Automatic Harm to Competition? Pricing algorithms and coordination

In a recent speech, EU Commissioner Vestager expressed the following concerns regarding the use of pricing algorithms.

“I think we need to make it very clear that companies can’t escape responsibility for collusion by hiding behind a computer program.”

Other competition agencies have echoed similar concerns for the risks that pricing algorithms pose for collusion. The topic has also featured in a recent OECD roundtable and in a number of academic papers. This Brief assesses the impact of different categories of pricing algorithms, identifies their links with coordination concerns, and evaluates some possible competition law enforcement responses. Pricing algorithms do raise some interesting issues, but the worst case scenarios for collusion have been overplayed, and some of the calls for increased intervention reveal a worrying gap in the understanding of the economics of oligopolistic markets.