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Does AI Have a Dark Side When it Comes to Competition?

 |  August 26, 2021

By: James Mancini (OECD On The Level)

Artificial intelligence has the potential to reshape how decisions are made in markets. This can mean significant benefits for consumers in the form of new products, lower prices from more efficient business processes, and even assistance in making complex purchasing decisions. However, in reshaping market dynamics, AI could also seriously dampen competition in ways that may not be easily addressed using existing competition enforcement tools.

Imagine a market where AI is given free rein by human managers to set prices and make other product decisions using a rich set of market data. Sophisticated AI applications may, depending on the objective they are given, decide that collusion with competitors is an optimal outcome (for example, in order to maximise a future stream of profits). Thus, price wars and aggressive competition by risk-taking human managers may be replaced by stable and high prices as well as poor quality products. To reach such an outcome, different firms’ AI may use signalling strategies to indirectly communicate with one another, and thus jointly make decisions on prices or other variables. The risk of this outcome would be particularly high if firms used the same AI tool from a third-party provider, or if they had access to an identical flow of market data.

The potential for such an outcome has generated a great deal of speculation and concern. AI in this scenario would make collusion easier to implement, more durable, harder for competition authorities to detect, and potentially even fall outside the scope of competition laws…