Denham Sadler
November 20, 2017

ACCC’s crack new data unit

Analytics

ACCC’s crack new data unit

Rod Sims: You can't blame the robot under competition law

The ACCC has established a new data analytics unit to help crack down on the use of machine learning and artificial intelligence in price-fixing.

In a speech delivered to a Sydney conference last week, ACCC chair Rod Sims delivered a clear message: Australian businesses are liable and responsible for the actions of their algorithms.

Mr Sims outlined how the consumer watchdog would enforce competition laws in relation to the use of big data and computer algorithms, thanks to this new data analytics unit.

The new branch would be deployed in a number of market studies the ACCC has undertaken and would also work with the organisation’s investigation teams and economists.

Mr Sims said that data-driven innovation in business – the increased speed of data processing which gives companies that ability to forecast how something will unfold in real-time – comes with a number of benefits for consumers, like price comparison services that let people to compare the price of commodities like petrol.

“The ACCC sees many economic advantages, realised and unrealised, in data-driven innovation. More often than not, data-driven innovation develops sufficient solutions to every day problems,” Mr Sims said.

But this increase in the use of algorithms could also lead to price-fixing and collusion, he said.

“These developments clearly have many consequences for markets, and the ACCC is considering cases where algorithms are deployed as tools to facilitate conduct which may contravene Australian competition law.

“Some argue that in the right market conditions, pricing algorithms may be used to more effectively engage in and sustain collusion, whether ‘tacit’ or not, reducing competition but with contravening competition laws,” Mr Sims said.

“It is said that a profit-maximising algorithm will work out the oligopolistic pricing game and, being logical and less prone to flights of fancy, stick to it.”

The use of machine learning and computer algorithms to determine the most competitive pricing in real-time is now commonplace, but the ACCC has warned that this could potentially lead to price-fixing and collusion between robots operating the algorithms.

In America, the United States Airline Tariff was found to be using a database available to travel agents to negotiate supra-competitive airfares and ensure that the proposed price rises stuck.

This reliance on deep learning, artificial intelligence and algorithms also mean that companies themselves may not actually know how or why a decision was made.

But as Mr Sims said, this does not remove liability for the algorithm’s actions: “You cannot avoid liability by saying ‘my robot did it’”.

The ACCC is satisfied that the recently introduced Harper laws, the addition of a new concerted practices provision in the Competition and Consumer Act 2010 and new misuse of market power provisions are adequate to combat the new potential for price-fixing.

To demonstrate how these new rules would be enforced, Mr Sims posed a hypothetical situation where a firm with substantial market power deployed an algorithm to determine profit-maximising downstream prices and then engaged in a margin squeeze.

“It may be difficult to establish that a firm with substantial market power had a proscribed anti-competitive purpose when deploying that algorithm, but by focusing on the effect or likely effect of conduct, however, the new misuse of market power provision is fit-for-purpose to prohibit this conduct,” he said.

“Similarly, the new concerted practices prohibition should help shift the focus away from a requirement to establish a ‘meeting of the minds’ to consider whether there has been cooperation between competing businesses that substantially lessens competition. If robots are colluding, this provision will help us stop it.”

Despite describing the huge risk for further collusion using algorithms, Mr Sims said the current laws in place are adequate to crack down on this practice by Australian businesses.

“I expect that, no matter how anti-competitive conduct occurs, there will now be a legal hook allowing the ACCC to take appropriate enforcement action to address the resulting competitive detriment,” Mr Sims said.

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