Should We Fear The Things That Go Beep In the Night? Some Initial Thoughts on the Intersection of Antitrust Law and Algorithmic Pricing

tags

Algorithmic Pricing

Notes

The inner workings of these tools are poorly understood by virtually everyone

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Are there opportunities for mischief in the black box nature of all this?

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Will the use of pricing algorithms allow firms to collude or increase prices in ways that will ultimately go undetected by the enforcement agencies?

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Does antitrust doctrine need to change in important ways to reflect the greater use of automated decision-making across markets?

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some of the concerns about algorithms are a bit alarmist.

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the expanding use of algorithms raises familiar issues that are well within the existing canon.

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So why don’t we enforcers take action in this situation to prevent conscious parallelism? The simple reason is that there is no sensible remedy here.

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we cannot tell firms to ignore the public behavior of their rivals

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instead we try to make sure, primarily through our merger enforcement program, that the conditions that allow this kind of behavior to take place generally don’t arise in the first place.

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So while our friend with the ladder may eventually, informally lead everyone’s prices higher, things look a lot different from a legal perspective if he walks over to one of his competitors and starts talking to him about prices. Suddenly we now have conduct that has nothing to do with independently setting prices and reacting to market conditions.

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this same analytical framework is sufficiently flexible and robust that it can already accommodate several of the current concerns applicable to the widespread use of algorithms.

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things get a bit more interesting when multiple firms competing with each other employ algorithms to determine prices. In theory, these systems can allow competitors to communicate with each other in ways that may be difficult for enforcers to detect.

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the type of technology used to communicate with competitors is wholly irrelevant to the legal analysis.

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Since 1997, the Department of Justice has imposed fines for criminal price fixing of approximately $11 billion, and the average criminal sentence for an executive accused of price fixing in recent years is 22 months.5 I’d say that suggests a program that is already working pretty well and likely to continue to function well when faced with any nefarious use of algorithms.

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What if algorithms are not used in such a clearly illegal way, but instead effectively become a clearing house for confidential pricing information?

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the firms themselves don’t directly share their pricing strategies, but that information still ends up in common hands, and that shared information is then used to maximize market-wide prices. Again, this is fairly familiar territory for antitrust lawyers, and we even have an old- fashioned term for it, the hub-and-spoke conspiracy.

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Everywhere the word “algorithm” appears, please just insert the words “a guy named Bob”.

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If it isn’t ok for a guy named Bob to do it, then it probably isn’t ok for an algorithm to do it either.

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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.

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