Computer Pricing Algorithms OK Unless You Coordinate with Competitor

The U.S. Department of Justice accepted a plead bargain from an e-commerce executive who coordinated prices of posters sold on Amazon with several competitors using a software pricing algorithm or computer program. See DOJ Press Release “Former E-Commerce Executive Pleads Guilty to Price Fixing; Sentenced to Six Months” (For pdf of press release click this link).

This is the DOJ Antitrust Division’s first online marketplace prosecution involving algorithmic pricing tools. Defendant and his co-conspirators discussed the prices of certain posters sold in the United States through Amazon Marketplace and agreed to fix, increase, maintain, and stabilize the prices of those posters. In order to implement their agreements, defendant and his co-conspirators agreed to adopt specific pricing algorithms for the sale of certain posters with the goal of coordinating changes to their respective prices.

The co-conspirators, several competing sellers of posters, had an agreement to adopt pricing algorithms that set poster prices popular on Amazon. The algorithmic code “let the conspirators’ products appear near the top of the search query without having to compete with each other,” explained the DOJ’s antitrust chief. The DOJ believed the computer code “instructed [the] algorithm-based software to set prices in conformity with” their agreement. The DOJ’s antitrust chief further explained that the conspirators programmed their algorithm to search for the lowest price for a poster offered by another competitor, then set their prices just below that.

Other commentators have stated that online sellers’ use of price-setting algorithms are not inherently anti-competitive. However, setting prices with any type of collusion or coordination with one or more competitor with any software tool, communications channel or oral or written agreement becomes a potential violation of antitrust laws.

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