Price setting software risks breaching competition law

Michael Dean

Michael Dean, a partner in the competition team at Dentons’ Glasgow office, said that this increasingly popular software – now backed by data analysis and machine-learning systems – could, under the right circumstances, be viewed as price-fixing by competition authorities.

He said: “A European Commission investigation found that two-thirds of retailers who track their competitors’ prices use automatic systems. Some also use such tools to adjust prices automatically, and several direct competitors could easily end up using the same provider. Logically, if a tool is initiating price changes in a fast-moving market it may be possible for it to be analysing the same data and providing the same pricing instructions.

“A business may not be aware of this, or even what data is effectively being shared with its competitors, but ignorance is no defence: the European Commissioner for Competition stated last year that companies ‘can’t escape responsibility by hiding behind a computer program’.”

Mr Dean added that firms should be alert to this and any other way in which sales or even purchase data is capable of being revealed. He noted that a recent case where pricing software was deliberately used by two online sellers to collude on prices saw one company director disqualified.

‘Price optimisation’ has become popular, especially among online retailers, and is often used by online marketplace sellers to make sure their prices are not being undercut by competitors.

However, increasingly sophisticated versions of such tools are now being offered to businesses in all sectors. They allow companies to see changes in competitors’ pricing, and set strategies of their own, which can include ’dynamic pricing’ and rapid, automated price changes.

Mr Dean said: “These solutions can undoubtedly be effective at increasing profit margins or helping to gain customers, but companies who use them must conduct due diligence beforehand. It is essential to understand how they work; what information is effectively being shared; and to keep it independent from competing businesses.

“Otherwise, firms face serious consequences: fines, director disqualification, and extradition to the US. These are best avoided by taking charge of the situation.”