Imperfect information, algorithmic price discrimination, and collusion*

We analyze the ability of firms to sustain collusion in a setting which horizontally differentiated can price discriminate based on private information. Firms receive private, noisy signals regarding customers’ preferences. find that there is non-monotonic relationship between signal quality and sustainability collusion. Starting from low level, an increase precision first facilitates There is, however, threshold beyond any further renders less sustainable. Our analysis provides important insights for competition policy, particularly light firms’ growing reliance increasingly sophisticated computer algorithms consumer data make pricing decisions. In contrast previous findings, our results reveal ban discrimination help prevent collusive behavior as long are sufficiently noisy.