Harmful Signals - Cartel Prohibition and Oligopoly Theory in the Age of Machine Learning
27 Pages Posted: 10 Jun 2019 Last revised: 30 Jun 2019
Date Written: May 16, 2019
The classical legal approach for distinguishing between illicit collusion and legitimate oligopoly conduct is to rely on proxies, such as elements of “practical cooperation”, on “plus factors”, or on the finding of an anticompetitive intent among rival firms. These criteria ultimately relate to the inner sphere of natural persons and its emanations in communicative acts. Some authors therefore conclude that the cartel prohibition of Article 101 TFEU or Section 1 of the U.S. Sherman Act are unable to capture collusion if it is achieved by autonomously acting computers relying on machine learning capabilities. It is instead suggested here to define collusion as parallel informational signals, which achieve a supracompetitive equilibrium, and to use the consumer welfare standard as a proxy for distinguishing between illicit collusion and legitimate oligopoly conduct. This approach is not tantamount to the idea of prohibiting tacit collusion as such. Rather, it is to check singular elements of communication, i.e. “informational signals”, within an existing oligopolistic setting for their propensity to create a consumer harm. This approach can help to close potential regulatory gaps currently associated with the surge of algorithmic pricing.
Keywords: algorithms, cartel, collusion, machine learning, oligopoly, signaling
JEL Classification: K21, L13, L41
Suggested Citation: Suggested Citation