Asus, Philips fines show EU's first foray into pricing algorithms

25 July 2018 2:37pm

24 July 2018. By Lewis Crofts and Matthew Newman.

Fines today on companies such as Asus and Royal Philips that used software to maintain higher prices will make waves among lawyers vetting online pricing policies.

The case shows that EU enforcers are willing to clamp down on companies using monitoring tools to police pricing restrictions, though it doesn't represent an attack on the algorithms themselves.

The case — which saw fines totaling 111 million euros ($130 million) on Asus, Philips, Pioneer and Denon & Marantz — is based on laws that haven’t been enforced since 2003: namely, the ban on retail-price maintenance, or RPM.

Companies are allowed to manage the distribution of their products but not dictate sales prices to retailers. Such pricing directives existed in traditional markets, but they were difficult for manufacturers to monitor and enforce.

The advent of pricing software has changed all that. And the boom in online commerce has made such pricing clauses more attractive as manufacturers try to limit a race to the bottom among retailers.

The four manufacturers were found to have threatened retailers — and particularly those offering deep price cuts — with sanctions or supply interruptions if they didn’t abide by the given price lists.

But the novelty of this case is how the manufacturers policed this through monitoring software that enabled them to pinpoint which retailers were selling which products at which prices.

“The use of sophisticated monitoring tools allowed the manufacturers to effectively track resale-price setting in the distribution network and to intervene swiftly in case of price decreases,” the commission said.

— Algorithms —

Pricing software and online algorithms have recently caught the eye of regulators around the globe, who fear they could facilitate widespread market manipulation and even automated collusion.

While today’s case serves as a first warning of the danger of automation, it isn’t yet a fully-fledged assault on algorithms.

Firstly, neither software programs nor their developers were the target of the case. The companies under investigation cooperated with enforcers and coughed up all the information needed to know what effect the programs were having.

Secondly, today’s announcement features four separate cases where the companies individually deployed their own software. There is no suggestion that the computer programs had triggered collusion among the companies.

Thirdly, the algorithms themselves were facts underpinning the case but not part of the infringement. Moreover, they weren’t a factor that increased the fine.

Still, such algorithms may signal to investigators that RPM restrictions could have a much wider impact. This, in turn, could help the commission prioritize such cases over others.

The EU watchdog noted that the manufacturers’ behavior was serious and “led to higher prices with an immediate effect on consumers.”

These cases show that the most sophisticated software can be used to help consumers find the best prices, but it also can be part of manufacturers’ clampdown on price setting.

If this behavior prevents consumers from benefitting from price decrease, the commission is sending a strong message that it will intervene.

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