Californians sue over AI-based price fixing at gas pump

SACRAMENTO, Calif. (CN) — Three Californians filed a class action over what they call an artificial intelligence-based pricing system that has wrung more money out of drivers in a time of explosive gas prices.

The plaintiffs sued Knowledge Support Systems, Inc., called Kalibrate, and a host of gasoline retailers. They claim part of the reason for the state’s “astronomical” gas prices is because of an illegal algorithmic price-fixing scheme operated by Kalibrate and some of California’s biggest fuel retailers.

“Historically, gas stations have competed for customers by aggressively undercutting one another’s retail prices,” the plaintiffs write in their suit. “But today, that vibrant street-corner retail competition is being replaced by automated, algorithmic coordination.”

The plaintiffs ask in the Monday filing for a judge to stop the price fixing, and reward them and class members with restitution and compensatory damages.

Kalibrate offers analytics on pricing and location to a variety of businesses, including retail fuel. It has contracts with customers for its fuel pricing and location intelligence software at fuel retail spots across the Golden State, the plaintiffs say.

Californians, they add, rely heavily on gas-powered vehicles, despite the state’s push toward electric. Some 27 million gas-powered cars drive state roads, using about 13.4 billion gallons of gas a year.

However, California’s gas prices differ from the rest of the country, climbing about $1.68 higher per gallon. The consolidation of refineries and other factors play some role, but not all. Multinational conglomerates dominate the state — a design by industry giants to remove competition and focus on profit extraction, the plaintiffs say.

“As these dominant players in retail fuel looked for ways to extract value and avoid the race to the bottom that characterizes competitive markets, they increasingly turned to sophisticated technology to manage their vast networks,” they add.

An intense, competitive market pulls down gas prices. However, Kalibrate’s system serves as a workaround and eliminates competition, the plaintiffs say. Its software connects a gas station to a central pricing cloud, which allows Kalibrate to set its fuel prices. It also tells its customers, the gas retailers, that their profits will increase because of this, the plaintiffs say.

That’s because Kalibrate has data on all competitor pricing for an area and uses its pricing algorithm to ensure its customers don’t compete with each other on price, they add.

“Kalibrate also makes clear to its potential customers that where customers have allowed its algorithm to take over pricing decisions, ‘there is less fluctuation and gross margins have increased significantly and are now more predictable,’” the plaintiffs argue.

Coordination among gas stations using Kalibrate is essential, they say. Kalibrate markets its system as a means to avoid competition. One gas station using it an area will lead customers to find cheaper options. However, if many gas stations use it, people have no alternative. That means gas stations can hike their prices without losing much volume, they add.

The plaintiffs claim the agreements between gas retailers and Kalibrate are violations of the state’s Cartwright Act — the state’s anticompetitive law — as they illegally tamper with and control the price of gasoline. Those retailers opted to forego setting their own gas prices and let Kalibrate take control to eliminate competition, the plaintiffs argue.

“The quintessential image of price fixing is a secret deal made between competitors over cigars in a smoky back room,” they add. “But as technology has advanced, so too have the mechanisms available to competitors to fix prices without the cigars, the smoke, or even the room.”

A California law passed this year, Assembly Bill 325, makes it clear that relinquishing price-setting power to an algorithm violates the Cartwright Act.

Kalibrate couldn’t be immediately reached for comment.