Views on algorithms and competition law expose EU-US divide

1 June 2017 11:28am

26 May 2017. By Leah Nylen and Matthew Newman.

Recent comments by US antitrust enforcers about companies' use of algorithms and automatic pricing show a rift with their EU counterparts, who have taken a much tougher line on how the technology may aggravate price fixing.

For the past several months, EU enforcers, including European Commission antitrust chief Margrethe Vestager, have warned that algorithms and automated pricing could create competition concerns.

"Competition enforcers need to be suspicious of everyone who uses an automated system for pricing," Vestager said at a March conference in Berlin. "Automated systems could be used to make price-fixing more effective.That may be good news for cartelists. But it's very bad news for the rest of us."

Vestager warned that enforcers will be "alert" to possible collusion. "We need to make it very clear that companies can't escape responsibility for collusion by hiding behind a computer program," she said.

In a pair of speeches this week, two of the United States' leading antitrust officials pushed back on the idea, arguing that algorithms unambiguously provide consumer benefits. But acting US Federal Trade Commission Chairman Maureen Ohlhausen was much more skeptical of the need for any intervention by antitrust enforcers than her Democratic counterpart, Commissioner Terrell McSweeny, who called for more research and possible enforcement with respect to coordinated effects.

McSweeny's comments, at a Monday speech at Oxford in the UK, highlighted the many potential benefits of algorithmic pricing, particularly that they allow computers to process more data and have faster reactions.

"We shouldn't outlaw pricing algorithms. Algorithms are right up there with the printing press in terms of their contributions to our modern economy," McSweeny said. "They have the potential to produce real consumer benefits and to make more products available to more people."

But McSweeny also noted several potential dangers from increasing use of algorithms and pushed for greater research.

"If pricing algorithms are found to reduce barriers to coordinated interaction under certain conditions, then enforcers may need to consider stepping up our aggressiveness with respect to coordinated effects analysis," she added. "Continuing research will be incredibly valuable in this area."

Ohlhausen — who spoke at a conference in New York on Tuesday — said that algorithms represent only a new business tool, likening them to text messages or e-mail.

"There is nothing inherently suspect about using computer algorithms to look carefully at the world around you before participating in markets," she said. "From my perspective, if conduct was unlawful before, using an algorithm to effectuate it will not magically transform it into lawful behavior. Likewise, using algorithms in ways that do not offend traditional antitrust norms is unlikely to create novel liability scenarios."

EU scrutiny

While the US enforcers are taking a more "wait-and-see" approach, their European counterparts are clearly much more suspicious of algorithmic pricing. Antitrust authorities are currently reviewing how the use of this technology by Google, Facebook and Amazon affects consumer markets.

Their concern is that automated systems that monitor — and even adjust — prices automatically may lead to price collusion.

Isabelle de Silva, president of the French Competition Authority, has said the digital economy is the "No. 1 problem in competition policy."

Andreas Mundt, president of Germany's cartel office the Bundeskartellamt, has said the impact of digital technology companies on the economy is "new land" for competition agencies.

The UK's antitrust regulator, the Competition and Markets Authority, is preparing a report on the impact of digital comparison tools on consumer behavior. The study will focus on the effect of website and app price-comparison tools on consumer choice.

At the European Commission level, Vestager warned companies in March that they may face higher fines if they use software tools as part of their cartels.

The EU commission is investigating whether four makers of electronic goods prevented retailers from setting their own prices. These manufacturers may have the used software to make the policing of retailers' prices more effective.

Artificial intelligence

The different approaches underscore how much influence a recent study on algorithms has had on antitrust enforcers.

Academics Ariel Ezrachi and Maurice Stucke met with Vestager last year to discuss their book "Virtual Competition."

Ezrachi and Stucke described a range of ways that technology could lead to price fixing, from use of simple algorithms to more complex artificial intelligence that reads and reacts to rivals' pricing.

In the US, the DOJ has already pursued a case in which pricing algorithms were used by two online retailers to align the price of posters. But that case involved two people who had already agreed to fix prices and used the algorithms as a tool to implement their agreement.

The next level of coordination would be the use of artificial intelligence that would lead retailers to align their pricing automatically, without any human intervention.

McSweeney raised the possibility that there could be a problem with that kind of activity, but took a cautious approach, saying more research is needed.

Enforcement in this area would come if regulators find that companies are deliberately using software to ensure that prices align, a form of "tacit collusion." And so far, European enforcers have shown much enthusiasm for looking into that possibility.

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