US regulatory bodies, including the Department of Justice and the Federal Trade Commission, have raised concerns about the potential for algorithms to facilitate price collusion among businesses, even in the absence of direct human communication.
Regulatory Intervention in Algorithmic Price Collusion
US antitrust authorities warn that algorithms could potentially facilitate illicit price collusion among hotels, even without direct communication between human representatives of those establishments.
In a notable legal development, the Department of Justice and the Federal Trade Commission jointly filed a statement of interest in the case of Cornish-Adebiyi v. Caesars Entertainment, currently before the US District Court of New Jersey.
This class-action lawsuit, initiated by New Jersey residents who stayed at Atlantic City hotels, alleges that multiple hotels participated in an unlawful price-fixing scheme through the utilization of a shared pricing algorithm.
The plaintiffs contend that the hotels violated Section 1 of the Sherman Act, which prohibits collusion in restraint of trade and is commonly invoked in cases of illegal price-fixing.
They argue that the hotels allegedly adopted a pricing algorithm platform named Rainmaker, knowing that their competitors were also employing the same platform, ostensibly to maintain pricing parity.
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The regulatory agencies are deeply involved in addressing this issue, particularly emphasizing the practical implications of judicial treatment concerning algorithms in price-fixing cases.
They have previously intervened in similar cases, such as one involving RealPage, a rental property management software company, where tenants accused the company of contributing to inflated rental prices by accessing and utilizing nonpublic pricing data from landlords, as reported by ProPublica.
Challenging Assertions in Legal Proceedings
Amidst the legal proceedings concerning hotels, DOJ and FTC are challenging two fundamental assertions put forth by the hotels in their bid to dismiss the lawsuit.
Primarily, the hotels contend that plaintiffs must demonstrate direct communication among them to substantiate a violation of the Sherman Act. Additionally, they maintain that the lawsuit lacks validity due to the nature of the pricing algorithm, which offers recommendations without enforcing mandatory price stipulations.
The enforcers argue that these assertions are misguided. They argue that plaintiffs have no legal mandate to specifically allege direct communications among competitors to establish an agreement under Section 1.
Instead, as long as the algorithm provider and its competitor clients share a common objective or understanding, they act collectively. Additionally, the enforcers dismiss the significance of the algorithm's non-binding recommendations.
They point to legal precedent indicating that setting list or sticker prices is unlawful under Section 1 of the Sherman Act, irrespective of whether the final prices differ. Furthermore, they refute the notion that adherence to the agreed-upon prices dictates the violation.
They argue that the crux of the matter is the agreement itself, not its execution. Additionally, they highlight the flawed reasoning that a price-fixing cartel could evade penalties by involving competitors who are inclined to deviate from the fixed prices or by permitting some level of variance.
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