Businesses apply different pricing tactics, such as dynamic and algorithmic pricing, to manage their revenue. Dynamic pricing adjusts prices based on current market forces, including supply and demand, competitor pricing and inventory levels. Recently, advanced artificial intelligence using complex algorithms has taken dynamic pricing to a new level.
Instead of relying on current market conditions, algorithms use large data sets beyond market forces. Machine learning anticipates the market. This could be a harmful loop, as this could lead to a price spiral or price fixing.
This potential for harm has caused the government to increase its regulation of algorithmic pricing.
Incidents that could set a precedent
In September 2023, the Federal Trade Commission (FTC) and seventeen states sued Amazon for antitrust violations, alleging price fixing using exclusive algorithms.
In November 2023, the District of Columbia filed an antitrust lawsuit against RealPage, alleging price collusion through algorithmic pricing. In the same month, the U.S. Department of Justice (DOJ) filed a similar lawsuit, this time in Tennessee.
In March 2024, the DOJ and FTC filed a joint case against a group of hotel chains using algorithms to set prices.
Antitrust cases against big tech companies are rising. Regulatory oversight of anti-competitive practices is increasing. Companies can only expect more scrutiny as the FTC and DOJ combine forces to fight what they perceive to be corporate price-gouging.
Avoiding regulatory oversight
Companies that use algorithmic pricing paint a giant target on their back as increased scrutiny falls on alleged price fixing.
Some companies have stopped using algorithmic pricing to avoid regulatory backlash. Others have tried to make their algorithms more transparent to show good faith. Still, others are waiting for the cases filed by the government to finish to make their decisions.
Protecting your company
Whether your company uses dynamic or algorithmic pricing, reviewing whether it can be potentially liable for unfair business practices may be wise. The cost of being involved in a lawsuit against the government can be enormous. Seeking legal guidance before your company catches the government’s focus may be more cost-effective.