Pricing algorithms in the travel industry
A pricing algorithm is a system that sets or recommends prices based on data about market conditions. Companies often use pricing algorithms to monitor their competitors’ prices and set their own. This may lead to greater competition and reduced costs. However, the use of pricing algorithms also presents legal risks, namely price fixing and collusion.
When competitors use the same pricing algorithm to set prices this may result in the indirect exchange of confidential information: algorithms and automated pricing systems may facilitate collusion (explicit coordination and tacit collusion) and sustain high prices. Algorithms may also be used to enforce anti-competitive restraints to maintain excessive prices.¹ Further, techniques such as reinforcement learning can result in tacit collusion without explicit communication between companies.²
The Competition and Markets Authority (“CMA”) and EU member state national competition authorities have fined companies for breaching competition law by automating re-pricing software to monitor and adjust their prices: