Out of rithm

Posted on 08 June 2017 by Eleanor Powell. Source: Business Shapers

Out of rithm

Price-bot wars

The idea that today's cartelists are as likely to be found hiding behind computer screens as in smoke filled rooms is a hot topic. This is due to businesses using increasingly sophisticated algorithms and artificial intelligence ("AI") to ensure that their online prices align with those of their competitors: a form of tacit collusion.  

Tacit collusion may not in itself be illegal.  It can be seen as a rational reaction to market characteristics not amounting to an agreement or concerted practice, and therefore escaping  the Article 101 competition law prohibition of the Treaty on the Functioning of the European Union.

In May 2017 US Federal Trade Commissioner Terrell McSweeny said that "We shouldn't outlaw pricing algorithms. Algorithms are right up there with the printing press in terms of their contribution to our modern economy." However, competition authorities need to mitigate any risks to consumers, and privacy issues that may also arise.

Competition authorities have recently considered how the use of algorithms by companies such as Google and Amazon can affect markets.  Whilst it provides benefits, enabling computers to process much more data quicker, it also potentially facilitates collusion and harm to consumers.  Competition law expert Ariel Ezrachi recognized this at the Law Society's Competition conference, saying "transparency is now backfiring and reducing competition".

Ezrachi, together with fellow expert Maurice Stucke, have identified several ways in which businesses may breach competition law by using algorithms to price-match, ranging from simple software to more complex AI that reads and reacts to competitors' pricing.  The debate continues as to whether current legislation is sufficient to allow the prosecution of such conduct, and who is legally responsible for price fixing generated by machines.  In the meantime, what should you be aware of?

Read the full article here.