The digital economy is all around us nowadays. Big Tech firms play a leading role in all facets of daily life and hold strong positions in various markets. At the same time artificial intelligence (AI) and algorithms play a key role in digital markets. An increasing number of companies are using algorithms to improve pricing models or to optimise service offerings.
The combination of these technologically advanced tools poses new challenges for competition policy and economics. Legislators and competition authorities around the world are responding to these challenges: new laws have been passed at EU and at national level to stop possible anti-competitive practices and/or harm.
In particular, the increasing use of pricing algorithms is fuelling the concern of antitrust authorities. Algorithms allow companies’ pricing actions to be aligned independently: without the need for explicit communication or explicit interaction.Tacit collusion becomes more likely through the use of algorithms, which can lead to higher price levels in the market. The difference between anti-competitive collusion and pro-competitive actions is more difficult to determine in digital markets.
EE&MC has developed empirical tools to measure the impact of algorithms on the actual price level and on the degree of competition. The application of these tools is necessary when investigating whether companies might be acting in breach of competition rules in digital markets.