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The Law Societies’ Joint Brussels Office event - Competition in Virtual Reality and the Rising Power of the Super-Platform

9 June 2017

The digital single market has increased access for consumers to buy goods online. The rise of super-platforms selling goods and services pose challenges: the use of algorithms and data change competition dynamics as super-platforms use their data banks and knowledge of consumer behaviour to become more and more efficient. The European Commission’s Preliminary Report on the E-commerce Sector Inquiry reported use of automatic price adjustments and the Organisation for Economic Co-operation and Development (OECD) has also published a report on Algorithms and Collusion.

The digital marketplace could lead to anti-competitive behaviour as it makes it easier for firms to achieve and sustain collusion without formal agreement or human interaction, bypassing the legal instruments currently used to arbitrate interactions.

Issues and findings

  • Anti-competitive collusion: When a company uses algorithms to automatically set prices. The Rotterdam fuel market was found to have used technology which took data from a number of companies to build a database and algorithm which was enabled to make real-time decisions. The question was posed: How much intent is needed for collusion to be established, for Article 101 Treaty on the Functioning of the European Union (TFEU) to apply? This is difficult to establish due to the natural development of the market, posing a challenging question on whether it is possible to charge a company that profits from our data.
  • Personal pricing: Where a company uses algorithms to analyse a consumer’s personal data to quote that individual different prices. This is becoming frequent. When a consumer goes online to buy something, they may believe they are paying the market price. However, the price displayed may be altered based on the consumer’s postcode, device used to access the product, etc. These behaviours can lead to distortion in the market, secret deals and discriminatory pricing.
  • Ethical issues: Consumers believe they have ample choice online provided by many competitors. However, in reality website algorithms frequently ‘decide’ what prices and features to show the individual consumer. Some argue this is a consumer protection problem and not a competition law problem. Wealthier consumers are likelier to have access to countermeasures than poorer consumers, which also brings up the notion of EU competition attempting to bring about fairness. Small businesses may miss out on the benefits of the digital marketplace if they lack the digital knowledge to improve their ranking in popular search engines.
  • Future and legal issues: Algorithms, collusion and personal pricing will likely effect more and more markets. Liability issues will continue to arise - if an algorithm creates a problem, is the person who created the algorithm liable?

Conclusion

Large companies with extensive digital resources are winners in our current digital marketplace. It may be possible to use Article 101 TFEU to legislate in this area to protect consumer rights. The radical changes in competition brought about by the digital sale of goods and services merit closer inspection and intervention, although future legislation must not inhibit innovation.

The Joint Brussels Office welcomed Ariel Ezrachi, Slaughter and May Professor of Competition Law, and Werner Stengg, head of unit for e-commerce and platforms at DG Connect, on 10 May 2017.