Gas station owners have found a use case for AI, lawsuit says: colluding to fix prices

Gas station operators in California have been accused of using AI-powered software to collude and drive up prices at the pump, according to a federal lawsuit filed Monday. The proposed class action lawsuit alleges that gas station giants, including Marathon and Circle K, violated California's antitrust law by using Kalibrate, a fuel-pricing software system used across the world.

Background & Context

California already has some of the highest gas prices in the nation, and prices have surged globally since the start of the Iran war. The situation has sparked concerns about the impact of algorithmic pricing on consumers and the economy.

The lawsuit is the latest in a series of cases accusing software companies of contributing to the rising cost of living in the US. In the past year, the Department of Justice has settled lawsuits against RealPage, which was accused of helping landlords drive up rent prices, and Agri Stats, a data-sharing company accused of helping the meatpacking industry inflate grocery prices.

Key Details

The lawsuit describes Kalibrate as the "central nervous system for a conspiracy to extinguish retail price competition among gas stations." According to the lawsuit, Kalibrate helps "coordinate high prices" and even discourages its users from pricing their gas lower than competitors, saying that doing so would trigger a "downward spiral." The software promises that if gas stations surrender their pricing decisions and competitively sensitive cost and volume data to Kalibrate, the software will enable them to avoid competing with other area stations and to charge higher prices to consumers.

Research into algorithmic fuel-pricing software found average price increases of about 6 cents per gallon, rising to as much as 30 cents per gallon in markets where many stations use the technology. The lawsuit accuses Kalibrate of facilitating cartel-like collusion, using AI instead of secret deals "over cigars in a smoky back room." The "restoration" tool, which helps "nearly all gas stations in an area raise their prices contemporaneously and by a large amount," is cited as an example of the software's ability to drive up prices.

What Experts Say

Concerns about algorithmic pricing prompted Democratic California Gov. Gavin Newsom to sign a bill last year stating that state antitrust law applies to pricing algorithms. This move has helped pave the way for lawsuits like the one filed this week. As technology advances, the mechanisms available to competitors to fix prices without being detected also evolve.

Key Takeaways

• The lawsuit accuses gas station giants of using AI-powered software to collude and drive up prices at the pump.
• The software, Kalibrate, helps "coordinate high prices" and discourages its users from pricing their gas lower than competitors.
• Research found average price increases of about 6 cents per gallon, rising to as much as 30 cents per gallon in markets where many stations use the technology.
• The lawsuit is the latest in a series of cases accusing software companies of contributing to the rising cost of living in the US.

What This Means For You

For everyday Californians, this lawsuit highlights the impact of algorithmic pricing on the cost of living. With prices already high in the state, the use of AI-powered software to drive up prices could have significant consequences for consumers. As technology continues to advance, it's essential to monitor the use of pricing algorithms and ensure they're not contributing to rising costs.

The lawsuit serves as a reminder that the use of AI in business can have far-reaching consequences, both positive and negative. As we continue to rely on technology to make decisions, it's crucial to consider the potential impact on consumers and the economy as a whole.