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Law and technology

Illegal Pricing Algorithms


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pricing algorithm, illustration

Credit: Alicia Kubista / Andrij Borys Associates

On June 6, 2015, the U.S. Department of Justice brought the first-ever online market-place prosecution against a price-fixing cartel. One of the special features of the case was that prices were set by algorithms. Topkins and his competitors designed and shared dynamic pricing algorithms that were programmed to act in conformity with their agreement to set coordinated prices for posters sold online. They were found to engage in an illegal cartel. Following the case, the Assistant Attorney General stated that "[w]e will not tolerate anticompetitive conduct, [even if] it occurs...over the Internet using complex pricing algorithms." The European Commissioner for Competition endorsed a similar position, stating that "companies can't escape responsibility for collusion by hiding behind a computer program."

Competition laws forbid market players from engaging in cartels, loosely defined as agreements among market players to restrict competition, without offsetting benefits to the public. This prohibition is based on the idea that competition generally increases welfare, and that for competition to exist, competitors must make independent decisions. Accordingly, price-fixing agreements among competitors are considered the "ultimate evil" and may result in a jail sentence in the U.S., as well as in other jurisdictions, unless the agreement increases consumers' well-being.


 

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