At a Judiciary Committee hearing on December 13, senators critically dissected the potential extensions of anti-competitive conduct spurred by businesses sharing artificially intelligent algorithms. Amy Klobuchar, Chair of the aforementioned committee, cautioned against the risks associated with delegating independent pricing decisions to an algorithm, stating that it can potentially become a pretext for a covert cartel. Whereas, Sen. Mike Lee alluded to the intricacies of employing such algorithms, pointing out the relevance of finer details in determining whether they foster or impede competition. Read more about the hearing here.
Bill Baer from the Brookings Institution, who also headed the Department of Justice’s Antitrust Division during Obama’s administration, apprised the committee of two primary scenarios where algorithms can distort competition. The first scenario pertains to competitors agreeing to employ specific pricing algorithms — cases of these “competitor-to-competitor” agreements have been prosecuted by the Antitrust Division over the past decade, such as this case, where felony pleas were obtained in an international conspiracy to fix poster prices online.
The second scenario is more nuanced; it arises when companies utilize a common vendor to gather supply and demand data and provide recommendations on pricing or output behaviors, thereby facilitating price coordination. Baer links this to hub-and-spoke conspiracies, where a firm facilitates and partakes in an unlawful agreement between horizontal firms, frequently by serving as a communication medium for competitive signals and informational exchange. Noteworthy cases involving FTC and DOJ actions against this type of conduct include successful litigations against Toys “R” Us and Apple Inc.
However, Klobuchar, Lee, and Baer acknowledged a gray zone concerning the applicability of antitrust law in the second scenario, as it may not necessarily qualify as an “agreement” between independent economic actors under Section 1 of the Sherman Antitrust Act.
The distinction between independent and coordinated behavior affects this mapping onto antitrust law considerably — concerted behavior is subject to stricter regulation than independent behavior, as has long been recognized by the US Supreme Court in cases like this. The importance of evidence establishing a “conscious commitment to a common scheme designed to achieve an unlawful objective” has been underscored in federal court rulings including this one.
Baer’s closing remarks raised a concern about AI contributing to easier implementation and decreased detection of coordinated action, through the development of “comparable” code. Successful conspirators, leveraging AI, will have to navigate an antitrust cartel theory that presents three obstacles: agreeing on terms, ensuring adherence to the agreement, and punishing any agreement breaches. Such conspiracies, far from remaining ephemeral, potentially jeopardize business ethics and market integrity. As AI becomes more prevalent, the path to identify such illegal conduct may become increasingly obscured.
For more context, view the entire analysis written by Henry Hauser, an antitrust counsel at Perkins Coie and former antitrust enforcer with the Department of Justice and Federal Trade Commission here.