September 22, 2018

September 21, 2018

Subscribe to Latest Legal News and Analysis

September 20, 2018

Subscribe to Latest Legal News and Analysis

September 19, 2018

Subscribe to Latest Legal News and Analysis

The German Monopolies Commission’s Proposals Regarding Pricing Algorithms

The German Monopolies Commission (Monopolkommission), an independent body advising the German federal government and legislature on competition law and policy, recently published its Twenty-second Biennial Report (“Report”) in which it outlined recommendations to adapt the German legal framework to account for what it characterized as new competition challenges faced by the increasing and irreversible digitisation of many parts of the economy (please see the Summary Report here and Press Release here, both available in English). Of particular interest is the Monopolies Commission’s proposed approach to anti-competitive algorithm-based pricing.

Background

The way consumers engage with suppliers has changed rapidly over the past few decades, with an increase in the number of these transactions being conducted online.  Companies increasingly use algorithms to set their prices on the internet.  The Report notes that, despite their numerous advantages, pricing algorithms may raise competition concerns if they facilitate and sustain collusion (even without any explicit anti-competitive agreement or human interaction). The Monopolies Commission expressed concern that pricing algorithms have the potential to have anti-competitive effects.

The Report explains that the ability of pricing algorithms to produce or facilitate anti-competitive collusion is heightened where the market is concentrated, involves homogeneous products, contains high barriers to entry and has a high degree of transparency.

Proposals of the Monopolies Commission

The Report covers a number of competition-related matters across its four chapters. However, in relation to pricing algorithms it makes two key proposals:

  1. Monitoring of markets susceptible to coordinated pricing should be strengthened and systematic. The Report notes that competition sector inquiries could be especially useful in this regard as companies are obligated to provide the Federal Cartel Office (Bundeskartellamt) with information. In addition, the Monopolies Commission recommends that consumer associations be empowered to initiate such sector inquiries. In particular, consumer associations could be given the right to approach the Federal Cartel Office requesting that the Federal Cartel Office initiate a sector inquiry. The Federal Cartel Office would only be able to reject such requests on reasonable grounds.                                                                                                                                                                                                                                                                                                                                                                      Further, in the event that competition rules are insufficient in a market where there are “concrete indications” that pricing algorithms are highly likely to lead to collusion, the Monopolies Commission suggests that the burden of proof with regard to the damage caused by an infringement of competition law be reversed. It suggests that this approach would allow for the financial losses resulting from the collusion to be assigned to the users of the pricing algorithms.
  2. The liability of third parties that design pricing algorithms should be reviewed. Few companies create such algorithms themselves. Rather, they enlist IT service providers with expertise to do so. The Report notes that, at present, the liability of such providers for violation of competition law is dependent on whether the decision on the design of the algorithm is attributable to the company using the product or the IT service provider.

Conclusion

These policy recommendations remain just that, and it remains to be seen whether they will be adopted in part or in whole.

That said, these recommendations should not be viewed in isolation. The Federal Cartel Office, together with the French competition authority (Autorité de la concurrence), recently launched a joint project on algorithms and their potential anti-competitive effects.  Further, in its 24 July 2018 press release regarding the fining of consumer electronics manufacturers Asus, Denon & Marantz, Philips and Pioneer for imposing fixed or minimum resale prices on their online retailers, the European Commission noted that the effect of such restrictions was magnified by the pricing algorithms used by many online retailers. Although the decision stops short of saying anything further about the use of such algorithms, it is the first time the Commission has made such a reference in the context of an infringement decision.

Jonathan Benjamin also contributed to this piece. 

© 2018 Covington & Burling LLP

TRENDING LEGAL ANALYSIS


About this Author

Miranda Cole, Covington, Intellectual property attorney
Partner

Miranda Cole is a partner based in Covington's Brussels and London offices. She specialises in competition law (merger control, abuse of dominance, vertical and collaborative arrangements and technology licences and other agreements). Chambers Global notes that she "takes a proactive, holistic approach" (2014).

Her practice has a particular focus on advising companies active in the technology, communications and media, software and ecommerce, aviation and life sciences sectors. She advises clients on the competition issues raised by IP, data and...

32-2-549-5264
Wesley Lepla, Covington, regulatory lawyer
Associate

Wesley Lepla advises on all aspects of Belgian and European competition law, including merger control, cartels, anticompetitive agreements, abuse of a dominant position, and state aid law.

He has worked on a range of merger control cases before the European Commission and numerous national authorities and has gained extensive experience in coordinating multijurisdictional merger control notifications and proceedings. Mr. Lepla has represented clients in antitrust proceedings and regularly counsels on state aid, vertical agreements, and the licensing of intellectual property rights.

+32 2 545 7511