markets with the following: (i) the customer demand is larger than the supply offered by each firm, (ii) the characteristics of the products offered by the firms are similar, and (iii) there is no difference in the amount of inventory among firms.