Algorithmic collusion and price-fixing
There’s a fascinating article on the FT.com (hat tip Jordan Weissmann) today about how algorithms can achieve anti-competitive collusion. Entitled Policing the digital cartels and written by David J Lynch, it profiles a classic cinema poster seller that admitted to setting up algorithms for pricing with other poster sellers to keep prices high.
That sounds obviously illegal, and moreover it took work to accomplish. But not all such algorithmic collusion is necessarily so intentional. Here’s the critical paragraph which explains this issue:
As an example, he cites a German software application that tracks petrol-pump prices. Preliminary results suggest that the app discourages price-cutting by retailers, keeping prices higher than they otherwise would have been. As the algorithm instantly detects a petrol station price cut, allowing competitors to match the new price before consumers can shift to the discounter, there is no incentive for any vendor to cut in the first place.
We also don’t seem to have the legal tools to address this:
“Particularly in the case of artificial intelligence, there is no legal basis to attribute liability to a computer engineer for having programmed a machine that eventually ‘self-learned’ to co-ordinate prices with other machines.