(graph from https://aiindex.stanford.edu/report/)

We have treated before in this blog the opportunism of companies that piggy-back on inflation expectations to raise their prices or decrease the contents in their products. They argued that, because the price of potatoes may have risen following COVID, the price of potato chips should rise by an equal percentage. We note, however, that the actual raw materials in many products we buy represent only a small fraction of the price we pay. Instead, profit margins were expanded in an opportunistic effort to capitalize higher prices into higher profits. 

But that is only half the story. Supply side inflations, as measured by the producer price index, only translate into higher retail prices if consumers are ultimately willing to pay the higher prices. In reality, the question is whether consumers have a choice in the matter. 

You see, market structure also comes into play. A price gouging corporation can only raise prices if it does not much fear its competitors. The more monopolistic the sector or industry, the lesser is competition and the greater is corporate power to set prices. 

We have witnessed of late a dramatic shift toward such monopolization. The phenomenon is right under our noses, but its insidiousness is difficult to detect. 

As an example, 80% of the about five dozen most common grocery items are controlled by just four companies. Four retailers own two thirds of all grocery stores in the U.S. A handful of oil companies own almost all the gas stations. And, one company, Google, absolutely dominates our online searches. 

These companies have a great deal of pricing power because they in essence constitute monopolies by controlling large markets or by dominating local markets. They know their pricing power and they use it accordingly. If consumers feel poorer over the past few years, it is partly because of an increase in such monopolization. Technology is making things worse. 

As an example, you have probably noticed that, if you use Google to search for something such as a new transfer pump, as I recently did, subsequent news pages I visited had ads for transfer pumps. As if by magic, the Internet knows what products I am looking for, and can tailor ads to feed business to companies able to supply me with a product I may have shown only the most casual interest. 

Such ability to steer me to various sources willing to kick back a few pennies to Google is increasingly the norm rather than the exception. Artificial Intelligence (AI) is being used to predict what I may want or do even before I am fully aware. Google collects vast amounts of information about everybody, organized by your gmail address or other identifiers. If you delve deep into the bowels of your browser, you will see quite literally hundreds of “cookies” that observe your Internet actions and feed into predictive models owned by hundreds of firms clamoring to capitalize on my consumer choices. 

Let’s just imagine where this will go as AI is further developed. It will not only be used by Amazon to offer me discounts on certain items, such as a 20% off coupon offered me but perhaps not offered you. We may find that such tailoring of discounts will permeate more broadly than simply my Internet shopping. 

But, this pricing power is not only confined to the Internet. While price fixing is illegal, selective price discounting is not. Nobody has said anything about offering a high starting price, and then selectively offering discounts based on personal characteristics. Already, Kohls is now doing away with price tags on store shelves and is replacing them with small computer displays that can modify prices centrally. I imagine a day when I walk into a store, their cameras recognize me using AI facial recognition software, and, as I move through the store and look at the prices of shelved items, the prices change to reflect the discount AI believes I expect. 

A car dealership may know about my past purchases of big ticket items and AI can generate a buyer profile which includes my likelihood of bargaining or my willingness to pay the full sticker price if a few freebies are thrown my way. Anyone who has turned 65 knows how dozens of companies come out of the woodwork to sell you plans that complement Medicare. There are now myriad examples of market interactions we encounter every year in which the seller knows vastly more about us than we do about them, their products, and the techniques they use to augment their pricing and market share power. This vast collection of information is expanded every time you “accept” the cookie warning on a web page you visit. 

Such new realms are going to test America’s antitrust and consumer protection laws. A couple of decades ago Microsoft lost a major suit brought by the Justice Department because of Microsoft’s power to bundle Internet Explorer (IE) with their Windows operating system. Microsoft’s uncompetitive effort to expand IE’s market share now seems like child play compared to what Google has been doing, and for which they too are being pursued by the Justice Department. 

Many Americans are almost violently offended by any effort for the government to intrude in our lives or monitor our actions. Yet, we willingly accept intrusions by the private sector that make any possible government intrusions seem like child’s play. The payoffs Google has made to Apple, for instance, in return for giving Google sole access to iphone users' searches, represents a significant portion of Apple’s annual revenue. Such payoffs for monopolization made behind the Silicon Curtain are just the tip of the iceberg of how big tech is working to profit from us all. 

AI will only increase many fold the effectiveness of big tech’s opaque efforts to enhance their profits and power. The vast billions being invested in AI are not designed to author my student’s essays. These investments are made primarily to enhance the profitability of big tech by knowing more about us than we may know about ourselves. 

We have spoken many times in this blog about the potential for AI and robotization to perform many of the tasks we do. Conservative estimates suggest a quarter of all jobs will be replaced by AI, and robotization will continue its trend to replace most manufacturing jobs. Less obvious is the amount of control and self-determination we thought we had as sovereign consumers or as interactors in the marketplace or workplace. The insidious aspect is not that there are millions of companies now clamoring for our patronage, but instead just a few megacorporations who are the wizards behind the Silicon Curtain. Only their deep pockets enable the investment of hundreds of billions of dollars to earn profits tallied in the trillions.

Today’s graph comes from an annual report published by Stanford University on the state of Artificial Intelligence. It demonstrates that more and more people sense something profound is happening, but few have a good grasp of what that might be. Already Elon Musk claims Tesla is not a car company but an AI company. Certainly the OpenAI and its ChatGPT, Google with its Gemini AI, Microsoft's Copilot, Facebook's Meta AI, Apple's Intelligence, and Elon Musk's AI-ification of Tesla are all driven to generate profits for the shareholders of some of these largest corporations in the world. They obviously believe in the profits they can generate by monetizing and selling information about the buying habits and choices of you and me. Their huge investments into AI are made with a good sense of where this will take them and us, but I’m afraid they aren’t revealing the full plan, though. 

Meanwhile, the crypto bros are working hard to figure out how they can get a piece of this newfound pie. Certainly, bitcoin mining corporations eye a new and very profitable application for their massive power allocations to fuel all the computing power necessary for AI. Together, these two sectors of bitcoin and AI are already expected to command upwards of 10% of our already overtaxed grid, and may well represent more should a certain candidate be elected president. There is little chance private investment will create enough new sustainable energy to fuel this growth, which will justify the mantra "drill, baby, drill."

I am no Luddite, and very much appreciate the value of technology in improving the human condition and the sustainability of our planet. As much as I enjoy the products Google provides me with for free, that are not really free after all, I wish the Justice Department well in its efforts to curtail increased market manipulation and monopolization. I fear though, that once the Justice Department chops of one head of the hydra, another will form somewhere else in the cloud. We can flail away, but it will be difficult to slay the beast we have collectively created or implicitly tolerated. AI has great potential for good, but it will be a great challenge to ensure AI is used to better the world for us all rather than divert huge profits to a few.