Technology, Antitrust Litigation & Investigations

Algorithmic Price-Setting by Multiple Competitors is a U.S. Antitrust Enforcement Priority

The specter of unlawful collusion arises when competitors avail themselves of the same algorithmic program.

Caesars Atlantic City Night

Written by Jonathan Rubin, Partner and Co-Founder of MoginRubin LLP

For the third time in as many months, the U.S. federal antitrust enforcement authorities -- the Federal Trade Commission and the Antitrust Division of the Department of Justice -- have filed a statement of interest in an antitrust case alleging that the use of a common algorithmic pricing program by multiple competitors constitutes price fixing in violation of Section 1 of the Sherman Act. The government’s statement in Cornish-Adebiyi v. Caesars Entertainment, D. N.J., No. 1:23-cv-02536-KMW-EAP, pending in federal court in New Jersey, follows similar filings in In re RealPage, Inc., Rental Software Antitrust Litig., No. 3:23-MD-3071 (M.D. Tenn. Nov. 15, 2023) and Duffy v. Yardi, No. 2:23-cv-01391 (W.D. Wa. March 1, 2024), suggesting that the use of a common algorithm by competitors has emerged as an enforcement priority for the agencies.

Algorithmic pricing by a third-party service provider has become prevalent in various industries such as real estate rentals and meat processing. When pricing algorithms are used by individual firms, such as airlines, e-commerce platforms, rideshare and room-share companies, stock traders, and others, there are unlikely to be anti-competitive consequences. It is when market competitors avail themselves of the same algorithmic program or service that the specter of unlawful collusion arises. It seems clear that by taking a strong stand against the use of common algorithms by competing firms as a form of price-fixing, the government seeks to stem the increase in such common use with the aim of eliminating the practice altogether. Moreover, the risk of collusion through common algorithmic pricing becomes even greater as markets become more concentrated across a wide range of industries.

An allegation of direct communications between competitors is not necessary to allege an agreement under Section 1 because such an agreement can be inferred by the circumstances of the underlying arrangement.

In Caesars Entertainment, the plaintiffs allege that the use of a common pricing algorithm called Rainmaker by casino hotels in Atlantic City, New Jersey, amounts to a per se case of price-fixing by the hotels in violation of Section 1. As the recent filing makes clear, the lack of direct communication between Rainmaker’s customers is not fatal to the plaintiffs’ Section 1 claim. Nor is the non-binding nature of the pricing recommendations received by the casino hotels an impediment to the price-fixing claim. Both propositions are strongly supported by long-standing antitrust jurisprudence.

An allegation of direct communications between competitors is not necessary to allege an agreement under Section 1 because such an agreement can be inferred by the circumstances of the underlying arrangement. Thus, the Supreme Court in Interstate Circuit v. United States, 306 U.S. 208 (1939), held that an “agreement “ for the purposes of Section 1 can be inferred from an invitation proposing collusion followed by a course of conduct showing acceptance of that invitation. “It was enough that, knowing that concerted action was contemplated and invited, the [competitors] gave their adherence to the scheme and participated in it.” Id. at 226. The case law developed since Interstate Circuit has made clear that price-fixing through the agency of a third-party is still price-fixing, even in the absence of evidence of direct communication between the conspirators. The notion of a centralized agent through which a collusive agreement can be established has since been formalized in a seminal article by Herbert Hovenkamp and Christopher R. Leslie in Vanderbilt Law Review, entitled “The Firm as Cartel Manager” (Vol. 64; 3, 2011). Applicable to such disparate arrangements as Visa’s and Mastercard’s bankcard associations, the National Football League, and mattress distributors, condemnation of price-fixing through a third-party intermediary has authoritative support in the jurisprudence from Interstate Circuit and its prolific prodigy. As such, algorithmic pricing is old wine in new bottles, where the innovation resides in the nature of the third party’s pricing coordination being dependent on advanced computer technology, but not in the underlying arrangement of price-fixing through a cartel manager.

It is the agreement that violates the law, not the ultimate level at which prices are set.

Similarly, neither does the non-binding nature of the algorithmic pricing recommendations defeat the claim of collusive price-fixing by the casino hotels. Relying again on well accepted principles of Section 1 law, the agencies cite United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 223 (1940) for the proposition that price-fixing includes concerted action by competitors to “rais[e], depress[], . . . peg[], or stabiliz[e] the price of a commodity.” Price fixing remains unlawful even where the competitors retain some pricing discretion because it is the agreement that violates the law, not the ultimate level at which prices are set, because it is the concerted action in any aspect of price setting that interferes with the proper, competitive functioning of the market.

These two propositions—that allegations of direct communication between competitors are unnecessary to make out a Section 1 claim and that the participants in the scheme may deviate from the agreed-to or recommended pricing at their discretion—are ignored by the defendants in their motion to dismiss the Caesars Entertainment complaint, which the agencies view as legal error. It is for these reasons that we have previously written in this space that “the element of agreement need not be an obstacle to successfully prosecuting a price-fixing claim against competitors that use a common or similar vendor of algorithmic pricing data and software.” (Jonathan Rubin’s November 2023 blog post).

Edited by Tom Hagy. Photo by Triyansh Gill on Unsplash.


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