The Role of Secondary Algorithmic Tacit Collusion in Achieving Market Alignment

University of Oxford | Centre for Competition Law and Policy | Working paper CCLP(L)54

University of Tennessee Legal Studies Research Paper

25 Pages Posted: 6 Sep 2023

See all articles by Ariel Ezrachi

Ariel Ezrachi

University of Oxford - Faculty of Law

Maurice E. Stucke

University of Tennessee College of Law

Date Written: August 21, 2023

Abstract

The antitrust risks associated with the use of the same hub’s pricing algorithm by many sellers are now well-accepted. But what if many rivals use several different hubs for dynamic pricing? The common assumption is that in such instances, competition among the pricing hubs would support competition among the sellers. However, in this paper we argue differently and introduce the concept of secondary algorithmic tacit collusion, which leads to anticompetitive effects, independent of the conditions on the primary market. This phenomenon may lead to the evils of price-fixing but on far a wider scale. Contrary to traditional tacit collusion, this aggregated form of collusion, through the use of algorithmic hub-and-spoke structures, can occur in markets with many competitors and with seemingly competitive dynamics. We outline how the combination of hub-and-spoke frameworks on the primary market and conscious parallelism on the secondary market for algorithmic pricing services can lead to secondary tacit collusion. Addressing its anticompetitive effects requires competition agencies to consider the interaction between price setters in the secondary markets, while taking note of the hub-and-spoke structures on the primary market.

Keywords: Algorithms, Collusion, Hub and Spoke, Antitrust, Tacit Collusion

JEL Classification: K21, K24, L13, L41, L42

Suggested Citation

Ezrachi, Ariel and Stucke, Maurice E., The Role of Secondary Algorithmic Tacit Collusion in Achieving Market Alignment (August 21, 2023). University of Oxford | Centre for Competition Law and Policy | Working paper CCLP(L)54 , University of Tennessee Legal Studies Research Paper, Available at SSRN: https://ssrn.com/abstract=4546889 or http://dx.doi.org/10.2139/ssrn.4546889

Ariel Ezrachi (Contact Author)

University of Oxford - Faculty of Law ( email )

Oxford
United Kingdom

Maurice E. Stucke

University of Tennessee College of Law ( email )

1505 W. Cumberland Ave.
Knoxville, TN 37996
United States
865-974-9816 (Phone)

HOME PAGE: http://www.mauricestucke.com

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