Compliance in Digital World: Are Pricing Algorithms Anti-competitive?

The 2020 pandemic and related restrictions on retail businesses led consumers redirecting their purchasing and spending to online sales. For example, in the EU and UK, online sales reportedly grew by 30-40% after lockdown restrictions were introduced in March last year. This trend has shone a light on certain online sale practices that raise concerns for competition and consumer protection authorities, namely, geo-blocking, resale price maintenance, price gauging and the use of pricing algorithms, among others.

Some commentators have questioned whether existing competition and consumer protection rules are well-equipped to deal with such concerns. These questions have spurred a re-think of the existing approach to enforcement on e-commerce.

For example, the European Commission is revising its competition rules¹ on vertical distribution agreements with a view to ensuring that the rules are fit for purpose in digital markets. The UK Competition and Markets Authority (CMA) has established a Data, Technology and Analytics Unit², studying new tools to tackle potentially anti-competitive uses of pricing algorithms, including through tacit collusion.

As discussed in our previous blog, the Italian Competition Authority is investigating the terms and conditions of leading global providers of cloud computing services, focusing in particular on (i) allegedly improper collection of user data for commercial purposes, (ii) undue influence on consumers, and (iii) failure to provide consumers with information on their right to withdraw from the contract and/or to access alternative dispute resolution. Interestingly, the Italian Competition Authority’s approach seems to echo enhanced sector-specific consumer protection provisions contained in the EU Electronic Communications Code.

As these examples illustrate, digital markets are top of the agenda for competition and consumer protection authorities and are likely to continue facing increasing scrutiny in 2021. In particular, the issue of how “pricing algorithms can reduce competition and harm consumers” is the subject of a new study³ by the CMA and a call for input, published on 19 January 2021.

Many of the issues raised by the CMA research were anticipated in a paper I presented April 25, 2018 at the IIC TMF forum on AI and the Future Digital Single Market. In a presentation on pricing algorithms and collusion made several months earlier, available here, I offered some practical compliance solutions. As the awareness of these issues increases, further investigation and regulation seems likely.

For further information on these issues, please contact the author, Francesco Liberatore.

References:

1 European Commission, Press Release: Antitrust: Commission publishes findings of the evaluation of the Vertical Block Exemption Regulation, accessed 9 February 2021,  Antitrust: Commission publishes findings of the evaluation of the Vertical Block Exemption Regulation

2 GOV.UK, Press Release: New competition regime for tech giants to give consumers more choice and control over their data, and ensure businesses are fairly treated, accessed 9 February 2021, New competition regime for tech giants to give consumers more choice and control over their data, and ensure businesses are fairly treated

3 CMA, Research and Analysis: Algorithms: How they can reduce competition and harm consumers, accessed 9 February 2021, Algorithms: How they can reduce competition and harm consumers