27 July 2018
Last year, we speculated whether the European Commission might target pricing algorithms (here) and noted that the Final Report of the Commission’s E-Commerce Sector Inquiry had identified the wide-scale use of pricing software as an issue that might raise competition concerns (here). On 24 July 2018, the Commission announced that four consumer electronics manufacturers, including Asus and Pioneer, have been fined a total of over €111 million for imposing fixed or minimum resale prices on their online retailers (here). If the online retailers tried to set lower prices than those requested by the manufacturers, they were threatened with actions such as the withdrawal of supplies of the product in question.
Interestingly, the Commission noted that the use of pricing algorithms by the online retailers exacerbated the impact of the manufacturers’ conduct. Many retailers were using pricing algorithms to automatically adapt their prices to those of their competitors. So where manufacturers were able to force some online retailers to adopt higher prices than they wished to, this had a broad impact across overall online prices. It meant that other online retailers would match those higher prices, rather than the lower prices that might otherwise have been introduced. In essence, this is rather akin to the umbrella price effects arising from many cartel-type agreements between competitors, but is not something that would – in the pre-pricing-algorithm era – have been so possible in the world of distribution agreements.
This isn’t an example of the Commission taking issue with the use of pricing algorithms in their own right. It hasn’t accused the online retailers of using pricing software as a means of coordinating on prices. Nor has it taken aim at the companies producing such software. The Commission did flag the manufacturers’ use of “sophisticated monitoring tools” to track resale prices, which enabled them to intervene quickly if a retailer attempted to decrease its prices, but otherwise pricing algorithms/software were part of the background to the decisions rather than the focus.
This may have been because there is nothing novel in the underlying competition law infringements committed in these cases; they appear to be classic cases of resale price maintenance contrary to Article 101 TFEU – although it is true that the Commission has not enforced against such agreements for a number of years before this announcement. In any event, there is nothing here to alarm companies making use of pricing algorithms or monitoring software, as long as they aren’t using such tools to implement an unlawful strategy.
However, these decisions do show that the Commission is alive to the potential for pricing algorithms and other software tools to be utilised as part of anti-competitive conduct, and such tools may feature more heavily in future Commission decisions. The Commission launched a number of other investigations following the E-Commerce Sector Inquiry (see here and here) into issues such as the licensing and distribution of merchandising products, the geo-blocking of PC video games, and hotel price discrimination on the basis of customer location. Any decisions adopted following the conclusion of those investigations may offer some further guidance on the use of pricing algorithms.