What if AI is quietly fixing prices without anyone noticing?

New Delhi: India’s antitrust watchdog is set to sharpen its enforcement powers to tackle the threat to competition posed by the deployment of artificial intelligence (AI) in the industry, and has proposed that businesses conduct self-audit of their AI systems for fair-trade compliance.

In a market study on ‘Artificial intelligence and competition’ released on Monday, the Competition Commission of India (CCI) said that it will set up a think-tank to consult on matters of digital markets and AI, promote co-ordination with other regulators for effective oversight, work with global competition watchdogs and enhance its technical capabilities and infrastructure.

The watchdog also said that the government’s continued efforts and policy initiatives to facilitate AI infrastructure and AI capabilities will help in removing entry barriers in the sector and foster a level-playing field in the development and use of AI in the country.

CCI’s focus on AI for competition regulation is significant given the technology’s rapid adoption by businesses.

The AI market in India has gone up from $3.20 billion in 2020 to $6 billion in 2024, and is set to rise further from $7.84 billion in 2025 to $31.94 billion in 2031, the CCI study said. As per this estimate, India accounts for about 3.2% of the global AI market estimated at $244.2 billion.

CCI’s worry is that while AI may foster efficiency and innovation, the concentration of players in the AI value chain could create entry barriers for new smaller players into this sector. That worry stems from the fact that building and training AI systems require deep pockets, compute power and access to data systems.

Another worry is ‘ecosystem lock-in,’ CCI pointed out, referring to AI tools deployed by companies, making it hard for users to switch to services from competitors. The more one uses one company’s AI tool, it learns more about the user and performs better, making it hard for them to move to another company’s service, which has to start from scratch.

CCI also expressed concerns about algorithmic collusion, referring to how AI systems could automatically set prices without human involvement and also engage in price discrimination, leading to higher prices for those willing to pay more compared to those who are price-sensitive. The regulator also flagged opaque algorithms as a concern.

Based on the perception survey of AI startups, the possibility of AI-facilitated collusion, price discrimination and predatory pricing was expressed by 37%, 32% and 22% of respondents respectively, CCI stated. Predatory pricing is undercutting rivals till they are eliminated from the market and eventually raising prices to take advantage of the reduced competition.

CCI said that self-audits of AI systems by businesses will help them to proactively detect and correct potential competition concerns. The regulator’s report has also provided a guidance on how to go about such self-audits.

The recommendation on self-audits of AI systems is an interesting idea, and on the face of it, one may think that it could encourage self-governance and reduce the need for intrusive enforcement, said Bhoomika Agarwal, programme manager, The Dialogue, a technology policy think-tank.

“At the same time, its implementation will require careful thought as such mechanisms can be challenging to monitor and would likely need close coordination with other government agencies,” said Agarwal.

“Given that the AI market in India is still nascent, the more effective path, as also reflected in other recommendations of the study, lies in collaborative engagement, through workshops and continued research, to understand and address potential risks as the AI market evolves,” said Agarwal.

A lack of transparency about use of AI in decision-making can harm competition and consumers, CCI cautioned.

“AI-driven price discrimination is emerging as a strategic pricing tool, enabled by advanced analytics and machine learning. While this approach can drive revenue optimization and improve conversion rates, it introduces potential regulatory risks including lack of transparency and reduced consumer trust, particularly for vulnerable segments,” the CCI report said.

“AI could also be used to implement predatory strategies, by targeting below-cost pricing only for price-sensitive customers or those at risk of switching, while keeping the prices unchanged for other customers,” it said.

CCI said its efforts will be to develop a culture of compliance and fair competition across the AI value chain, preserving and promoting incentives for innovation. The watchdog will hold conferences and advocacy workshops on AI and competition compliance, it said.