Artificial intelligence (AI) has posed a variety of challenges for competition law across jurisdictions. The European Commission has recently taken steps to address these issues, particularly the increasingly common use of algorithmic pricing by undertakings. This article will examine the rise of algorithmic pricing and its effect on EU competition law.
Article 101 of the Treaty on the Functioning of the European Union (TFEU) prohibits anticompetitive agreements between undertakings, including those that ‘directly or indirectly fix purchase or selling prices’, as well as ‘concerted practices’.
Article 102 prohibits the ‘abuse of a dominant position’, requiring two elements:
(i) The undertaking(s) must hold a dominant position in a market.
(ii) There must be an abuse of that dominance.
Algorithmic pricing is used across industries to propose or enact changes to pricing by considering historical data and market conditions. Its main advantage is enabling undertakings to respond rapidly to market changes, optimising revenue.
Such algorithms fall into three categories:
(i) Pricing Monitoring Algorithms (PMAs): Track prices set by competitors.
(ii) Dynamic Pricing Algorithms (DPAs): Adjust prices in response to competitors or market shifts.
(iii) Personalised Pricing Algorithms (PPAs): Set individualised prices.
Despite their benefits, algorithmic pricing systems may conflict with Article 101. PMAs can facilitate explicit collusion by monitoring changes between colluding firms. In Topkins US and GB Eye Trod, investigated by the UK Competition and Markets Authority (CMA), poster retailers used algorithms to synchronise prices. Research also suggests algorithms could enable the automation of concerted practices, occurring without direct communication between undertakings.
Algorithmic pricing may also amount to abuse of dominance under Article 102, which prohibits the imposition of ‘unfair purchase or selling prices’. The use of DPAs by Ticketmaster has drawn scrutiny, with consumers alleging unfair pricing. Both the European Commission and CMA investigated whether these practices breached competition law. Ticketmaster argued that its approach was comparable to the dynamic pricing models used in aviation and hospitality.
Deputy Director-General Linsey McCallum confirmed that the Commission is investigating algorithmic pricing at Union level. In 2023, the Commission issued guidelines highlighting the role of algorithms in facilitating collusion and stressing that undertakings cannot escape liability by outsourcing decisions to code.
Algorithmic pricing has created a new frontier for EU competition law. Yet the Commission has reaffirmed its determination to address unlawful conduct, as reflected in its 2023 guidance and ongoing inquiries such as the Ticketmaster investigation.
Written by Rohan Seenarine
Edited by Toby K.
Sources: TFEU, CMA, Guardian, Freshfields, Skadden, Leighday
Algorithmic Pricing and Competition Law
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