Algorithms may have both positive and negative effects on competition and consumers. Two reports by the Finnish Competition and Consumer Authority (FCCA) show that the current legislation is able to address only some of the problems caused by algorithms. In order to improve supervision and to enhance the opportunities for consumers to act, the impacts and significance of algorithms must continue to be monitored.
The FCCA actively monitors market digitalisation and any related phenomena. The Agency has now examined in two reports the effects of algorithms on the functioning of competition and the position of consumers. Algorithms are increasingly used in online purchasing and on platforms, and, as their popularity increases, the potential problems arising from the use of algorithms may also increase.
Algorithms can be used as a tool in the implementation of anti-competitive cooperation between companies, also known as collusion. Consumers may perceive this as rising prices, reduced quality and fewer alternatives. The report entitled Algoritmien aiheuttamat kolluusiotilanteet (“Collusion situations caused by algorithms”) emphasises that when companies use algorithms as a means of implementing collusion, their activities are subject to the same rules of competition law as are applied outside the network environment. Companies are responsible for ensuring that the technology that they use does not promote anti-competitive cooperation.
Technology on algorithms is rapidly evolving. In the future, algorithms may function more independently and can be utilised in increasingly diverse and human-independent activities. Concerns have therefore been raised that the use of algorithms could lead to a more uniform behaviour by competing companies and, consequently, to collusion in the market. Since the application of competition rules to the assessment of such situations is not fully unambiguous, further studies on the competitive assessment of collusion situations caused by algorithms are necessary.
The benefits of personalised pricing are unevenly distributed
Companies may combine algorithms with the data that they collect from customers and personalise pricing based on such data. Different customers can then be charged different prices for the same product or service based on what they are expected to pay. The search engine may also display different search results to different customers, and platforms different products depending on the expected liquidity of the customer. Although such segregation can also benefit customers, personalised pricing makes it increasingly difficult for them to keep up with the overall price level and to compare prices.
According to the report entitled Personoitu hinnoittelu kuluttaja- ja kilpailupolitiikan tarkastelussa (“Personalised pricing in light of consumer and competition policy”), companies have not yet made extensive use of personalised pricing. Companies may have been curbed by concerns about negative customer reactions or they have not had the capacity to introduce personalised pricing. On the other hand, price personalisation may also be more common than is commonly expected, as companies may also use less noticeable methods, such as different discount coupon and loyalty systems or personalised email offers.
The effects of personalised pricing are not evenly distributed among consumers. For example, personalised pricing benefits customers who would not buy a product or service without a cheaper personalised price offered to them. On the other hand, customers who are expected to be willing to pay more for products or services may suffer from personalised pricing in the form of higher prices.
Personalised pricing is restricted, among other things, by legislation on consumer protection, competition and data protection, as well as by provisions on the prohibition of discrimination. For example, a section of the directive on consumer protection is currently being implemented, on the basis of which a platform must inform consumers if the price presented to them has been personalised. However, according to the report, the current provisions do not respond to all open questions and. therefore, further research is needed on the effects of algorithms on consumers.
- Algoritmien aiheuttamat kolluusiotilanteet (“Collusion situations caused by algorithms”), FCCA reports 1/2021
- Personoitu hinnoittelu kuluttaja- ja kilpailupolitiikan tarkastelussa (“Personalised pricing in light of consumer and competition policy”), FCCA reports 2/2021.
- For algorithms and collusion, also see the blog Ajankohtaista kilpailusta (“the blog on competition”): Algoritmit ja kolluusio – kun kone korvaa ihmisen kilpailunrajoitusten toteutuksessa ja toimeenpanossa (5.2.2021)
More information:
Senior Specialist Jarkko Vuorinen, tel. +358 29 505 3790
Specialist Janette Wuolle, tel. +358 29 505 3049
firstname.lastname@kkv.fi