Dynamic Pricing by Software Agents

Jeffrey O. Kephart, James E. Hanson, and Amy R. Greenwald

Abstract

We envision a future in which the global economy and the Internet will merge and evolve together into an information economy bustling with billions of economically motivated software agents that exchange information goods and services with humans and other agents. Economic software agents will differ in important ways from their human counterparts, and these differences may have significant beneficial or harmful effects upon the global economy. It is therefore important to consider the economic incentives and behaviors of economic software agents, and to use every available means to anticipate their collective interactions. We survey research conducted by the Information Economies group at IBM Research aimed at understanding collective interactions among agents that dynamically price information goods or services. In particular, we study the potential impact of widespread shopbot usage on prices, the price dynamics that may ensue from various mixtures of automated pricing agents (or ``pricebots''), the potential use of machine learning algorithms to improve profits, and more generally the interplay among learning, optimization, and dynamics in agent-based information economies. These studies illustrate both beneficial and harmful collective behaviors that can arise in such systems, suggest possible cures for some of the undesired phenomena, and raise fundamental theoretical issues, particularly in the realms of multi-agent learning and dynamic optimization.