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Focus on Regulation

Digital competition policy on the move: Price algorithms in the German Monopolies Commission’s spotlight – European Commission launches consultation process

Price algorithms are clearly the “talk of the town” in the European competition law community these days. Just last week, the German Monopolies Commission published a report in which it discusses potential anti-competitive effects of price algorithms and proposes far-reaching amendments to the competition law enforcement framework. Meanwhile, the European Commission has announced a consultation process with a view towards shaping competition policy in the era of digitisation.

Price algorithms in the focus of European competition authorities

Across Europe, competition authorities are currently putting a focus on algorithms. In recent weeks, both the Federal Cartel Office and the Austrian Federal Competition Authority have addressed the question of whether the use of price algorithms can lead to excessive ticket prices in the airline industry. In addition, the Luxembourg Conseil de la Concurrence investigated whether the price algorithm used by a taxi app violated antitrust law. Finally, the French Autorité de la Concurrence and the Federal Cartel Office announced the launch of a joint research project to investigate algorithms and their implications on competition.

Monopolies Commission: Serious risks to competition

It its 22nd Biennual Report, published on 3 July 2018, the Monopolies Commission devotes an entire chapter to the issue whether, and if so, to which extent the use of price algorithms may enable or even facilitate infringements of competition law. The Monopolies Commission is an advisory board advising the German Federal Government, the legislation and the general public in the area of competition policy, competition law and regulation. Although the Monopolies Commission has no direct means of intervening, it nevertheless exerts considerable influence on the legislative process as well as public opinion through its Biennial Reports on current competition policy issues.

The focal point of the Monopolies Commission`s analysis is the concept of collusion. Collusion is typically understood as a market result in which companies realize higher profits than in a competitive environment by way of coordination, for example in relation to prices or quantities. Even though the Monopolies Commission acknowledges various advantages for consumers may be associated with the use of price algorithms, it identifies the following competitive concerns:

  • In data-intensive sectors such as the internet economy, price algorithms can increase transparency in the markets and, thus, facilitate explicit collusion by automating and accelerating collusive pricing.
  • The use of price algorithms could also make explicit agreements restricting competition dispensable as they reduce the need for such agreements between companies.
  • In the case of self-learning algorithms, the crucial (i.e. potentially anticompetitive) business decision is already made at the time of the decision regarding the price algorithm and is not made in the price-setting process.
  • The use of price algorithms tends to make the discovery of collusive behaviour by competition authorities more difficult, both in terms of the determination of an anticompetitive agreement and the proof of potentially excessive prices.

Proposed solution: Increased use of sector inquiries on the initiative of consumer association?

Against this background, the Monopolies Commission recommends an enhanced market monitoring by expanding the enforcement tool of sector inquiries especially in data-intensive sectors. According to the Monopolies Commission, information on possibly collusive excessive pricing is most likely to emerge at the level of consumer associations. As a result consumer associations should receive a right to initiate sector inquiries. Detailed reasons would have to be provided by the Federal Cartel Office in case of a rejection of such applications.

If concrete indications were to arise from the market monitoring that the use of price algorithms enhances collusive market results and obfuscates its discovery, the Monopolies Commission considers two more legal aspects:

  • Reversal of the burden proof in competition proceedings with regard to the damage caused by an infringement of competition law; meaning that the finding of a collusive use of price algorithms would give rise to the presumption of an excessive price.
  • Far-reaching extension of liability for competition law infringements to third parties such as IT service providers regarding the design of price algorithms.

European Commission calls for participation in shaping digital competition policy

As yet, the measures proposed by the Monopolies Commission are of a theoretical nature. However, the increasing activities of competition authorities across Europe do make one thing very clear: The fundamental framework for the enforcement of competition law in the digital economy is being negotiated (and eventually determined) right now!

Against this background, the European Commission has started its own consultation process on these very issues: On 19 January 2019 a conference about ‘Shaping competition policy in the era of digitisation’ will be held by the European Commissioner for Competition Margarethe Vestager. All stakeholders involved are invited to issue statements before 30 September 2018. The message is clear: If you want to have a say in how competition law should be applied in the future, in particular in digital industries, you have to become active now!