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Algorithmic Pricing - The New Competition Law Frontier?: Senior Associate
Algorithmic Pricing - The New Competition Law Frontier?: Senior Associate
In the last year artificial intelligence (‘AI’), software to do so automatically. Software applied to computerised systems (which
and algorithmic pricing in particular, is also utilised in vertical relationships: have no fear of fines or imprisonment),
has become the hottest of hot topics the Commission reported that 38% of and the impact on consumer welfare
for the antitrust community - debated manufacturers who track resale prices if antitrust law is falling short.
at conferences around the world and use software to do so automatically.
filling the pages of journals. Competition Others have argued that this level of
enforcers have also focussed their Secondly, competition enforcers have interest is not warranted and that the
attention on this area, with EU been focussing on the digital world concern about AI and algorithms - and
Competition Commissioner Margrethe generally, and on the collection and use of the ability of the current competition
Vestager warning that businesses “need data in particular, as illustrated inter alia by framework to deal with their
to know that when they decide to use the European Commission’s Sector Inquiry perceived anti-competitive effects - is
an automated system, they will be held and its various investigations into Google, overhyped (and/or that in any event
responsible for what it does,” and chair the May 2016 Franco-German Report on that such technology can have pro-
of the CMA David Currie declaring that Big Data and an ongoing study on this competitive effects, and can be used
the CMA will work to “ensure that the topic by the Italian competition authority, to disrupt and destabilise attempts at
rise of algorithms works to enhance and the German competition authority’s collusion or exploitative practices).
competition, not close it down.” ongoing investigation into Facebook’s
data practices2. The actions of private What are the potential
Why has this interest arisen? claimants have also thrown a spotlight competition law concerns?
Firstly, digital commerce, mass data onto this area, including the challenge to It is the prospect of collusion through
collection and algorithmic decision Uber’s ‘surge’ pricing algorithm in the US, AI and pricing algorithms - where
making (in particular allowing for rapid which the claimants allege amounts to an algorithms are used to automatically
and automated price tracking and implied horizontal price-fixing agreement. fix prices, horizontally (i.e. cartel
price resetting, as well as personalised behaviour) or vertically (i.e. resale price
offerings) has become commonplace Finally, academic attention on AI, maintenance (‘RPM’)) - which has created
in the business world (and is only algorithms and competition, in particular the most headlines. In particular, the
expected to rise further). Software that work by Professors Ariel Ezrachi and technological developments have raised
can automatically change product prices Maurice Stucke (whose recent text a concern that competitors will be able
based on observed competitor prices Virtual Competition warned of the “end to achieve and sustain collusion without
is now widely available. For example, of competition as we know it” and the any human contact. The legal question
the European Commission’s May 2017 inability of current antitrust tools to deal which arises is whether and when such
E-Commerce Sector Inquiry final report1 fully with the risks raised by AI), has spilled behaviour would fall within the traditional
noted that 50% of retailers tracked their over into the mainstream and grabbed the EU law concepts of ‘agreement’ and
competitors’ prices online, including attention of enforcers and practitioners. ‘concerted practice’ (and equivalents
through the use of ‘spider’ software Many have started to question whether in other jurisdictions), such to fall within
which ‘crawls’ the internet. Of those traditional competition law concepts the scope of the prohibition on anti-
retailers, 78% also adjust their own and enforcement mechanisms, which competitive agreements within Article
prices in response, in some cases using assume human action, can be effectively 101 of the Treaty on the Functioning
continued
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traditional categorisation, and applies existing rules will catch a scenario where shipping companies announcing intended
this to four potential types of practice. there is contact between firms, even rate increases on their websites/in the
where this is via automated means. press13. The Commission states that if
Algorithms that are used to monitor signalling were to take place through
prices agreed between competitors: This case concerned an online booking pricing algorithms, for example by
The Commission states that use of price system used by 30 Lithuanian travel coded messages that are ‘understood’
monitoring algorithms to detect cartel agencies. The administrator implemented by the other algorithm, this would also
deviations could form part of the Article a technical restriction in the system raise Article 101 TFEU concerns.
101 TFEU infringement, and may lead limiting the discount rates the agents
to an increase in fine due to “rigorous” could offer (unless overridden), and sent This, however, begs the question of in
implementation of the agreement. This is an electronic notice announcing this what precise circumstances such signalling
an example of one of many practices that to the users’ system inbox. The Court would constitute a concerted practice.
could cause issues under Article 101 TFEU made it clear that while the dispatch of In the offline world it is also challenging
if carried out by algorithms, as it would the message was not, itself, sufficient to identify when price announcements
if carried out (less efficiently) offline. to prove that the agents were aware of cross the line from genuinely unilateral
its contents, and thus that concertation action (and intelligent adaption) into
Algorithms that are used to implement had occurred, where other evidence concertation (perhaps reflected in the
pre-existing explicit collusion: The demonstrated that an agency was aware fact that the container shipping probe
Commission states that if firms were to of the message it would have engaged was settled by commitments rather
engage in explicit collusion (through in a concerted practice if it continued than with an infringement decision).
any means of communication), and to utilise the system (without ‘public This will be a key question on the facts,
then use their own pricing algorithms to distancing’). The Court, consistent with including in light of how the algorithms
implement the agreement, this would current law, focussed on the firms’ are introduced and how these have been
be no different from setting prices awareness of the pricing restriction, not programmed, how they interact, and the
manually to implement agreed prices. its implementation through the system. awareness between companies of their
competitors’ use of and reactions to the
Indeed, although these are not examples Algorithms that are used to engage algorithms. As the Commission later
cited by the Commission, this reflects in explicit collusion: The Commission observes, it is “not obvious that more
the facts of the first antitrust investigation states that competitors colluding sophisticated tools through which a firm
concerning price algorithms, conducted about using particular repricing merely observes another firm’s price and
by the DoJ and the CMA into the ‘wall parameters and strategies in their draws its own conclusion would qualify as
décor’ industry. In this case, sellers pricing algorithms could fall within ‘communication’ for Article 101 purposes.”
of posters on Amazon Marketplace Article 101 TFEU, whether directly or
agreed not to undercut each other’s through a third party (i.e. in a ‘hub and The Commission finally asks whether
pricing, and to implement this agreement spoke’ scenario), which appears clear. pricing algorithms could, without
via the use of the same algorithmic directions to do so from their ‘humans,’
repricing software (essentially agreeing The Commission further states that if engage in explicit collusion with each
to programme rules into the software to competitors were to outsource their other (the possibility of AI leading to
ensure price matching). The CMA fined pricing decisions to one and the same algorithms ‘self-learning’ to engage in
one of the companies involved - Trod - third party, this would also raise Article 101 ‘robo-collusion,’ for example as a result
for participating in an anti-competitive TFEU concerns; however, it can be queried of a profit maximising instruction, being
agreement, and disqualified Trod’s whether this would hold absent at least one of the key concerns raised in the
Managing Director Daniel Ashton from awareness that the others were doing so. literature)14. It raises the prospect that
acting as a director9. In the US, the DoJ this could lead to a concerned practice
secured a guilty plea from Daniel Ashton The Commission also flags the possibility or agreement being reached between
and his opposite number David Topkins for that pricing algorithms might be used algorithms. Reflecting the position
entering into a price fixing conspiracy10,11. to signal pricing intentions or proposals previously laid down by Margrethe
to competitors. Public price signalling is Vestager, the Commission states that
The Commission refers to the 2016 ruling another current ‘hot topic’ in competition it is up to the firms using algorithms
of the EU Court of Justice in Eturas12, law, as exemplified by the Commission’s to ensure that their algorithms do not
which further demonstrates that the recent investigation into container engage in illegal behaviour (presumably
by writing in code preventing this). This is example where products (including closely how these are developing
effectively treating the software as akin delivery conditions) are heterogeneous, and be vigilant to their potential use
to a rogue employee - the Commission or where firms decide that competitive for anti-competitive purposes.
concluding that “like an employee or an pricing and larger sales volumes is
outside consultant working under a firm’s preferable to higher pricing. It also Clearly, where algorithms are used to
‘direction or control,’ an algorithm remains raises the possibility that the market implement collusion which would be
under the firm’s control, and therefore the may throw up technological solutions problematic if implemented manually,
firm is liable for its actions.” However, it is allowing consumers to defeat algorithm this should be enforced and sanctioned.
not clear whether this could be sustained enabled tacit collusion (although Equally, it is difficult to see why, if a
legally - can a computer programme warning that this may come too late). practice is legal if implemented manually
acting without its owner’s instruction or (for example a company tracking a
awareness or even anticipation be said The Commission is distinctly lukewarm competitor’s prices by driving to its
to act for the company in the same way? about extending the concept of concerted stores or checking its websites, and
practices to cover such practices then adjusting its own), this should differ
Algorithms that are used to engage in (although not ruling out the “possibility if implemented - albeit in real time - by
tacit collusion: Finally, the Commission that more creative and novel types of price monitoring and resetting software.
queries whether algorithmic pricing is interactions could in certain situations There will nevertheless be a host of
making tacit collusion more pervasive meet the definition of ‘communication’”), practices which fall into a ‘grey area’
and more effective, and if so what is and of reconsidering the current in between, and companies will need
the appropriate response (given that, position under which tacit collusion is to be particularly careful in disclosing
absent concertation, this would not deemed legal. Other authorities have the use of algorithmic solutions to
fall within Article 101 TFEU, despite taken a similar view, although flagging competitors, and of any aspect of a
reducing the incentives to lower prices). the possible use of other tools to deal programme’s design which may be
with negative effects on competition characterised as price signalling.
The Commission recognises that (including market studies, consumer
algorithmic pricing can enable speedy protection laws, and merger control). In the meantime it can be expected
and stable price matching, reducing that the Commission, the CMA and
incentives to cut prices, including in Where does this leave us? other enforcers will invest time and
markets where it would otherwise be Many would agree with Margrethe resources in understanding the software
unlikely to take hold. On the other hand Vestager’s conclusion that we “certainly and other technology being used by
it flags factors which may defeat tacit shouldn’t panic about the way algorithms businesses, and will be keen to bring
collusion depending on the facts, for are affecting markets,” but rather watch enforcement action in this area15.
1. http://europa.eu/rapid/press-release_IP-17-1261_en.htm
2. There are also a multitude of other recent or ongoing investigations of various forms at EU and national level,
including those concerning ebooks, online hotel booking, and digital comparison tools.
3. https://ec.europa.eu/commission/commissioners/2014-2019/vestager/announcements/
bundeskartellamt-18th-conference-competition-berlin-16-march-2017_en
4. https://www.gov.uk/government/speeches/david-currie-on-the-role-of-competition-in-stimulating-innovation
5. https://www.ftc.gov/public-statements/2017/05/should-we-fear-things-go-beep-night-some-initial-thoughts-intersection
6. https://www.ftc.gov/public-statements/2017/05/algorithms-coordinated-effects
7. http://www.oecd.org/daf/competition/algorithms-and-collusion.htm
8. http://europa.eu/rapid/press-release_IP-17-201_en.htm
9. https://www.gov.uk/cma-cases/online-sales-of-discretionary-consumer-products
10. https://www.justice.gov/opa/pr/online-retailer-pleads-guilty-fixing-prices-wall-posters
11. https://www.justice.gov/opa/pr/former-e-commerce-executive-charged-price-fixing-antitrust-divisions-first-online-marketplace
12. http://curia.europa.eu/juris/document/document.jsf?text=&docid=173680&pageIndex=0&doclang=en&mode=req&dir=&occ=first&part=1&cid=774271
13. http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=1_39850
14. The DoJ/FTC, on the other hand, in their submission dismiss these scenarios as too speculative to consider at this time.
15. It is notable in this regard that the FTC has established an Office of Technology Research and Investigation, charged in part with overseeing
algorithm powered commerce (albeit within the consumer protection rather than the competition bureau). The CMA has also announced
its plans to invest in improving its technological expertise and in new digital forensic tools and investigative technologies.