Algorithmic Price Fixing And Cartel Conducts: Analysing The Competition Concerns In A Digital Economy

Technological advancements due to artificial intelligence and algorithms has led to the e-commerce industry adopting various pricing algorithms to determine prices of products. Cartels are generally formed to fix prices in the market and make the sellers a price-maker. With the advent of artificial intelligence, and reducing roles of humans, forming and maintaining cartels has become easier than ever. This article discusses the competition concerns arising out of the growing use of algorithms by e-commerce companies.

Cartels1 are considered to be one of the anti-competitive agreements as per the Competition Act. The definition is given a wider interpretation as the term "includes" is used in it. This therefore implies, a cartel can exist where there is indirect determination/control of prices by the cartel members. Thus, a clear competition concern arises where e-commerce companies engage in similar pricing algorithms, leading to a collusion in prices.

However, the ingredients to establish the existence of a cartel are A] the presence of an agreement, B] Act done in furtherance of the agreement to achieve an anti-competitive, C] The agreement leading to an Appreciable Adverse effect on competition.

1. The existence of an agreement

   Competition Act recognises agreements not as per the Indian Contract Act but provides for a wider and inclusive definition of an agreement.2Therefore, agreements can also be understood as an implied arrangement and no formal proof of agreement is required.3 While, the standard of proof in establishing the existence of an agreement is based on preponderance and probability, the burden of proof to prove the existence of an agreement still lies on the Informant. The use of algorithms to determine and fix prices is not per se anti-competitive however when used by enterprises to collude by exchanging market information and fixing high prices it becomes problematic. Executives of different firms may agree upon such a plan and carry it out by using specifically designed pricing algorithms. However, this collusion becomes extremely difficult to be proven because there is no direct interaction between the companies to set prices but it is automatically done by the pricing algorithms. Thus, it becomes almost impossible to prove the existence of a price-fixing agreement between the enterprises and the law turns out to be inadequate.

2. Act done in furtherance of anti-competitive objective.

   As per the Indian Competition...