The AdC warns that using algorithms to coordinate market prices is incompatible with the Portuguese Competition Law

​Press Release 11/2019

The AdC warns that using algorithms to coordinate market prices is incompatible with the Portuguese Competition Law
 
The Portuguese Competition Authority (Autoridade da Concorrência, AdC) warns that firms are responsible for the algorithms they use and that employing these tools with the aim of coordinating prices, or otherwise weaken competition in the market, is incompatible with the Portuguese Competition Law.
 
This warning follows the analysis undertaken by the AdC on digital ecosystems, big data and algorithms, that led to the Issues Paper that is now made available.

The digitalisation of the economy led to the emergence of new business models, based on digital platforms, and has drastically changed consumption patterns: in 2018, 94% of Portuguese internet users made at least one online purchase.

Nonetheless, in digital markets, rather than competition being a “click away”, it may well be exclusion that is “a click away”, given that incumbent platforms may engage in exclusionary strategies, namely by exploiting consumer behavioural biases.
 
Big data has allowed the development of pricing, monitoring, ranking and recommendation algorithms that may have positive effects in terms of product discovery and price comparison, but may also facilitate reaching and sustaining collusive equilibria in the market.
 
Pricing algorithms may also allow firms to engage in personalised pricing strategies that, while potentially expanding output, may also allow for an enhanced ability of firms to appropriate consumer surplus.
 
Algorithms used to monitor online prices of competitors are already a widely used tool by firms in Portugal. About 37% of a sample of firms active online in Portugal have reported using this type of software. These results are in line with those of the e-commerce sector inquiry of the European Commission.
 
The AdC has not found evidence indicative of a widespread use of pricing algorithms (7.9%) in the inquired sample of firms. Nonetheless, the analysis shows that the use of pricing algorithms may already have implications in some markets and marketplaces and may represent a challenge for competition policy in the future.
 
Another challenge for competition policy in the digital era is avoiding the risk of aggressive mergers that target small or potential competitors so as to allow incumbent platforms to “close the entry point” to the market.

These pre-emptive mergers may be driven by the aim of expanding or strengthening the ecosystem through product incorporation or discontinuing/limiting the introduction of new products (killer acquisitions). These deals may, however, escape merger control by competition authorities for failing to meet the notification thresholds, namely due to the low turnover of the target firm.
 
As a result, there has been much debate on the need to adjust the criteria foreseen in legal competition frameworks, so as to capture these deals, in particular those that harm competition.
 
Incumbent platforms may also adopt exclusionary strategies by restricting their rivals’ access to the data they need in order to carry out their activities. This topic has experienced some recent legal and regulatory developments towards providing users with more control over their data.
 
At the sectoral level, the Second Payment Service Directive (PSD2) stands as a pioneering example of regulation of access to data in the digital era, as it imposes obligations on banks to, upon client consent, provide FinTech operators with access to client data in order to provide certain payment services. In this regard, the AdC identified, in its October 2018 FinTech Issues Paper, a risk of foreclosure, by banks, of FinTech operators access to client data and issued several recommendations to mitigate this risk, incorporating the form in which these risks may arise in the digital era.

 


Lisbon, 1 july 2019


 

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