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US Senators Introduce Legislation to Combat Algorithmic Collusion

 |  February 4, 2024

In a bipartisan effort to address the challenges posed by automated price-setting algorithms, US Senator Amy Klobuchar (D-MN), Chairwoman of the Senate Judiciary Subcommittee on Competition Policy, Antitrust, and Consumer Rights, has introduced the Preventing Algorithmic Collusion Act. This legislation aims to prevent companies from exploiting algorithms to collude and set higher prices, closing existing loopholes in antitrust laws.

Senators Ron Wyden (D-OR), Dick Durbin (D-IL), Peter Welch (D-VT), Mazie Hirono (D-HI), and Richard Blumenthal (D-CT) joined Klobuchar in introducing the bill, emphasizing the need to strengthen antitrust laws and ensure transparency in preventing unfair price hikes.

“Price fixing is illegal under our antitrust laws, but the development of automated price-setting algorithms can create loopholes in current law that could be used to unfairly raise prices on everything from rent to rideshares,” said Klobuchar.

“My bill will strengthen antitrust law and guarantee needed transparency to prevent companies from using algorithms to fix prices to ensure consumers are able to get the full benefits of competition.”

Read more: Klobuchar’s Push To Pass Antitrust Bill Meets Resistance

The legislation addresses concerns that current antitrust laws may not adequately address collusion facilitated by algorithms. While explicit agreements to fix prices are illegal, the delegation of pricing decisions to algorithms poses challenges in proving such agreements. The Preventing Algorithmic Collusion Act includes key provisions to enhance current price-fixing laws:

  1. Closing Loopholes: The legislation presumes a price-fixing “agreement” when direct competitors share competitively sensitive information through a pricing algorithm to raise prices, closing a critical gap in the current legal framework.
  2. Increased Transparency: Companies using algorithms to set prices will be required to disclose this information, allowing antitrust enforcers to audit the pricing algorithm when concerns arise about potential harm to consumers.
  3. Prohibiting Information Use: The bill bans companies from using competitively sensitive information from their direct competitors to inform or train a pricing algorithm, ensuring fair competition.
  4. FTC Study: The legislation directs the Federal Trade Commission (FTC) to conduct a study on the impact of pricing algorithms on competition.

Senator Wyden, a supporter of the bill, emphasized the need to combat collusion, stating, “Collusion is collusion, whether you do it over the phone or using an algorithm. This legislation, along with my Preventing the Algorithmic Facilitation of Rental Housing Cartels Act, will send a strong message to corporations that they won’t get away with coordinating to ratchet up prices on consumers.”

The Preventing Algorithmic Collusion Act has garnered endorsements from the Open Markets Institute and the American Economic Liberties Project. As technology continues to play a significant role in pricing strategies, this legislation seeks to ensure that consumers and small businesses are protected from unfair market practices. Senator Klobuchar has been a leading advocate for updating competition laws to keep pace with the evolving landscape of the modern economy.

Source: Klobuchar Senate