Photo/Illutration The Fair Trade Commission’s building in Tokyo’s Chiyoda Ward (Asahi Shimbun file photo)

Using artificial intelligence (AI) and algorithms to automatically set the prices for goods and services could violate Japan's Anti-Monopoly Law, according to a study group formed by the Fair Trade Commission.

The group of outside experts, led by Noriyuki Yanagawa, a professor at the University of Tokyo’s Graduate School of Economics, released a report into the matter on March 31 after meeting eight times over the past year.

The report cited cases where companies used a common algorithm to automatically set the prices on their goods or services--only to all end up with the same price tag in the end.

If the companies are aware that this is a possible outcome when they put their dynamic-pricing algorithms to use, it would constitute an illegal “price-fixing cartel” under the law, the report said.

The law requires authorities to establish “communication of will” among companies to charge them with operating a price-fixing cartel.

But in cases where they used AI-powered dynamic pricing, the FTC can conclude that there is an unspoken agreement between them, even when the companies do not directly communicate with each other, the study group said.

The report also cited cases where the AI software used by companies to adjust their prices had reacted to another company’s price increases by immediately following suit.

If the initial release of a company’s new price information is difficult for consumers to access and only shared among industry peers, authorities can conclude that they “share the will to increase prices,” the report said.

The group also pointed out that even when companies do not willfully conspire to increase their prices simultaneously, the algorithms used by each company may make decisions on their own and act in union.

Such a case has not been reported yet, but the group said the FTC “should pay close attention.”

The group also discussed AI-powered “personalized pricing,” in which companies tailor their prices to individual customers based on a profile of them.

Under this system, a firm with a large market share could show lower prices to people shopping at rival companies to stifle competition. A case like this would likely be considered “private monopolization,” which is a violation of the law, the group said.

Authorities must be able to analyze the source code and verify the data to investigate into a potential anticompetitive situation involving advanced technology like this. The report said the FTC should work with experts to ensure that they have employees that have developed adequate skills for investigating these type of cases.

Authorities in many other countries are already studying the practical implications of companies using AI and algorithms to quickly check competitors’ pricing and then decide whether to adjust their own prices.

The use of this kind of technology is expected to facilitate more competitive pricing. But experts warn it could make it easy for dominant firms to align and eliminate competitors.

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