The Internet Has Presented Antitrust Authorities with Both Old and New Causes for Concern

The Airline Tariff Publishing case was the first important example of how digital communication platforms could be used by businesses to engage in price-fixing. In the late 1980s, U.S. airlines began to post both current and future prices for airline tickets on a centralized computer system known as the Airline Tariff Publishing Company. The system was set up so that travel agents could comparison shop for their clients. But the airlines used the system's ability to list the start dates and end dates for ticket purchases as a way of colluding.

As an example, suppose that American Airlines and Delta Airlines had both been charging $200 for a one-way ticket between New York and Chicago. American could then post a higher price of $250 for the route with the stipulation that nobody could start buying tickets at that price until the next month. Delta could then respond by also saying that it would start selling tickets at the higher price next month. In that way, the two airlines could tacitly coordinate their price setting ahead of time so as to collude on a major price increase.

The antitrust authorities at the U.S. Department of Justice stopped this practice in 1994 by getting the airlines to agree to the behavioral remedy that any fare changes would have to become immediately available to consumers. Airlines could no longer use suggested future prices as a way of signaling each other about how to collude.

The monopoly power gained during the 1990s and early 2000s by online giants such as Microsoft and Google has also led to business practices that have raised the ire of antitrust authorities. Microsoft for example was fined $2.7 Billion after being convicted in 2000 of using the near monopoly (95% market share) dominance of its Windows operating system software to coerce computer makers into favoring Microsoft's Internet Explorer web browser over rival browsers such as Netscape Navigator.

More recently, European Union antitrust officials fined Google $5 billion for using the dominance of its smartphone operating system Android to coerce smartphone manufacturers into installing Google search bars and mobile apps produced by other companies

The internet has also spawned a new and unprecedented threat to competitioncollusion by pieces of software that use pricing algorithms (automatically applied rules for setting prices) to constantly adjust a company's online prices in response to seeing what rival firms are charging for similar products. The problem for regulators is that the pricing algorithms of different firms can end up interacting in ways that collusively raise prices for consumers. This is especially true for pieces of software that use artificial intelligence to learn how to achieve particular goals. Two such pieces of software could each be programmed to try to maximize profits and, as they interacted with each other, "realize" that the best way to do so is by coordinating rather than competing.

That possibility is especially challenging because, given the way antitrust laws are currently written, firms can be prosecuted for collusion only if they make an anticompetitive "agreement" with each other. If the algorithms come to collude on their own, there is no such agreement to prosecute. In fact, the behavior of the two pieces of software could just as easily be interpreted as independent parallel conduct rather than coordination since the algorithms never communicate with each other directly. And, in addition, should asking a piece of software to try to figure out how to maximize profits be illegal just by itself?

These issues are still very much up in the air but being faced squarely by U.S. regulators, who made their first prosecution against the collusive use of algorithmic pricing software in 2015 and who established the Office of Technology Research and Investigation as part of the Federal Trade Commission's Bureau of Consumer Protection that same year.

• What are your instinctive "first reflections" on this piece?
• What principles have you learned in this module that would tell you when state regulatory bodies cross a reasonable threshold and begin to infringe upon a firm's freedom to do business?
• Should it be considered as immoral or illegal to allow companies to use software to coordinate with the arrivals even when these companies do not create a formal collusive agreement?