Law Professor: Online Shopping Growth Has Upped Price-Fixing Threat

The trend among consumers to shop for goods and services online has increased the threat of price fixing—and that could significantly impact your wallet.

Online retailers have long employed a dynamic pricing model that’s now making its way to traditional retail stores. Through the use of artificial intelligence software, retailers gauge when to raise or lower prices based on shoppers’ spending habits and when they are more likely to buy.

This shift to implement pricing algorithms should raise concerns for consumers, said Maurice Stucke, a professor in UT’s College of Law.

While there are antitrust tools in place to address overt pricing conspiracies or price fixing, the antitrust enforcer doesn’t have the tools to curb tacit collusion—which takes place when two firms agree to play a certain pricing strategy without explicitly saying so.

To best define the idea of tacit collusion, consider a town with only a few gas stations, Stucke said. If the owners collectively agree among themselves to raise their gas prices, they can go to jail. But if each one watches what the others do and follows a rival’s price increase, that’s legal.  

“A retailer could decide, ‘Oh, you’re raising your price, I’ll follow,’” Stucke said. “ʻIf you lower your price, I’ll follow you as well.’ And in doing so, prices will creep up without any formal agreement, and that’s the real concern.”

In a recent interview with KCBS radio in San Francisco, Stucke said tacit collusion is a bigger concern than ever—because of retailers’ ability to use the internet to keep constant tabs on what their rivals are doing.

Stucke was quoted on this topic by the Economist.

“It’s a problem without necessarily an easy solution,” Stucke said.

This evolutionary nature of market competition is the subject of Stucke’s book Virtual Competition which he co-authored with Oxford University Professor Ariel Ezrachi.

 

CONTACT:

Rachel Wedding McClelland (rachel.mcclelland@utk.edu, 865-974-6788)