This paper – which can be found here – seeks to determine whether ‘algorithmic consumer price discrimination’ can amount to an abuse of a dominant position. It is structured as follows:
Section 2 explains how ‘big data’ allows for greater personalisation of prices, and how recourse to digital algorithms facilitates personalised pricing. The paper seeks to identify whether ‘algorithmic consumer price discrimination’ enhances or diminishes economic efficiency. To do so, the paper reviews, in detail, the main economic theories on price discrimination, which have already been summarised when describing the paper reviewed in the post below. The authors observe that price discrimination can have rent-transfer effects (from consumers to producers), allocation effects (reflecting consumers’ willingness to acquire the product) and output effects (by pricing some consumers into the markets and/or out of the market). Which of these effects predominates in imperfectly competitive markets is a very hard question. Ultimately, the effects of price discrimination will have to be assessed on a case-by-case basis.
Nonetheless, the authors conclude that price discrimination often makes consumers better off by raising the consumer surplus. However, this is not always the case. In monopolistic markets, price discrimination can make consumers worse off due to the rent-transfer effect predominating. In non-monopolistic markets, the main determinant of whether price discrimination benefits consumers is the intensity of competition. Intensity of competition may increase as competitors have better information about consumers, which also points to different rules regarding data collection for pure monopolies and for situations of imperfect competition. In short, in the overwhelming majority of scenarios the welfare effects of price discrimination need to be assessed on a case by case basis.
Section 3 looks at the fairness or justice of price discrimination. This reflects the authors’ view that EU competition law is not solely and exclusively concerned with economic efficiency, even if the extent to which EU law provides scope for non-efficiency considerations in the application of competition provisions is a matter of debate. The authors identify three distinct (and sometimes overlapping) fairness concerns regarding pricing that may merit legal intervention : (a) the perceived fairness of pricing practices; (b) unfair dealing between online retailers and consumers (corrective justice); and (c) fairness as a requirement of distributive (or collective) justice.
The authors conclude that whether price discrimination may be considered fair is not straightforward, partly due to the different ways in which fairness might be understood. Furthermore, while consumers often regard price discrimination as intuitively unfair, studies of consumer perceptions of pricing fairness reveal that these evaluations are often inconsistent.
The authors nevertheless purport to have identified two circumstances in which the values of efficiency and fairness/equity converge: (i) when online customers act on the mistaken belief that the assumption of uniform pricing which typically applies in the off-line world also applies in the on-line environment, this might be unfair and lead to mistaken valuations of online products; (ii) when vulnerable groups of consumers who lack the digital literacy and sophistication required to search for the best deal, and fail to switch providers in circumstances where it would otherwise be economically rational for them to do so, pay more.
Section 4 looks at Art. 102 TFEU case law, in order to determine whether algorithmic consumer price discrimination infringes EU competition law. This analysis tracks – in greater detail – the analysis pursued in section 5 of the paper reviewed in the post below, and it arrives at a similar conclusion: while there is no previous case law on the specific topic of algorithmic pricing discrimination, and the applicable case law points in contradictory directions, it is theoretically possible for algorithmic consumer price discrimination to be an abuse of a dominant position.
Given that the current legal position is unclear, Section 5 draws together the efficiency and fairness evaluations and seeks to determine whether algorithmic consumer price discrimination should be regarded as unlawful under EU competition law. The section discusses both consumer welfare and fairness, and concludes that both are objectives of EU competition law. Given this, it is argued that, where algorithmic consumer price discrimination increases both consumer surplus and fairness, it should not breach Article 102; conversely, where algorithmic consumer price discrimination undermines both consumer welfare and fairness it should be unlawful.
In situations where algorithmic consumer price discrimination increase consumer surplus but is unfair, or where it is fair but it decreases consumer surplus, the authors find the outcome to be less clear-cut. Ultimately, the authors suggest that: ‘fairness should have a secondary role when Article 102 is applied to algorithmic consumer price discrimination, in the form of a ‘defence’ to an allegation of abuse of market power. On our suggested account, algorithmic consumer price discrimination which reduces consumer surplus may nonetheless avoid falling foul of Article 102 if it can be justified on grounds of fairness.’ This can occur on the basis of the famed/notorious ‘objective justification’ of Art. 102 TFEU.
Section 6 concludes that competition law may have a valuable but limited role to play in redressing some of the adverse impacts of algorithmic consumer price discrimination. This will occur primarily by focusing on the consumer welfare effects of algorithmic consumer price discrimination, in which considerations of fairness and justice play a relevant, but nonetheless subsidiary, role: ‘we think it preferable if fairness based objections to algorithmic practices, including ACPD, be primarily protected via legal regimes that are directly concerned with the goals of ensuring collective fairness and distributive justice.’
This is a paper very similar to the one reviewed below, even if it is a lot longer. I very much enjoyed it. It provides a good overview of the applicable economic theories and the potential role of fairness in competition law, and explicitly advocates a subsidiary and limited role for competition law in addressing the new phenomena of algorithmic and personalised pricing. Furthermore, the suggested approach is ultimately quite conventional in terms of Art. 102 TFEU – if price discrimination increases consumer welfare, there is no abuse; and if there is a decrease in consumer welfare this will likely be anticompetitive, unless an ‘objective justification’ applies.
Nonetheless, the article still raises similar concerns to the ones identified in respect of the paper just reviewed below: falling back on ‘fairness’ avoids addressing the fact that we are now asking competition law to make politically sensitive choices that relate to the structure of the ‘good society’ in the digital age. I would have liked to have seen a more extensive discussion of why and how fairness is relevant for EU competition law – as it stands, the section devoted to this covers one page out of 58; contains mainly a recitation of Treaty provisions that could be said to relate to fairness, justice, or non-discrimination; and does not link to the paper’s section devoted to fairness concerns related to price discrimination. The argument would also benefit from a much longer discussion of how an objective justification based on fairness might operate: the paper devotes less than a page to this, and does not really provide any insight into how this might work.
At the same time, and as I have repeatedly pointed out, I fail to see how to avoid falling back on ‘vague’ concepts like ‘fairness’ in this field until we have a better grasp of what version of the ‘common good’ we are striving for in the digital age – at which point we may have a clearer view of the role that competition law can play in such pursuit.