On 24 July 2018, the European Commission fined four consumer electronics manufacturers a total of €111 million for fixing the online prices of their retailers (resale price maintenance).
The companies used sophisticated pricing algorithms to effectively track and police resale price setting in their distribution networks. Retailers that didn't abide by the manufacturers' prices faced threats or sanctions such as blocking of supplies. Each company individually used its own software to monitor resale prices; there is no suggestion that the algorithms facilitated collusion amongst the companies.
Nonetheless, the case illustrates the compliance risks of using algorithms and the challenge faced by regulators around the globe who fear that pricing software and online algorithms could facilitate market manipulation and algorithmic collusion.
Companies that rely upon pricing software to maximise their sales and revenue objectives should be mindful of the following:
- You are free to manage the distribution of your products but you cannot dictate sales prices to retailers
- Pricing software can be used to encourage healthy competition, but it is unlawful to use it as a means of facilitating resale price maintenance (RPM) or price fixing
- Manage the risks of anti-competitive behaviour through "compliance by design": be aware of exactly what the algorithm is set to do (its structure, workings etc.) before implementing it, and programme the software to prevent RPM or price-fixing
- Sharing information with competitors about a pricing algorithm and how it works is risky, as it would allow others to deduce how prices are or will be calculated
- Programming an algorithm to enable exchanges of information with competitors' algorithms is also risky, as this could facilitate algorithmic collusion
If you would like to discuss these issues further, please contact us.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
