Algorithms and competition law

03 July 2018

Dr. Jörg Witting, Thomas Oster

The French and German competition authorities, Autorité de la concurrence and Bundeskartellamt, have started a joint project on algorithms and their effects on competition. 

They see algorithms becoming significantly more important as they are increasingly used in matching or ranking digital services, as well as in algorithm-based dynamic price-setting. The project is intended to analyse the relevance of algorithms for competition and to develop a conceptual approach to dealing with potential issues. The authorities mention the high level of automatisation and machine-to-machine communication as areas of interest that might raise questions, and they intend to develop a categorization of algorithms on the basis of which their effects on competition will be analysed. Their project will also cover algorithm-based investigation methods. 

While it remains to be seen how this project will develop and what its finding will be, one major issue seems to be the fact that advanced and elaborate algorithms tend to be extremely complex, making it very difficult (if not impossible in some cases) to analyse the decision-making process of a given algorithm in each and every case of application. Potential competition law related risks should be taken seriously and should be part of robust competition compliance activities. Competition authorities are often concerned by the fact that algorithms could facilitate price collusion between competitors or could be used as a surveillance tool in relation to resale price maintenance (at the end of May, the UK energy regulator Ofgem issued a statement of objections alleging that a software provider had infringed competition law by providing a platform that allowed two suppliers to avoid poaching each other's customers). The fulfillment of regulatory requirements such as those based on the newly-introduced Geo-blocking regulation may also be influenced by the use of algorithms: Where algorithms are used, for example, for the dynamic setting of prices, this may lead to unlawful discrimination between customers where the use of an algorithm results in different pricing depending on where the client is based. 

The authorities have indicated that they will publish a joint working paper on this issue in the coming months. This will be the second joint study between the French and German competition authorities, after the joint working paper on big data which was published in May 2016 (and resulted in a better understanding of the authorities of the impacts of big data on markets and competition). It will in any case be crucial for this specific area of competition law enforcement to have a deep understanding of the technical background of the relevant aspects.