Algorithmic Price-Fixing

Algorithmic Price-Fixing Arrangement Justified on Efficiency Grounds

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On 7 June 2018, the Luxembourg Competition Authority rendered in a purely domestic case a decision exempting the algorithmic price-fixing arrangement of Webtaxi, a booking platform for taxi services in Luxembourg, on grounds of economic efficiency. In light of the recent case law of the Swiss Federal Supreme Court and the expected concomitant shift of potential defence strategies in cartel cases amongst others to the efficiency test, the decision provides some valuable insights as regards its applicability and functioning, in particular in a platform economy context.

In its decision, the Luxembourg Competition Authority (LCA) had to examine the algorithm of Webtaxi (formerly ProCap), a booking platform for taxi services in Luxembourg. Until 3 February 2017, the algorithm only recommended a maximum price, leaving it to the taxi drivers and customers to negotiate the fares within this upper limit. As of this date, however, the algorithm determined the fares to be paid by the customers in a fixed non-negotiable manner, thereby factoring in several parameters such as price per kilometre, distance and travelling time of taxi rides and traffic condition.

Based on this examination, the LCA concluded that the algorithmic price-fixing constituted an object restriction on competition, rendering unnecessary to further look into whether or not the price fixing has had any effects on the concerned market. With reference to the case law of the Court of Justice of the European Union pursuant to which all agreements restricting competition – be it by object or effect – may in principle profit from an exception, it inquired whether or not the agreement could be exempted individually. Conducting the four limb test provided by article 4 of the Luxembourgish Competition Act that basically corresponds to article 101(3) of the Treaty on the Functioning of the European Union, it found that in the two sided platform market, the algorithm allowed for a multitude of efficiency gains, inter alia less empty taxi rides and pollution, ultimately to the benefit of consumers. The latter get a fair share of these efficiency gains, in particular in form of cheaper taxi rides and reduced waiting times. It further came to the conclusion that the application of the price-fixing algorithm was necessary. In the absence of uniform pricing, customers would no longer necessarily choose the geographically nearest taxi, but try to get an even better bargain in the individual case. Finally, with a market share of the taxis in Luxembourg operating under the Webtaxi platform of only 26 %, the LCA saw no risk of competition being eliminated in the relevant market.

From a Swiss competition law perspective, the Webtaxi decision is relevant for manifold reasons. This is particularly true with a view on the recent case law of the Swiss Federal Supreme Court (Gaba/Elmex, BMW and Altimum [reasoning not yet available, only the press release in German, French or Italian]) according to which agreements that fall under article 5(3) or (4) of the Swiss Cartel Act (CartA, in particular horizontal and vertical agreements directly or indirectly fixing prices or allocating markets) do in general significantly restrict competition within the meaning of article 5(1) CartA. In light of this case law, defence strategies in cartel cases will shift away from article 5(1) CartA and the significance debate to the questions whether there was, in fact, an agreement affecting competition under article 4(1) CartA and, if so, whether such agreement can be justified for reasons of economic efficiency as provided by article 5(2) CartA. The Webtaxi decision is particularly interesting since it demonstrates that the efficiency test must also be applied in case of a “hardcore” horizontal price fixing case, a question that still seems controversial in Switzerland. It is also informative in that it shows that under the condition of economic efficiencies, effects such as a contribution to combatting the greenhouse effect might be factored in. This factor would strictly speaking not be regarded as economic efficiency, at least not in a narrow sense, and might remind some of the “Saldo”-theory contained in the 1985 CartA. However, the importance of the Webtaxi case must be put into perspective: Not too often will price-fixing lead to lower prices for consumers as is the case with the Webtaxi algorithm, making it relatively easy for competition authorities to agree on the pro-competitive effects of such agreement.

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