In a recent discussion with Senator Amy Klobuchar, a distinguished Democrat from Minnesota, I explored her legislative initiative known as the Preventing Algorithmic Collusion Act. It is essential for the public to grasp the concept of algorithmic collusion, as they may unwittingly become targets of this troubling trend.
Algorithmic collusion occurs when businesses unlawfully coordinate to increase prices by utilizing algorithms through which they provide their proprietary data. In contrast to traditional collusion, which typically involves explicit agreements among competitors, this modern iteration operates without any direct or even tacit arrangements. Each participating entity has its individual contract with the algorithm provider, who leverages the aggregated data to formulate pricing strategies that benefit all parties involved at the expense of consumers.
This concerning issue came to the forefront this month following Vice President Kamala Harris’s commitment to address the practices of “corporate landlords” utilizing price-setting software to unjustifiably elevate rents. Also, the recent lawsuit filed by the Justice Department against RealPage, a company accused of enabling landlords to artificially inflate rental costs through an AI-powered algorithm, exemplifies the risks associated with such technology. The allegations highlighted that the company promoted its tools as mechanisms to seize every opportunity to escalate prices.
Senator Klobuchar originally proposed her bill in February, expressing apprehension that algorithmic pricing could permeate various sectors of the economy, thereby affecting an increasing number of businesses. She pointed out the Justice Department’s previous legal action against Agri Stats, which reportedly facilitated anti-competitive information sharing among meat processors, as an early indicator of the potential ramifications of unchecked algorithms. Recent findings from The New York Times have revealed that MultiPlan, a data analytics organization, cooperated with major health insurers to minimize reimbursements for out-of-network services.
Klobuchar contended that these instances may be merely the beginning. As more companies opt for such price-setting solutions, the likelihood of price increases escalates, as competitors would be less inclined to undercut one another. “It is astonishing to consider what might transpire if further action is not taken against algorithmic price manipulation,” she remarked.
“Collusion in the era of artificial intelligence remains collusion,” Klobuchar asserted, emphasizing the fundamental nature of the issue. “The principle is quite elementary; companies are transmitting sensitive data via algorithms, similar to the practices of the past in clandestine environments.”
In conclusion, continued vigilance and legislative action are imperative to safeguard consumers against the potentially exploitative consequences of algorithmic collusion. As such practices become increasingly embedded in various industries, the work of policymakers like Senator Klobuchar is crucial in ensuring fair market conditions and protecting consumer interests.
Peter Coy is a journalist specializing in economics and business opinion pieces. He invites correspondence at [email protected].
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