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File Name | S22-Policy-Stoa-15-AFF-ShermanAct.docx |
File Size | 75.40 KB |
Date added | October 11, 2021 |
Category | Policy (Stoa) |
Author | Vance Trefethen |
Resolved: The United States federal government substantially reform the use of Artificial Intelligence technology
Case Summary: You may have heard of Gen. William T. Sherman, whose Union army burned down Atlanta during the Civil War. Gen. Sherman’s brother John Sherman had an illustrious political career, including service as a US Senator from Ohio. In 1890, Sen. Sherman started the process that led to legislation to correct one of the social injustices perceived at the time to be a growing problem in the US economy: Collusion replacing competition among suppliers in the marketplace. That legislation, which is still on the books and actively enforced by the Justice Department today, became known as the “Sherman Antitrust Act,” or simply the “Sherman Act.” It makes it a federal crime for suppliers to communicate with one another in any way that involves agreements to set prices for products they are selling. For example, imagine all the gas station owners in your town have a secret conference and agree on a “price fixing scheme” in which they will all charge $4/gallon for gasoline. Such an agreement to stop competing with each other might be enforced by agreeing further that if any station deviates from the fixed price, all the others will immediately drop theirs to 10c/gallon lower than the deviator’s price to punish the deviator, and raise it back to $4 whenever the deviator gets back on board. Such a collusive conspiracy would be illegal and punishable under the Sherman Act, and you can see why. Consumers in that town are having their pockets picked by the absence of competition in the gasoline market, and they are paying prices substantially higher than a competitive market would have allowed.
The Sherman Act, however, does not prohibit sellers from adjusting their prices in response to other sellers as long as they are not communicating nor colluding with the other sellers. For example, if one seller raises his prices, another seller might raise his to match, instead of keeping prices low to compete. As long as there was no agreement to do so, it’s perfectly legal.
Enter now the world of AI. More and more sellers are making use of AI to set prices dynamically. Times of day, seasons of year, local and global events, all can be taken into account. One AI program looked at another seller and noticed they had lowered their prices… and decided to raise its own prices. The manager thought the AI had gone bonkers until the manager realized that the lower price store had a line out the door and people were getting angry and walking away… to his store, which now had higher prices and was making more money than ever.
The problem arises when two or more sellers who control a substantial amount of a market both use AI to set prices. Experiments have shown that when this occurs, the “competing” AI’s will “learn” to adjust their prices in a way that exactly matches what would happen if the human sellers were on the phone collaborating with each other to set higher prices. And it happens without any communication at all, so it wouldn’t violate the Sherman Act. This plan closes this loophole and adds the protections of the Sherman Act to artificial intelligence pricing that artificially inflates prices even when no literal (communicated) collusion takes place.
Terminology:
“Monopoly” – a market where a single seller dominates, controlling the sales of most or all of a particular product. It’s considered a bad thing because the seller can raise prices higher than would be possible in a freely competitive market.
“Trust” – old-fashioned term for a combination of businesses that combine, collude, or coordinate as they attempt to gain monopoly power. “Antitrust” is the inverse; it’s the attempt by government to stop businesses from doing that.
“Oligopoly” – a market where there are only a few (but more than one) sellers, and they may be tempted to collude with each other to reduce competition and act like a monopoly.
“Cartel” – a group of suppliers who actively collude to avoid competing with each other so that they can set higher than market prices.