The Competition Authority (AdC) warns companies that they are responsible for the algorithms they use and that using these tools to coordinate prices, or otherwise weaken competition in the market, is incompatible with the Competition Law.
The warning comes as a result of the analysis that the AdC (Portuguese Competition Authority) has been developing in the area of digital ecosystems, big data and algorithms, which gave rise to an Issues Paper that has now been released.
The digitalization of the economy has fostered the emergence of new business models centered on digital platforms, leading to drastic changes in consumption patterns: in 2018, 94% of Portuguese people with internet access had already made at least one online purchase. “ However, in digital markets, instead of competition being just a click away, exclusion may be just a click away, since incumbent platforms can adopt competitor exclusion strategies based on exploiting consumer behavioral biases ,” warns the Portuguese Competition Authority (AdC). “ Big data has enabled the development of pricing, monitoring, ranking, or recommendation algorithms that can facilitate the creation and maintenance of collusive market balances, despite positive effects on product discovery and price comparability .”
Pricing algorithms can also enable personalized pricing strategies that, while expanding the volume of products traded, can allow companies to extract more value from consumers.
Algorithms for monitoring competitors' online prices are already becoming a widely used tool for companies nationwide. Around 37% of a sample of companies active in Portugal with a digital presence, surveyed by the Portuguese Competition Authority (AdC), reported using this type of software, results that are in line with those of the European Commission's e-commerce survey.
The AdC found no evidence to suggest widespread use of pricing algorithms (7,9%) among the sample surveyed. However, the analysis shows that the use of pricing algorithms may already have implications in certain markets and marketplaces and may pose a challenge in terms of competition policy in the future.
Another challenge for competition policy in the digital age is avoiding the risk of aggressive mergers and acquisitions targeting small or potential competitors, " which would allow an incumbent platform to block entry into the market ."
These preventative mergers may aim to " expand or strengthen the ecosystem through the incorporation of products, or to discontinue and limit the introduction of new products. However, they may escape the control of competition authorities by failing to meet the notification criteria, particularly when the turnover of the acquired companies is low ."
Thus, the question has been raised of the need to adjust the criteria set out in competition law regimes in order to capture these operations, particularly those that may be harmful to competition.
Incumbent platforms may also adopt strategies to exclude competitors by restricting their ability to access the data necessary for them to carry out their activity. This issue has been the subject of legal and regulatory developments aimed at giving users more control over who the data pertains to.
At the sectoral level, the Second Payment Services Directive (PSD2) is an example of data access regulation in the digital age, imposing on banks the obligation to grant access to customer data to a FinTech operator, with the customer's consent, for the provision of certain payment services. In this regard, the AdC (Portuguese Competition Authority) identified, in its Issues Paper on Innovation in the Financial Sector (FinTech) of October 2018, risks of banks closing FinTech operators' access to customer account data and issued recommendations to mitigate them, which incorporate the forms these risks may take in the digital age.
