Episode Details

Suppose every business provides its AI with the same instruction: maximize our long-run profits, but obey the law.

The AI estimates demand, studies customer behavior, learns how competitors respond, and gradually discovers that some forms of aggressive competition are not very profitable.

A price cut may trigger another price cut. A promotion may trigger a competing promotion. Attempts to steal customers may provoke retaliation.

Eventually, each firm’s AI may independently decide to compete less aggressively.

But there is no agreement. The AIs never communicate. Nobody fixes a price.

In Episode 6 of How Cartels Really Work, we look at why this problem predates artificial intelligence. U.S. cartel law has long distinguished unlawful agreements from lawful interdependence among firms that independently recognize how competitors are likely to respond.

AI may not change that legal rule.

What AI could change is how cheaply, quickly, and accurately firms learn to maximize profits.

The result raises a provocative question: what happens if AI makes firms much better at producing less aggressive competition without ever forming a cartel?

Read the full article and graphic analysis: https://blog.econworks.com/p/cartels-episode-6-what-happens-when?r=562wri

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