How Online Pricing Might Lead to Anticompetitive Price-Fixing Allegations
Price-scraping technologies help companies match their competitors’ prices, but using them may lead to anti-competitive pricing allegations by the Federal Trade Commission. Price-scraping technologies mine product and pricing information from competitor websites to instantly match the prices. The problem with this is twofold. The technology may result in businesses only lowering their prices when competitors do. It may also be considered anti-competitive if one company’s price increase results in competitors also increasing their prices. While regulations have not yet been put into effect to control online price-scraping technologies in the U.S., some regulatory efforts in the European Union have already begun, leading an FTC attorney to believe that it is only a matter of time before the use of these technologies falls under similar scrutiny in the U.S.
How Price-scraping Technologies Work
In the past few years, price-scraping technologies have emerged through online services such as Upstream Commerce and Mozenda. These companies optimize pricing by using information-gathering technology to mine price and product information from all of a company’s competitors’ websites. The software then instantly matches the prices by using algorithms. If the prices are changed, the changes are matched as well. This could lead to companies not lowering their prices if they believe that they will not have an incentive for doing so because the other companies will also lower their prices. In a market in which demand is inelastic, one company’s price increase could result in all of the companies raising their prices if all are using a similar price-scraping software.
Potential Antitrust Problems
In the EU, the Directorate-General for Competition has opened two separate investigations into companies that have allegedly used price-scraping technologies and pricing algorithms for anticompetitive reasons. While no similar investigations have been opened in the U.S. by the FTC, there is the potential for costly private antitrust litigation if companies use the technology.
One example is the lawsuit against Uber for an alleged price-fixing scheme with its price surge algorithm. In the pending lawsuit in the U.S. District Court for the Southern District of New York, the company is alleged to have engaged in a horizontal price-fixing scheme among its contract drivers. The algorithm reportedly matches prices and price increases according to increased demand across all of the Uber drivers in particular areas. In a similar case, the Department of Justice recently concluded an investigation into companies that were selling posters online. In that case, the companies agreed to use the same pricing algorithm so that they could all have the same prices. That case is slightly different, however, because it involved a prior agreement before the price algorithm was used. In the case of using price-scraping technologies with bots and algorithms, an explicit agreement would not be necessary, but antitrust issues could still remain.
Potential Robinson-Patman Problems For Distributors
The FTC has decreased its enforcement of violations under the Robinson-Patman Act in the past few years. Before the presidential election, however, some commentators had called for stepped-up enforcement under the act. Even if the FTC does not pursue enforcement, private actors still could file lawsuits. An FTC attorney advises companies to be careful with using the available price-scraping technologies and pricing algorithms because they can result in charging different buyers different prices for the same products based on pricing in given areas. The Robinson-Patman Act forbids sellers for charging buyers who are competing for products different prices for the same products. If that occurs, a buyer who is disfavored by the use of the pricing algorithm may be able to successfully sue the company under the Robinson-Patman Act.
Manufacturers were long forbidden from forcing retail distributors to charge specific prices for products by a Supreme Court decision. Because of that decision, manufacturers have used other ways to influence the distributors’ pricing such as assigning manufacturers’ suggested retail prices. While that decision was overruled in 2007 by the Supreme Court and a standard of reason was applied to vertical price-fixing, many manufacturers have to contend with state laws that still make vertical price-fixing per se illegal, including New York and California.
There are some possible pro-competitive benefits to price-scraping technologies and the use of algorithms such as the ability of consumers to enjoy low prices no matter where they purchase their goods. However, an FTC attorney advises companies to be careful when they are considering implementing price-scraping technologies along with pricing algorithms. While the Federal Trade Commission may not take enforcement action against the companies, an FTC attorney believes that the risk of private antitrust lawsuits against companies using the technology may simply outweigh the potential benefits.