Updates from the CMA: Algorithmic Collusion, Online Choice Architecture and Green Agreements

Set out below are a number of recent competition law updates that are relevant for Retail & Consumer businesses, relating to:

1. Algorithmic collusion
2. Online choice architecture
3. Green agreements

These are complex issues which require careful navigation, but the summaries below should hopefully provide a helpful starting point for your business.

1. CMA approach to algorithmic collusion

In August 2023, the UK Competition and Markets Authority (“CMA”) published its updated guidance on horizontal agreements. This guidance covers the new UK block exemptions for R&D and for specialisation agreements, as well as standard terms and information exchange, among other topics.

Of particular relevance to businesses in the online Retail & Consumer space is the CMA’s view on how algorithms can potentially be used for anti-competitive purposes. Anti-competitive uses of algorithms summarised in the guidance include:

• Pricing algorithms that facilitate collusion, e.g. introducing a pricing rule in a shared algorithmic tool (for instance, a rule to match the lowest price on a particular online platform or shop +5%, or the price of a particular competitor -5%), is likely to be anti-competitive, even in the absence of an explicit agreement to align future pricing.
• Businesses that agree to use common behavioural coordination algorithms to agree on parameters of competition.
• Algorithms designed to monitor pre-existing anti-competitive agreements.
• Third parties that offer tools and algorithms to businesses to help set and manage prices could facilitate anti-competitive indirect information exchange.

Businesses should also be aware of the input they contribute to or receive from a shared algorithmic tool. The guidance states that unilateral disclosures of competitively sensitive information could occur through input in a shared algorithmic tool. A business which receives any competitively sensitive information from a competitor via input in an algorithmic tool will be presumed to have taken account of such information and adapted its market conduct accordingly unless it publicly distances itself.

The CMA also emphasises that if a pricing practice is illegal when implemented offline, there is a high probability that it will also be illegal when implemented online, and that businesses cannot avoid liability on the ground that their prices were determined by algorithms.

The CMA also refers back to its papers ‘Pricing algorithms research, collusion and personalised pricing’ (from 2018) and ‘Algorithms: How they can reduce competition and harm consumer’ (from 2021), which provide more insight into its approach to anti-competitive use of algorithms.

2. CMA and ICO joint position paper on online choice architecture

In August 2023, the CMA and the Information Commissioner’s Office (“ICO”) published a joint paper on online choice architecture (“OCA”) to prevent firms from using harmful website designs that can cause consumers to lack effective control over how their data is collected and used.

From a competition perspective, firms could use harmful website designs to nudge consumers towards choices in a way that reinforces their market position and could weaken competition. With more consumer data, firms could then leverage network effects to:

• Strengthen their market position, without necessarily doing so based on the merits of their product or service (e.g., by using this additional personal data to target advertising);
• Create lock-ins that make it difficult for consumers to switch from current providers; and
• Ultimately make it harder for rivals to compete e.g., creating barriers to entry and expansion.

The CMA and the ICO therefore ask firms to consider the following issues when designing their OCA:

1. Put the user at the heart of design choices: are firms building their interfaces around the user’s interests and preferences?
2. Use design that empowers user choice and control: are firms helping users to make effective and informed choices about their personal information, and putting them in control of how it is collected and used? Is the information clear and not misleading?
3. Test and trial design choices: do firms use testing and trialling to ensure OCA design is evidence-based?
4. Comply with data protection, consumer and competition law: have firms considered the data protection, consumer protection and competition law implications of the OCA practices they are employing?

3. Green Agreements Guidance from the CMA

In October 2023, the CMA published its guidance on environmental sustainability agreements, also referred to as "green agreements", which accompanies the CMA's Guidance on Horizontal Agreements. The guidance sets out examples of green agreements that:

(i) Are unlikely to be anti-competitive: e.g. creation of industry standards, or the phasing out of non-sustainable products or processes;
(ii) Could be anti-competitive: e.g. limiting your own or others' ability to innovate in order to meet a sustainability goal; and
(iii) Could benefit from an exemption.

"Green agreements" captures agreements between competitors which are aimed at preventing, reducing or mitigating the adverse impact that economic activities have on the environment or assist with the transition towards environmental sustainability.

The CMA has highlighted its open-door policy whereby businesses considering environmental sustainability agreements can approach the CMA for informal guidance.