European Commission takes action against online retailers

The European Commission has fined four consumer electronics manufacturers €110 million for forcing online retailers to adhere to fixed or minimum resale prices. Asus, Denon & Marantz, Philips and Pioneer have all been fined following a warning from the Commission that software used to monitor retail prices facilitated putting pressure on retailers. The manufacturers in question have all been fined, in four separate cases, for effective price fixing.

 

There are several interesting aspects to these fines, the first of their type in some time. In simple terms, all four manufacturers were fined for applying pressure to those retailers they considered were under charging for their products by threatening such tactics as withholding supplies. Pioneer went further and restricted the ability of retailers to sell across borders in order to make it easier to maintain prices at different levels in different areas.

 

Reductions in fines of up to 50% were allowed because the manufacturers complied with the investigations, an unexpected concession since such reductions normally apply only in the case of horizontal cartels.

 

One particularly interesting aspect of this is that the use of pricing algorithms was considered to have been an aggravating factor. Many retailers use these to track competitors’ pricing for products and automatically bring their own in line. It was noted in these cases that applying pressure to prevent low pricing by certain retailers had, via pricing algorithms, an effect on prices everywhere. Furthermore, those same algorithms make it easy for a manufacturer to intervene very swiftly if they choose. It should be clarified that the Commission has not considered the normal use of such algorithms to be unlawful, but it has highlighted a way in which they may be used unlawfully. 

 

The questionable or unlawful use of algorithms that most concerns the Commission includes their use as a tool to facilitate collusion within, and indeed formation of, cartels. The extent of the collusion, and whether it is deliberate or an accidental byproduct of algorithms, is likely to prove increasingly problematic to determine in legal proceedings. As machine learning accelerates, we may even see scenarios in which algorithms talk to each other and effectively collude without human intervention. For these reasons, the Commission wishes to see efforts to build safeguards into price-monitoring algorithms to prevent this.

 

The US Department of Justice and the UK Competition and Markets Authority have both set up technology teams to tackle this issue, and there are similar efforts underway in France and Germany. The basic message is simple and clear - companies must not attempt to dictate the price at which retailers sell their products - but there is now a definite necessity for companies to understand how pricing algorithms work and avoid any misuse of them.