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

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

The 2020 pandemic and the associated restrictions on retail businesses resulted in consumers redirecting their purchases and spending to online sales. For example, in the EU and the UK, online sales reportedly increased 30-40% after lockdown restrictions were introduced in March last year. This trend has shed light on certain online sales practices that raise concerns about competition and consumer protection authorities, including geoblocking, maintaining the resale price, price measurement, and the use of pricing algorithms.

Some commentators have questioned whether existing competition and consumer protection laws are well equipped to deal with such concerns. These questions have led to a revision of the existing approach to e-commerce enforcement.

For example, the European Commission is revising its competition rules for vertical distribution agreements to ensure that the rules are appropriate for the digital market. The UK’s Competition and Markets Authority (CMA) has set up a technology and analytics data unit that is investigating new tools to combat potentially anti-competitive uses of pricing algorithms, including through collusion.

As explained in our previous blog (here), the Italian Competition Authority is researching the terms of leading global cloud computing service providers, specifically focusing on (i) allegedly inappropriately collecting user data for commercial purposes, (ii) inappropriately influencing consumers and (iii) failure to provide information to consumers about their right to withdraw from the contract and / or access to alternative dispute resolution. Interestingly, the approach taken by the Italian Competition Authority seems to reflect the improved sector-specific consumer protection provisions of the EU Electronic Communications Code.

As these examples show, digital markets are high on the agenda for competition and consumer protection authorities and are expected to be subject to increasing scrutiny in 2021 as well. In particular, the question of how “pricing algorithms can reduce competition and harm consumers” is the subject of a new study by the CMA and a call for submissions published on January 19, 2021.

Many of the questions raised by CMA research were anticipated in a paper I presented at a forum on AI and the Future Digital Single Market on April 25, 2018, which is available here. In a presentation on pricing algorithms and collusion that was published here a few months earlier, I offered some practical compliance solutions. As awareness of these issues increases, further investigation and regulation seem likely.

For more information on these topics, please contact the author, Francesco Liberatore.

Copyright 2021 Squire Patton Boggs