When global tensions flare up, gas prices often jump seemingly overnight. It’s a familiar scenario. Drivers brace for it, while the news points fingers at geopolitics, oil traders cite uncertainty, and politicians trade blame. Yet, there’s one intriguing question that rarely gets asked: if computers can hike prices in a flash, why do they take their time when it comes to lowering them?
This has long been a source of frustration for many Americans. As oil prices rise, gas stations react almost instantly. But when those prices drop, it’s a different story. Suddenly, we hear about the time needed for refining and distribution. It feels like urgency only works one way.
Interestingly, regulators are already investigating algorithmic pricing in sectors like apartment rentals, and they’re looking into hotels, airline tickets, and online shopping as well.
A recent lawsuit in California, combined with federal interest in gas prices, suggests there’s more going on than just market forces. It’s not solely about oil anymore; it’s about how algorithms, artificial intelligence, and profit-maximizing software are changing how fuel prices are determined across the country.
Are you altering the market?
Kalibrate is one of these pricing platforms. The company promotes its software as an advanced solution that assesses competitor pricing, wholesale costs, local demand, and various other factors to suggest the optimal pump price. This technology is used by some of the largest fuel retail chains in the country, enabling them to boost profit margins while staying competitive.
Using such data analytics isn’t illegal. Most major industries rely on it now. But concerns arise when software moves from merely reacting to the market to actively shaping it.
On June 22, several California drivers brought charges against not just software companies, but gas stations as well. Kalibrate heads the list of defendants, alongside Marathon, BP, Circle K, and several others. According to the complaint, Marathon, which runs over a thousand ARCO stations in California, has relied on Kalibrate for pricing since 2020. They claim Circle K operates more than 400 stations with it, while Albertsons has utilized it since at least 2009.
The lawsuit contends that Kalibrate facilitated the sharing of sensitive information among competitors and offered pricing suggestions that hindered competition. They claim the software includes a feature that allows many stations in the area to increase prices simultaneously.
The complaint further highlights how Kalibrate communicates to its clients, encouraging them to resist a “race to the bottom” even when oil prices drop, and warns that lowering prices could lead to damaging declines. Plaintiffs characterize the platform as “the central nervous system of a conspiracy to eliminate retail price competition.”
Rising costs
What’s at stake? Research mentioned in the lawsuit shows that stations using this software tend to raise prices by about 6 cents per gallon—potentially up to 30 cents if most nearby stations are also using the system. Real-world examples reinforce this; for instance, one California Albertsons reported a price increase of 3 to 4 cents just a few days after switching on Kalibrate. Though that seems modest, calculations suggest it could add up to an astonishing $134 million annually taken from California drivers at a statewide average increase of one penny.
Kalibrate has pushed back against these claims, asserting the legality of its technology, while the retail chain has yet to address the allegations. At this point, the court has yet to make a ruling.
But what happens when numerous competitors start relying on the same pricing algorithm?
Price fixing has been illegal in California for over a century, and the plaintiffs are pursuing their case under that longstanding law. Interestingly, a new regulation, the Algorithmic Collusion Prevention Act, took effect on January 1, explicitly stating that using software to induce conspiracies doesn’t exempt one from being charged with price manipulation. The use of pricing software remains legal, but coordinating it with competitors is another matter entirely.
This new law makes it illegal to utilize or share “common pricing algorithms” as part of agreements that restrict trade. Sacramento has effectively closed this loophole, and this lawsuit will be its first significant test.
One word
The federal government is also applying pressure, which is essential to note.
On July 3, the Department of Justice and the Federal Trade Commission sent a letter to state attorneys general, requesting an inquiry into whether antitrust violations or price gouging are keeping gasoline prices artificially high. Their letter clearly states that recent fluctuations in oil prices do not exempt companies from adhering to antitrust laws or consumer protection regulations. However, the letter oddly fails to mention algorithms at all. While the federal government tackles gas prices through traditional means, the potential impact of software pricing is still being examined in a Sacramento courtroom.
Anyone who’s been on the road for a while recognizes the familiar pattern: prices jump sharply after global events but fall agonizingly slowly. Economists have dubbed this the “Rocket and Feather” effect, and it’s been a subject of study for years. Various theories exist, addressing everything from inventory costs to consumer behavior, but none implicate illegal activity.
Yet the rise of artificial intelligence is changing the game.
Unlike older pricing methods, modern software can track competitors in real time, immediately analyze extensive market data, and suggest price alterations faster than human managers can react. When multiple retailers draw from the same data-driven suggestions, the competition can dwindle as there’s less incentive to adjust prices dynamically.
The issue isn’t confined to gasoline. Regulators are investigating algorithmic pricing in other areas, including apartment rentals and airline ticket prices. The Justice Department has already filed suit against RealPage for its rental pricing software. In that case, the issue wasn’t the software itself but the sharing of sensitive competitor information, which remains illegal. The distinction could very well determine the outcome of the gas station case.
Narrow margins
This situation also shines a light on a common misconception. When gas prices rise, public outrage often targets oil companies. However, what consumers pay at the pump includes the cost of crude oil, refining, transportation, and various taxes. Gas stations typically operate on thin margins, averaging about 10 cents per gallon according to the National Convenience Store Association. Once credit card fees and operating expenses are factored in, taxes and regulatory fees can significantly affect what consumers see at the pump, particularly in states like California.
It’s understandable for drivers to feel frustrated when gas prices spike due to global disruptions. Various factors—conflicts, natural disasters—impact energy availability.
But if pricing software is indeed undermining competition by promoting retailer coordination rather than aggressive price competition, consumers deserve transparency.
Artificial intelligence is becoming an unseen influence in many financial decisions Americans encounter daily, from insurance rates to gas prices. Most consumers remain unaware that algorithms play a part; they merely accept the price as a market fact.
Algorithms don’t consider whether you’re commuting, driving your kids to school, or managing a small business. They exist to optimize, plain and simple.
The real issue isn’t whether artificial intelligence can set prices more efficiently; it’s whether we’ve quietly allowed machines to redefine what competition looks like.
Because if software can control gasoline prices now, what might it dictate down the road?
