Companies are liable for the algorithms they use
The Competition Authority has informed companies selling goods or services online and which use algorithms for coordinating prices with each other that this practice constitutes a breach of competition law, emphasizing that the companies themselves are liable for the algorithms they might use.
The incompatibility of this practice with the Competition Act may exist whether the monitoring of the prices is automatic, or whether it is subject to human intervention.
The digital world has an impact on the economy, leading to the appearance of new business models. Statistics show that in 2018, 94% of Portuguese citizens with access to the Internet made at least one online purchase. Apart from this, studies from the National Institute of Statistics showed that, in 2018, almost 37% of Portuguese citizens between the ages of 16 and 74 residing in Portugal made purchases over the Internet, whereas in 2010 this percentage was barely 15%.
Nowadays, an increasing number of companies use algorithms in order to obtain information on their competitors. In an opinion issued by the Competition Authority, there is information from investigations made into 38 companies operating online in Portugal. The investigations looked at how the companies monitor their competitors. The results of the survey showed that 37% of companies admitted to using algorithms for controlling the prices of competitors. Of those companies admitting using these instruments as a means of controlling their competitors price strategies, 78,6% said they adjusted their prices based on the results obtained. However, this adjustment only took place automatically without human intervention in 7.9% of these companies.
The algorithms allow for fast easy monitoring of competing companies. For instance, the possibility exists of detecting occasional risks through the use of algorithms.
The risks associated with the use of these mechanisms is related to collusive strategies. The Competition Authority believes that collusion is made easier with the increasing use of this software. It is still far from clear how this collusion works, as opposed to the efficient reaction of the discerning trader who does not want to be uncompetitive.
According to the concept as described by the Competition Authority, collusion between companies, also referred to as a cartel, corresponds to an agreement between companies with competing activities in order to restrict competition and control the market more effectively.
The use of algorithms does not merely consist of collecting the prices used by competitors, but rather it allows companies to gather information on the availability of the goods, i.e. it allows them to understand if competitors still have stock available, or if they have run out of it.
Technology development has occurred at such a rate that, nowadays, algorithms allow various items of information to be obtained relating to clients, from the number of visits they make to a website, to the length of time they stay there.
Another problem associated with the use of algorithms is the possibility of dominant companies excluding competitors, once they have the capacity to offer clients more personalized content.
Within the European Union, the European Commission has also had occasion to pronounce on the purposes of these actions possibly contrary to competition rules. Aside from this, the European Commission has repeated the importance of these rules as a means of consumer protection.
The European Commission has also carried out studies showing the growing use by distributors of automatic software, as a means of controlling and coordinating prices.
By way of example, we may mention the case of July 24, 2018, in which the European Commission penalized four manufacturers of electronic products for imposing fixed resale prices or minimum resale prices on their distributors operating online. The companies targeted were Asus, Denon & Marantz, Philips and Pioneer.
Online is undergoing growth, and at present, more than half of all European citizens make purchases online. The practices of the four companies that imposed higher prices affected the users of this means of conducting business, and are illegal.
On imposing a fixed or minimum resale price, the four companies did not only influence those companies on which they imposed them, but also most distributors using price algorithms automatically adapting the selling prices of their competitors. The damage on this highly technological market is significantly greater than that which may occur in the traditional market. As many distributors were affected by these restrictive impositions, as well as consumers, who were charged higher prices, they ended up suffering damage.
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