Competition Corner: AI & The Future of Competition

Issue #41

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."

Over half a century has passed since Friedrich Hayek’s famous words from his Nobel Prize acceptance speech. Hayek understood that competitive markets arise from an organic process and not from the diktats of technocrats. Attempts by enforcers or “regulators” to design an ideal market are doomed to harm consumers, destroy dynamism and innovation, degrade economic welfare, and harm the competitive process.

It follows that the goal of antitrust enforcers is not to “regulate competition.” Rather, it is that of a “cop on the beat”: to investigate, prosecute and punish conduct that harms the competitive process, and thus consumers. Only then can entrepreneurs be free to vigorously compete and innovate to best serve consumers.

Google Remedies

We’d hope then that the federal court doesn’t follow the DOJ’s request to break-up Google in response to a decision (pending appeal) that it engaged in anticompetitive conduct through paying web browsers to make it the default search engine. Though these contracts were deemed to prevent rival search engines from reaching efficient scale necessary to compete with Google, they also served as a key revenue source for funding the development of independent browsers like Mozilla Firefox. Eliminating them could reduce competition in an adjacent high-tech market, as we’ve noted elsewhere.

I have previously argued that Judge Mehta’s decision in Google Search is flawed in that it misapplies the causation standard for similar cases established in Microsoft, thereby censuring potentially pro-competitive business arrangements. Moreover, blocking such agreements may not lead to Google’s competitors being able to create a superior product.

Regardless, even if the agreements are anticompetitive, breaking up Google would destroy the value of a product and integrated ecosystem of services that the federal court (and even President Trump) concede to be preferred by consumers. Remedies ought to be narrowly tailored to prevent specific forms of anticompetitive conduct, not proscriptions for restructuring markets. For an in-depth analysis of the remedies in Google Search, check out Alden’s column for Forbes.

Technocracy vs AI: Algorithms, Drug Prices & More

Although human intelligence is unlikely to ever design a system as effective as the invisible hand of the competitive market, artificial intelligence can certainly foster those markets, providing ample reason to be optimistic about the future of competition. Over the past month, Mercatus competition project scholars have highlighted the many ways that this is already being achieved.

Mercatus MA fellow Cody Taylor’s recent brief on algorithmic pricing, including that which is facilitated by AI, notes how these tools aid both consumers and businesses by helping to efficiently meet the demands of different market segments while fostering vigorous price competition. Though the same tools can also be used to facilitate anticompetitive conduct (such as price fixing and collusion), the context that enables such conduct plays a far greater role than the algorithmic tool itself. Enforcers and antitrust policymakers should ensure that efforts to curb collusive behavior, whether facilitated by algorithmic tools or not, do not preclude the innovative and procompetitive use of these tools to better calibrate markets and meet consumer demand.

Developments in AI may also prove helpful in promoting faster and lower cost new drug development, which eventually could translate into lower drug prices, as Alden Abbott argues in another recent Forbes column. Although the Trump administration’s recent executive order on lowering drug prices faces significant legal and pragmatic issues despite its good intentions, the administration’s commitments to reduce barriers to private sector use of AI are welcome in this regard. So too is the administration’s call to eliminate anticompetitive regulations, which provides great impetus for reforming and streamlining the FDA’s complex and expensive drug approval process to lower the costs of bringing cures to market.

Conversely, legislative efforts to “lower drug prices” by preventing Pharmaceutical Benefit Managers (PBMs) from effectively negotiating prices with drugmakers and pharmacies on behalf of health plans are likely to raise prices and insurance premiums while lining the pockets of vested interests. Check out my recent appearance on the Jeff Kennedy show where I discuss further.

Tariffs & Trade Talks

Have you heard of Schrodinger’s 401K? That’s what mine feels like right now. Tariff uncertainty remains in the air and I’m afraid to look.

Alden recently analyzed the cloudy legal and policy outlook for Trump’s tariffs, with a May 28 lower court ruling that struck them set for appellate review (and likely eventual Supreme Court challenge). This writer is old enough to remember when conservatives baulked at the thought of the executive branch using claims about emergency powers to bypass Congress to enact major reforms. But then again, I’m also old enough to remember when Taylor Swift sang about love stories more often than she did breakups.

As dirty a word as tariffs is in these parts, trade talks are certainly welcome. And ongoing US-China trade negotiations that are focused on scrapping anticompetitive market distortions could be a win-win for both countries. Check out Alden’s column for more.

That’s all for now, see you in mid-June. And as always, feel free to send me thoughts, comments and roasty banter.

Satya Marar
Visiting Postgraduate Fellow
Mercatus Center at George Mason University