The impact of algorithms on competition
Oana Bucșa, Senior Associate at PeliPartners

Competition authorities observed in recent years that the use of algorithms in business related activities, particularly in pricing, can also have negative effects in certain cases, especially by facilitating collusive practices - coordination between competitors to obtain supra-competitive benefits in detriment of consumer welfare, shows an analysis by law firm PeliPartners.

Automation of internal processes is increasingly presented as a key to business success. The use of such algorithm-based solutions enables companies to be more innovative and efficient.

"Algorithms influence a large part of our economic lives, whether we're thinking about credit interest rate, search engine results, price comparison websites or accessing ridesharing. In all of these circumstances, there are a number of algorithms behind the scenes that determine the information we are shown. It is important to know that there are situations and ways in which algorithms, especially pricing algorithms, can lead to violations of competition rules",explained Oana Bucșa, Senior Associate at PeliPartners.

The use of algorithms to support or facilitate coordination between competing companies

This occurs when two or more companies coordinate so as to eliminate competition on the market - for example by fixing the selling prices of products or by customer sharing - and choose to implement, monitor, or even hide the anti-competitive deal using algorithms – for example, by encrypting data.

The use of algorithms in this case is not essential to the existence of an infringement of competition, which can be proven, for example, on the basis of potential initial contacts. However, it may be taken into account in the overall analysis of the case, and moreover it may engage the liability of companies that are not active on that market - for example - the suppliers who designed the algorithms, to the extent that they knew that the algorithms would be used for anti-competitive purposes.

"A relevant example at European level comes from Spain, where several real estate brokerage companies as well as software service providers have been sanctioned for fixing the commission applicable at the sale of real estate properties. 

It is relevant to note that the software companies that set up the software used to manage the properties were also sanctioned because they participated in meetings and included in the design of the algorithms various filters and control measures to ensure that all the properties complied with certain requirements, including the commission"explained Oana Bucșa.

Joint use by competing companies of an algorithm developed and/or managed by a third-party operator

Another competition angle is that of coordination between competitors that may occur as a result of the joint use of an algorithm developed and/or operated by a third party.

In this scenario, a distinction is made between situations where competitors knowingly use an algorithm belonging to a third party, and situations where, without the companies' knowledge, the third party applies the same algorithm to several competitors and sets it in such a way that it leads to the elimination of competition in the market.

As the competition rules allow an authority, depending on the circumstances of a case, to activate the presumption that a particular company was aware of the coordination involved in the configurations implemented by a third-party provider - for example, based on how settings were communicated, actual correspondence between parties etc. - it is important for economic operators to ensure that they have a comprehensive overview of the IT solutions used in their business.

The use of distinct algorithms that align independently of coordination between competitors

A third angle is where, using distinct algorithms, and without coordinating, two or more competing companies nevertheless end up aligning their commercial pricing policy. 

More specifically, the question has been raised lately whether, without the companies' knowledge, algorithms can conclude that the best pricing solution is one involving alignment. Along these lines, questions arise such as - to what extent can companies be held liable for the independent actions of algorithms, given that independent adjustment to the market is allowed under competition law.

The use of algorithms in relationships between non-competitors

Algorithms can also be used to support or implement agreements between non-competitors. For example, in the relationship between a supplier and its distributors, the former may use algorithms to monitor compliance with the fixed or minimum indicated price and to sanction possible deviations of distributors.

A similar practice was banned at European level by the European Commission in 2018, when a number of electronics and appliances manufacturers were sanctioned precisely for using algorithms to monitor the retail prices of online retailers.

The use of algorithms by dominant companies

In terms of unilateral behaviour of companies, a topic of great interest at European level is represented by the self-preferencing actions of dominant companies. 

This refers to the actions of a dominant company which are designed to favour their own services or products over those of its competitors. There is an increasing number of interventions at European level whereby giant tech companies are sanctioned for implementing algorithms (for example, when displaying results) that are supposedly set to promote products they have developed.

It is considered that self-preferencing practices should be analysed on a case-by-case basis, paying attention to their effects, and weighing up the negative effects - creation of barriers to market entry - against the positive ones -such as innovation or personalisation of services and products for customers.

January 24, 2024 09:20
Numerous renewal energy projects were blocked as a result of the minutes of th...more »
January 11, 2024 11:55
Article by Flavius Florea, Counsel Wolf Theiss  In an era dominated by ...more »
August 21, 2023 13:13
By Mihai Popa, Deputy Managing Partner, Head of Labour & Employee Benefits...more »
August 14, 2023 12:44
EU Directive 2019/2121 (also known as the "Mobility Directive") aims to create...more »
Govnet Next Events