Personalised Pricing and Competition Law
Personalised pricing is a price discrimination practice that has become more and more prominent in the age when algorithms and artificial intelligence facilitate the implementation of more customer-specific prices. In essence, a large amount of personal data is processed in the course of determining a personalised price, resulting in different consumers seeing different prices for the same item at the same time and webpage.
While implementation of personalised pricing in online marketplaces and the consequent different treatment of customers might seem like turning everything that we know from the EU‑wide consumer and personal data protection acts upside down, the use thereof is not illegal by default. In fact, an enforcement and modernisation directive (Directive (EU) 2019/2161) was introduced in 2019, tackling issues that entail personalised pricing. As a result, an explicit notification obligation was created for traders implementing the said pricing practice in their business.
The use of personalised pricing is also quite controversial from the perspective of competition law. As personalised pricing is mostly an algorithm-based price determination method, which is rather new and not so well-known to regulators and competition authorities, it could be viewed as a loophole to charging consumers higher prices or distorting competition in the market in other ways. However, there is no specific case law or planned amendments to the antitrust regulation with respect to personalised pricing. All we can do now is to construe the existing competition law principles.
Article 101 TFEU could be relevant in the context of personalised pricing, for example, in cases where two or more competitors explicitly agree upon the pricing practice or even when the same pricing algorithm is used by competing undertakings. The existence of an agreement between competitors related to personalised pricing would most certainly point at illegal behaviour. A more of a grey area are cases where no explicit agreement exists between competitors, but their pricing algorithms interact with each other or result in the same or very similar prices. For example, use of the same personalised pricing algorithm by companies offering their goods and services in the same goods market which is likely to result in the same prices for the same consumers. Is it a result of independent business decisions or tacit collusion?
Regardless, not every exchange of information in the course of determining prices is by default a breach of competition law. For example, if a third-party algorithm collects publicly available information, it could be argued that no prohibited exchange of information takes place as no commercially sensitive information, which originates from a competitor, is exchanged between competitors. In such cases the algorithms could be viewed as convenient automated tools helping to determine more consumer-specific prices (although several personal data protection-related questions could be raised). In order to assess and mitigate risks before implementing a third-party personalised pricing algorithm, companies should thoroughly examine the sources and principles of consumers’ data collection, price determination techniques and avoid using non-customised algorithms that could be easily used also by their competitors.
Aside from anti-competitive agreements, use of personalised pricing could constitute an abuse of a dominant position. Firstly, if a major online marketplace can afford to personalise prices without losing customers to other marketplaces, it can be an indicator of a dominant position. Secondly, although articles 102(a) and 102(c) TFEU suggest that the use of personalised pricing by a dominant company might be inconsistent with EU competition law, there is a lot of uncertainty involved in assessing whether a specific personalised pricing method is abusive. Article 102(a) applies to cases where prices charged as a result of personalised pricing are unfair according to the criteria so far developed by the CJEU, for example, in the classic United Brands (Case 27/76) case or the recent case Autortiesību un komunicēšanās konsultāciju aģentūra (C-177/16). However, personalised pricing, as we see it being implemented today, is unlikely to fulfil these criteria due to generally minor fluctuations between the usual and personalised price. Therefore, we expect that normally article 102(a) would not apply to personalised prices.
Article 102(c), on the other hand, is applicable only when other trading partners are placed at a competitive disadvantage as a consequence of different conditions being applied to equivalent transactions. Personalised pricing, as it is used today, is imposed only on the end consumers and processing of personal data for the purpose of determining willingness to pay does not take place in the course of B2B transactions. Therefore, the assessment of the discriminatory effects of personalised pricing under article 102 TFEU is to a large extent based on the general principle that dominant companies should compete on the merits and not exploit their dominant position.
All things considered, we can expect personalised pricing to become more widespread in the coming years. While the legal framework for personalised pricing is relatively clear in the fields of consumer and personal data protection law, the boundaries set by competition law are not that clear and more legal certainty would be welcome. What is clear though, is that companies cannot discuss their pricing algorithms with competitors and companies in a dominant position are most at risk of breaching competition law with the use of personalised pricing. All companies are advised to keep an eye on the developments in the practice of competition authorities and be ready to react quickly to these developments.