Tom,
On the big PDM style rigs, it's an algorithm using circuitry designed into the PDM generator.
On the continental rigs that Jim mentioned they use an EER system. Side benefit is that allows for modulation other than straight amplitude.
On the ampliphase transmitter I saw it work on, the modulator (phasing, for the peak tube) as well as one of the IPA tubes where controlled. I'm not sure what it changed on the IPA to vary the carrier level, probably screen voltage. That system increased the carrier during low modulation levels. It was designed to copy the effect of BBC (Brown Bovery, not British Broadcasting) system. All done with op amps, and worked pretty good. Was odd to watch it negative swing though!
Their is another setup that allows for the lowering of the carrier in solid state series modulators... A guy named Bill Eitner came up with it. He basically took a sample of the audio modulating waveform, rectified it on the positive side via a cap and diode, then applied it to the carrier control. He called it NPC for Negative Peak Compression. It was pretty easily accomplished and worked. IMD was slightly raised as I recall. Was popular with the CBers 20 years ago whom owned series modulated chassis. It didn't compress the negative peaks, but instead rode the carrier at a syllabic rate. Shwing the monkey and all that crap ....
--Shane
KD6VXI