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ABSTRACT: 

The introduction of new technologies promises a number of advantages from the perspective of competition, including more competition, cheaper costs, a greater selection of goods and services, etc. These claims of procompetitive benefits, however, frequently serve as a cover for the potential anti-competitive consequences that these technologies carry. One such invention that should encourage more market competition is pricing algorithms. But these algorithms are frequently just instruments for manipulating market pricing. 

It is now simpler to carry out anti-competitive agreements and avoid legal action because to algorithms. The use of pricing algorithms to carry out price-fixing agreements is now known worldwide for its anti-competitive effects. It is surprising, nevertheless, that the Competition Commission of India disregarded, without conducting a thorough investigation, a similar complaint against Ola and Uber (cab aggregators). The informant said that taxi drivers and cab aggregators fixed market rates for taxi fares by agreeing to use an algorithm to calculate prices. 

This amounts to hub-and-spoke cooperation, which is anti-competitive in nature, claims the Informant. This argument was denied by the Commission, which maintained that a clear agreement between the hub and spokes to coordinate on price is necessary for this kind of collusion. In my opinion, this is essentially predicated on a misinterpretation of the Commission. Given that comparable algorithm-based agreements are currently permeating the market, it is important to give the matter another look in order to guarantee that competition is encouraged in the marketplace. In this essay, I aim to evaluate the Commission’s order and make the case that the contract between taxi aggregators and their drivers tends to stifle competition by setting market rates. An arrangement of this kind is therefore anti-competitive. 

 INTRODUCTION:  

Every day, a new and inventive technology emerges from the market as science advances. These technologies are widely accepted and frequently provide a plethora of benefits and promises. These days, more people than ever use the internet, big data, artificial intelligence, and frequently unknown pricing algorithms. They appear to provide a host of procompetitive benefits, including better quality, price comparison, and a greater selection of goods and services at significantly reduced costs, from the perspective of competition. It is simple to become blindsided by the abundance of procompetitive benefits that are touted and neglect the necessary research into the potential effects that these technologies may have on competition. 

In order to address the Competition Law challenges appearing in this new digital market, this compels us to reconsider and reinterpret the policies pertaining to Competition Law and to implement adjustments that have been badly lacking. 

 UNDERSTANDING THE ALGORITHM:  

There are four ways that algorithms can be used to facilitate collusion, according to the legal literature that is currently available: employing computers as messengers; hub and spoke collusion; implicit cooperation by using computers as predictable agents; and using artificial intelligence as a digital eye.In the first case, algorithms are only employed to carry out the wishes of humans. After humans get into an agreement, computers or algorithms are used to carry it out or keep an eye on it. The easiest type of collaboration to prove is this one. In the second scenario, spokes and a central hub make vertical agreements. 

The spokes do not actually need to agree for this to happen. In the third case, rivals employ a single pricing algorithm with the knowledge that other competitors are following suit. Since the pricing of the products on the market are determined by this algorithm, all competitors will set their prices at the same amount. Nonetheless, there isn’t a clear contract between rivals to set market prices. The artificial intelligence that is being deployed in the final scenario will control prices on its own. There is no requirement for any anti-competitive agreement or intent on the part of the parties. 

The 2015 case of USA v. David Topkins1 was the first recognition of the crime of price-fixing through the use of a pricing algorithm. Topkins entered a guilty plea for manipulating poster pricing on the Amazon Marketplace through the use of complex algorithms2 Since then, there has been a great deal of controversy over the use of pricing algorithms to violate antitrust laws. We need to reconsider the idea that collusion is restricted to discussions in smoky rooms in light of such algorithm-based cartels. 

Since then, there has been a great deal of controversy over the use of pricing algorithms to violate antitrust laws. We need to reconsider the idea that collusion is restricted to discussions in smoky rooms in light of such algorithm-based cartels. The European Commissioner for Competition Margrethe Vestager and the President of the German Federal Cartel Office, Andreas Mundt, have acknowledged in statements that businesses are using algorithms to facilitate collusion and that they shouldn’t be able to use these tools as a cover for breaking anti-competitive laws. 

This leads to the conclusion that, since price fixing agreements are anti-competitive, it makes no difference if they are carried out through intermediaries like pricing algorithms. This is now acknowledged by all legal systems, and the United Kingdom, Singapore, Russia, and the European Union have all reached identical judgements. 

 SCENARIO IN THE INDIAN MARKET:  

Despite the fact that pricing algorithms have an anti-competitive effect that is becoming widely acknowledged, India appears to be lagging behind in this regard. The Competition Commission of India issued an order in November 2018 dismissing the claim that Ola and Uber (collectively, the Cab Aggregators) colluded using pricing algorithms.3 

In this instance, the informant maintained that the Indian Competition Act’s provisions are broken by the Cab Aggregators and the drivers’ sharing of a hub and spoke collusion to fix the cab fare in the market. The commuter and the driver are connected via mobile applications by the Cab Aggregators. The motorist that is closest to the commuter receives an automatic ride offer via the application. The commuter makes an offer, which the driver can accept or reject without having to haggle over. The offer is made to the next nearest driver if the driver does not take it within 15 seconds. This process keeps going until a driver decides to accept the offer. 

The Cab Aggregators determine the rate for the ride based on a number of variables, including time, distance, surcharges, and tolls, using a particular pricing algorithm. Here, drivers agree to accept the fare determined by the pricing algorithm by signing the Drivers Terms and Conditions. There is no room for negotiation on the part of the commuter or the driver. The informant maintained that the drivers and the taxi aggregators are fixing pricing by doing this. Section 3(3)(a) in conjunction with Section 3(1) of the Competition Act is violated as a result, as agreements that “directly or indirectly determine purchase or sale prices” are forbidden. But the Commission dismissed the case after rejecting this kind of accusation.  

The Commission claims that a hub-and-spoke arrangement necessitates an explicit pricing-fixing conspiracy. Here, sensitive data is shared between the hub and spokes via a third-party platform. In the case of ride-sourcing or ride-sharing services, a hub-and-spoke cartel will need the platform to coordinate prices amongst the drivers or an agreement to set prices through the platform.But in this instance, the price is established by the Cab Aggregators’ pricing algorithm, which takes into account the rider’s specific information as well as other factors like traffic, time of day, and so on. According to the Commission, there isn’t a formal agreement between the drivers to set costs, thus there isn’t any hub-and-spoke collusion. But it appears that this interpretation of the Commission is incorrect. 

Three conditions must be satisfied, under the Indian Competition Law, in order to prove that a cartel is anti-competitive. First, a coordinated action that suggests a conspiracy must be taken; second, this agreement must result in market price fixing; and third, this agreement must have the goal of limiting or completely eliminating competition in the market.4 It is further contend that these conditions are met in the Uber and Ola case. 

 PRICE FIXING AND RESTRICTION IN THE MARKET:  

Price-fixing cartels pose a serious risk to the level of market competition. Consequently, certain jurisdictions adhere to what is commonly referred to as the per se norm. This means that a price-fixing cartel’s very existence is anti-competitive in and of itself.5 Nonetheless, the rule of reason—which states that the effect a price-fixing agreement has on market competition determines its legality—is upheld by Indian jurisprudence. 

The nature of the restriction and its real or expected effects must be examined in order to comply with the rule of reason.6 The onus is on the Opposing Party (in this example, Uber and Ola) to prove that the existence of a price-fixing agreement has no anti-competitive effects once it has been established. 

The primary issue with pricing algorithms is that they make it simple to monitor and enforce anti-competitive agreements that are impossible to carry out in any other way. Algorithms essentially facilitate the execution of anti-competitive agreements and legal evasion. This was seen in the Competition and Markets Authority (CMA) dispute involving Trod and GB Eye Limited. 

According to the European Commission, it is anti-competitive to use price algorithms to limit market competition. Four UK firms forced their online retailers to pay minimum or fixed retail pricing. Algorithms for price fixing were employed to enforce the same. The manufacturers limited the retailers’ ability to compete with one another by imposing this agreement on them, so limiting market competition.7 

The manufacturers effectively limited competition in the market by enforcing the same agreement on the retailers through price fixing algorithms, which the Commission deemed to be an anti-competitive price fixing agreement. This case underscores the potential threat posed by pricing algorithms because it is simple to enforce anti-competitive agreements without leaving significant evidence. 

By imposing the same agreement on the retailers using price-fixing algorithms, the manufacturers effectively reduced competition in the market. The Commission considered this to be an anti-competitive price-fixing agreement. Because it is easy to enforce anti-competitive agreements without leaving significant proof, this case highlights the potential threat posed by pricing algorithms. 

The drivers would be able to engage in pricing competition to foster a healthy level of competition8 But rather than doing this, Uber uses its pricing algorithms to set fares for the drivers. An agreement to fix prices like this is intended to limit market competition. The competition is significantly harmed by this. Thus, it can be deduced that the Cab Aggregators employ these algorithms in an effort to eradicate market rivalry. 

 LANDMARK CASES:  

• Coal India Ltd & Anr. v. Competition Commission of India & Another (Supreme Court – June 2023): Context: After a ten-year legal battle, the Supreme Court clarified that the provisions of the Competition Act, 2002, apply to Coal India Ltd (CIL) and similar public sector undertakings. Significance: This decision confirmed the Competition Commission of India’s (CCI) jurisdiction to investigate and take measures against statutory monopolies (like CIL) in abuse of dominance case. 
• Telefonaktiebolaget LM Ericsson (PUBL) v. Competition Commission of India & Another (Delhi High Court – July 2023): Context: The Delhi High Court held that disputes related to allegations of anticompetitive conduct in patent licensing cannot be examined under the Competition Act but should be addressed under the Patents Act, 1970. 
• Institute of Chartered Accounts of India v. Competition Commission of India & Others (Delhi High Court – June 2023): Context: The CCI’s jurisdiction was challenged regarding its authority to examine decisions made by other statutory regulators.Outcome: The Delhi High Court ruled that the CCI does not have jurisdiction to review decisions made by other regulators, emphasizing the need for clarity on overlapping jurisdictions. Impact: This decision effectively barred the CCI from examining disputes related to patent licensing terms and conditions. Licensees must now approach the Controller of Patents for such issues. 

 WAY FORWARD:  

The Competition Act states that an agreement does not have to be official, written, or expressed. As a result, the concept of an agreement is extremely inclusive. The standards in the event of a hub-and-spoke collusion are further relaxed. The hub of a hub and spoke collaboration must carry out a single, unlawful scheme. The hub and spokes come to an agreement for this. It is not necessary for the spokes to come to an agreement with one another. It is presumed that the spokes agreed to and took part in the hub’s strategy as they engage into an agreement with the hub knowing that additional spokes will follow suit. 

The drivers are the spokes in the Uber and Ola models, and the Cab Aggregators are the hub. The drivers consent to utilise the hub’s pricing algorithms, aware that other market spokes have already consented to use the same algorithm. This will be considered a legitimate agreement between the Cab Aggregators and its drivers in accordance with current jurisprudence on hub and spoke collusions. 

The Cab Aggregators’ pricing algorithms are used to determine market rates for fares. This is an all-inclusive fare. The commuter and the driver must agree on this fare price. This is definitely a price-fixing pact, no question about it. It appears that the Commission has acknowledged that Cab Aggregators utilise the algorithm to set market rates. The main point of contention in this topic is how such a price-fixing agreement hurts competition. 

The current situation was not comprehended by the Commission. It found that there cannot be collusion in the absence of an explicit agreement and emphasised the necessity of having one. Furthermore, a hub-and-spoke collusion eluded the Commission as well. The agreement between the hub and spokes to share confidential data via a third-party platform is considered a kind of collusion. In order to use the platform to set market prices, all drivers must also agree to do so. This, as was previously mentioned, is untrue. To encourage more competition in the market, it is important that the Commission gains a deeper comprehension of the matter. 

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 Written By Riddhi S Bhora