Federal antitrust authorities are highlighting the role of middlemen tech companies in enabling competitors’ collaboration to set prices, and optimize profits, by using shared algorithms.
“Companies across the economy are increasingly using algorithms to determine their prices,” the Federal Trade Commission said in a March 28 press release. “When a small group of algorithm providers can influence a major segment of a market, competitors are better able to use the algorithm provider to facilitate collusion.”
A Senate Judiciary subcommittee hearing in December suggested bipartisan interest in addressing the issue of algorithmic price fixing alongside developments in artificial intelligence technology. But legislation -- the Preventing Algorithmic Collusion Act -- introduced Jan. 30 by subcommittee Chairwoman Amy Klobuchar (D-MN) is not co-signed by Republicans, an indication of growing polarization in a high-profile AI policy debate.
Think tanks like the libertarian Mercatus Center have been ramping up their work defending the use of algorithms in an antitrust context, as senior administration officials like Deputy Attorney General Lisa Monaco join the FTC in emphasizing there’s no special carveout for artificial intelligence under the law. “Price fixing is price fixing,” she said at a recent American Bar Association Conference.
According to a Feb. 2 press release, among other things, the Klobuchar bill would “close a loophole in current [antitrust] law by presuming a price-fixing ‘agreement,’ when direct competitors share competitively sensitive information through a pricing algorithm to raise prices.”
But the antitrust authorities are arguing the law and legal precedent allows for prosecuting “tacit,” as well as expressly communicated, agreements between competitors as they are procuring the algorithmic services in question with the knowledge that others in the marketplace are too.
The FTC press release flags a statement of interest the agency submitted with the Department of Justice in a class action lawsuit where guests are suing a string of hotel companies in Atlantic City along with the tech company Cendyn Group LLC, according to the initial complaint.
Cendyn’s website says the company’s “integrated technology solutions bring growth to the hospitality industry by connecting hoteliers with their perfect guests.” The company, which makes the Rainmaker algorithm that was also the subject of a similar lawsuit involving hotels on the Vegas Strip allegedly colluding to inflate their rates to record highs, promises to “grow your revenue.”
The FTC’s press release notes other statements of interest the agencies have submitted in response to similar middlemen. They include one in connection with RealPage rental software, which tenants are suing along with the landlords that use it, and “an ongoing case alleging that a middleman orchestrated a yearslong conspiracy to share pricing and other sensitive information among meat processing competitors.”
“Firms have evolved the mechanisms they use for reaching unlawful price-fixing agreements,” reads the most recent statement of interest. “In-person handshakes gave way to phone and fax, and later to email. Algorithms are the new frontier. And, given the amount of information an algorithm can access and digest, this new frontier poses an even greater anticompetitive threat than the last.”
“Algorithms that recommend prices to numerous competing hotels make it harder for travelers to comparison-shop for the best rate,” DOJ wrote, noting “Although not every use of an algorithm to set price qualifies as a per se violation of Sec. 1 [of the Sherman Act], taking the allegations set forth in the complaints as true, the alleged scheme meets the legal criteria for per se unlawful price fixing.”
The FTC voted 3-0-1 to approve filing the statement of interest with the commission’s newest member, Commissioner Melissa Holyoak, not participating.
Sworn in on March 25, Holyoak was a controversial nominee among progressives who noted her history working for the Competitive Enterprise Institute. The think tank has received funding from major companies across the economy, including Google, and advocates “abolishing” antitrust law.
In contrast, FTC Chairwoman Lina Khan’s resume includes a pivotal period at the Open Markets Institute, a noted Google foe that has endorsed the Klobuchar bill.