Algorithmic Collusion under Scrutiny

There is increased scrutiny of the use of algorithms to determine pricing and potential collusion. The focus is based on the litigation, enforcement and legislative fronts.

The Antitrust Division is focusing more resources on algorithmic collusion. In January, an Antitrust Division official noted that it is “building out a more robust data analytics and data science practice to address those sorts of AI and pricing algorithm issues and also build out some of our market intelligence tools.” In related news, on February 22, 2024, the Attorney General announced the first Chief Science and Technology Advisor and Chief Artificial Intelligence (AI) Officer in the Office of Legal Policy as part of an effort to “keep pace with rapidly evolving scientific and technological developments in order to fulfill our mission to uphold the rule of law, keep our country safe, and protect civil rights.”

On the enforcement side, the Antitrust Division obtained a criminal conviction involving an agreement “with the goal of coordinating changes to their respective [competitor] prices” based on “computer code that instructed algorithm-based software to set prices in conformity with this agreement.” In another case, the Antitrust Division filed a Statement of Interest stating their position that “it is per se unlawful when … competitors knowingly combine their sensitive, nonpublic pricing and supply information in an algorithm that they rely upon in making pricing decisions, with the knowledge and expectation that other competitors will do the same.”

The Federal Trade Commission (FTC) has also been active in policing the anticompetitive use of pricing algorithms. On March 1, 2024, the DOJ and FTC filed a joint Statement of Interest in the highly publicized RealPage action alleging the use of “pricing algorithms to artificially inflate multifamily rental prices.” In this case, the agencies also note, “competitors may not agree to fix the starting point of pricing (e.g., agree to fix advertised list prices) even if the actual charged prices vary from the starting point.” The FTC Office of Policy and Planning Director and Deputy Assistant Director of the Anticompetitive Practices II Division provided further guidance, “Price fixing by algorithm is still price fixing,” noting that “Agreeing to use an algorithm is an agreement.” The District of Columbia Office of the Attorney General filed a complaint “for unlawfully colluding to raise rents by collectively adopting the rents set by RealPage’s technology and unlawfully agreeing to exchange competitively sensitive data.”

Congress is also focusing on algorithmic collusion. On Jan. 30, 2024, Senator Amy Klobuchar (D-MN) introduced the Preventing Algorithmic Collusion Act (S. 3686), which would:

• Close a loophole in current law by presuming a price-fixing “agreement,” when direct competitors share competitively sensitive information through a pricing algorithm to raise prices;
• Increase transparency by requiring companies that use algorithms to set prices to disclose that fact and give antitrust enforcers the ability to audit the pricing algorithm when there are concerns it may be harming consumers;
• Ban companies from using competitively sensitive information from their direct competitors to inform or train a pricing algorithm; and
• Direct the FTC to study the impact of pricing algorithms on competition.

Companies using algorithms to determine price should assess the antitrust risk in the design and implementation and address the legal issues that may arise.

(This article originally appeared in the March 2024 Cartel Enforcement Trends and Developments newsletter.)