Are artificial intelligence algorithms shaping the prices you pay for goods and services? Is this the new frontier of market collusion?

It's a fascinating topic but also one with profound implications. In our rapidly evolving digital world, AI isn't just a tool for innovation and efficiency; it's also introducing new challenges, particularly in the realm of market pricing.

Understanding AI Price Fixing

What is AI Price Fixing?

AI price fixing refers to the use of artificial intelligence and algorithms to set and adjust prices. Unlike traditional price-fixing schemes, which require explicit collusion between competing companies, AI price fixing can occur without direct human intervention. This form of "algorithmic collusion" leverages data and machine learning to optimize pricing strategies, often resulting in uniform price hikes across a market.

How Does It Work?

Imagine a platform like RealPage that landlords use to set rental prices. The landlord inputs various data points—location, size, amenities, and demand—and the AI recommends a price. While this may seem harmless, the underlying algorithms are often trained on broad market data, which can include pricing information from competitors. When multiple landlords use the same or similar algorithms, the result is a rise in prices across the board, even though no direct agreement was ever made.

The Legal Landscape

Current Antitrust Laws

Antitrust laws are designed to prevent practices that restrict competition or lead to monopolies. Traditionally, price fixing involves secret meetings where rivals agree to set inflated prices. Such practices are illegal and can result in severe penalties, including up to 10 years in prison and fines of up to $100 million. However, these laws are based on the requirement of proving an explicit agreement.

Challenges with AI Price Fixing

Prosecuting algorithmic collusion under existing antitrust laws is challenging. Since AI price fixing doesn't require traditional agreements, proving intent or explicit collusion is difficult. For instance, even if multiple companies use different AI algorithms, these systems can independently learn to collude, further complicating legal enforcement.

RealPage and AI Pricing

The Role of RealPage

RealPage is a leading example of how AI is reshaping market pricing. The platform enables landlords to set rental prices based on a range of data inputs. While offering a sophisticated tool for optimizing rents, RealPage's algorithms can lead to unintended consequences, such as uniform price hikes.

Legal Scrutiny

Legal challenges have emerged against RealPage, highlighting the difficulties in prosecuting AI-driven collusion. Plaintiffs must provide clear evidence of an explicit agreement, which is nearly impossible with algorithmic pricing strategies. These cases underscore the need for updated antitrust laws to address the nuances of AI-based collusion.

Legislative Efforts and Local Government Actions

New Legislative Proposals

In response to the growing trend of algorithmic price-fixing, some legislators are pushing for updates to antitrust laws. Led by Senate Democrats, these efforts aim to close the loopholes that allow AI-driven collusion to evade current regulations. However, such bills face an uncertain future, making local government interventions crucial.

Example: San Francisco's Initiative

San Francisco has taken a proactive stance by passing an ordinance that bans software using non-public competitor data to set rents. This move could serve as a model for other regions grappling with similar issues. By focusing on local regulations, cities can mitigate the risks of AI price fixing, even as broader legislative efforts unfold.

Potential Consequences of Unchecked AI Price Fixing