Competition Authorities have observed in recent years that the use of algorithms in companies' activities, particularly in price-setting, can have negative effects in certain situations, especially by facilitating collusive practices and coordination among competitors to obtain supra-competitive benefits, to the detriment of consumer welfare, according to an analysis by the law firm PeliPartners, authored by Oana Bucșa, Senior Associate.

The automation of internal processes is increasingly presented as a key element for the success of a business. The use of such solutions, based on algorithms, allows companies to be more innovative and efficient.

"Algorithms influence a large part of our economic life, whether we think of bank interest rates, search engine results, price comparison websites, or ride-sharing services. In all these circumstances, a series of algorithms determine the information displayed to us.

It is important to know that there are situations and ways in which algorithms, especially pricing algorithms, can lead to violations of competition rules," explained Oana Bucșa, Senior Associate at PeliPartners.

The use of algorithms as support or facilitators of coordination among competing companies

This occurs when two or more companies coordinate to eliminate competition in the market - for example, by fixing the selling price of products or dividing customers - and choose to implement, monitor, or even conceal the anticompetitive agreement with the help of algorithms - through data encryption.

The use of algorithms in this case is not essential for the existence of a competition violation, which can be proven, for example, based on potential initial contacts. However, it can be considered in the overall analysis of the case, and moreover, it can attract the liability of companies that are not active in that market - for example, suppliers who designed the algorithms, to the extent that they were aware that they would be used for anticompetitive purposes.

"A relevant example at the European level comes from Spain, where several real estate intermediaries and software service providers were sanctioned for fixing the commission applicable to the sale of properties.

It is worth noting that software companies that configured the program used for property management were also sanctioned because they participated in meetings and included various filters and control measures in the design of the algorithms to ensure that all properties met certain requirements, including the commission," explained Oana Bucșa.

The joint use by competing companies of an algorithm developed and/or operated by a third-party operator

Another aspect of competition is coordination among competitors that can occur as a result of the joint use of an algorithm developed and/or operated by a third party.

In this scenario, a distinction is made between situations where competitors knowingly use an algorithm belonging to a third party and situations where, without the knowledge of the companies, the third party applies the same algorithm in relation to multiple competitors and sets it in such a way as to eliminate competition in the market.

As competition rules allow an authority, depending on the circumstances of a case, to activate the presumption that a particular company had knowledge of the coordination implied by the configurations implemented by a third-party supplier - for example, based on the mode of communication of the settings, actual correspondence between the parties, etc. - it is important for economic operators to ensure that they have a complete understanding of the IT solutions used in their own operations.

The use of distinct algorithms that independently align pricing policies

A third aspect is when, using distinct algorithms and without coordination, two or more competing companies nevertheless align their pricing policies.

Specifically, the question arises as to whether, without the knowledge of the companies, algorithms can reach the conclusion that the best pricing solution involves alignment. Along these lines, issues are raised, such as to what extent companies can be held responsible for the independent actions of algorithms, given that independent market adjustment is permitted by competition law.

The use of algorithms in relationships between non-competitors

Algorithms can also be used to support or implement agreements between non-competitors. For example, in the relationship between a supplier and its distributors, the supplier may use algorithms to monitor compliance with the fixed or minimum price and penalize any deviations by the distributors.

Such a practice was prohibited at the European level by the European Commission in 2018 when several electronics and home appliance manufacturers were sanctioned precisely for using algorithms to monitor the retail prices of online retailers.

The use of algorithms by companies holding a dominant position

Regarding the unilateral behavior of companies, a subject of great interest at the European level is the issue of self-preferencing actions by companies holding a dominant position.

We are referring to the actions of a dominant company that are intended to favor its own services or products over those of competitors. There are increasing interventions at the European level where tech giant companies are being sanctioned for implementing algorithms (for example, in displaying results) that are presumed to be set in a way that promotes their own developed products.

The practices of self-preferencing need to be analyzed on a case-by-case basis, taking into account their effects and balancing the negative effects - such as creating barriers to market entry - with the positive ones, such as innovation or customization of services and products for customers.