P = NP: The only condition for competitive markets
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A recent study proves that competitive markets fundamentally depend on computational intractability, i.e., on P being different from NP. If P = NP, firms could efficiently detect deviations in cartel agreements, making collusion a stable equilibrium. However, if P ≠ NP, detecting collusion is computationally unfeasible, discrediting threats and ensuring the instability of such agreements, thus keeping the market competitive. This reveals a fundamental impossibility: markets can be efficient or competitive, but not both. Artificial intelligence, by expanding firms' computational capabilities, is pushing markets from the competitive regime to the collusive one, explaining the emergence of algorithmic collusion.
Why it matters: Artificial intelligence may be undermining market competition by facilitating collusion.
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