A key issue regulators are grappling with is what antitrust liability can attach to retailers who use price matching software or other algorithms to match competitors’ online prices?
In a speech made on 16 March 2017, the EU’s Commissioner for Competition, Margrethe Vestager, confronted the growing issue of the use of price matching software (PMS) and algorithms. The Commissioner singled out automated systems that monitor and even adjust prices automatically across the internet as a main area of concern for the Commission.
The EU Commission recently conducted an inquiry into e-commerce called the “Digital Single Market Initiative” in which it identified this trend. The inquiry found that two thirds of retailers now track their competitors’ prices using automated systems. The central concern is that the transparency of prices online is actually making it easier for companies to monitor prices and collude, with the aide of automated software. In addition there is a further enforcement problem.
EU competition law can be used to discipline such behaviour if there is some form of agreement or collusion between two or more competitors to fix or align their respective prices on the market. That is clearly cartel behaviour. However, possible scenarios suggest themselves where companies make use of PMS to match or align their prices with competitors without any form of contact with each other, let alone any evidence of collusion between two parties.
Under EU antitrust laws, regulators can only act if there is some evidence of an agreement between the parties or some form of collusion. If the use of PMS is truly unilateral and the company is not in a dominant position, are the authorities therefore powerless to act?
This issue has come up in two recent cases. We previously commented on the UK’s enforcement action against online poster retailers for price fixing over online marketplaces in this post: http://eu-competitionlaw.com/cma-continues-crackdown-against-price-fixing-online/
On 2 February 2017 the EU Commission opened its own initiative investigations against Denon/Marantz and Pioneer, alleging that they breached competition rules by restricting the ability of online retailers to set their own prices for hi-fi products. It is understood the effect of these suspected price restrictions may have been aggravated due to the use of pricing software that automatically adapts retail prices to those of leading competitors.
In both these cases there appears to be some element of human interaction and crucially, agreement between the participating undertakings, so even if they were using automatic software, the intent to collude on pricing was originally a human decision.
In her speech, the Commissioner commented that PMS can not only monitor and even adjust prices automatically across the internet, but it can also be used to ensure that if a distributor started advertising below recommended retail price, the supplier would be alerted who could then put pressure on the distributor to conform. Whilst minimum advertised price (MAP) policies such as this could be legal in the US and other parts of the world, in the EU these are regarded as resale price maintenance and are serious infringements of EU competition law, carrying the sanction of heavy fines and possible subsequent actions for damages.
Having discussed this issue with competition regulators, we take the view that the EU would currently have difficulty bringing a case based solely on a purely software driven choice to price fix, due to the absence of an agreement between two parties. New legislation to cover the use of automatic pricing software is likely to be high on the Commission’s wish list. This would bring their approach in line with their reaction to other e-commerce abuses such as geo-blocking. In the latter case, draft EU legislation is currently being debated to combat unilateral geo-blocking practices carried out by suppliers and retailers.
In light of the Commissioner’s speech and the recent EU cases on PMS, we would advise all companies using such software to seek specialist advice about its use so as to avoid any allegations of unlawful pricing behaviour.
A copy of the speech in full can be found by following this link: https://ec.europa.eu/commission/commissioners/2014-2019/vestager/announcements/bundeskartellamt-18th-conference-competition-berlin-16-march-2017_en