College of Law

New form of price fixing a threat to unsuspecting consumers

Posted May 18, 2017

The trend among consumers to shop for goods and services online has increased the threat of price fixing – and that could significantly impact your wallet.

Online retailers have long employed a dynamic pricing model that’s now making its way to traditional retailers. Through the use of pricing algorithms, retailers gauge when to raise or lower prices based on shoppers’ spending habits and when they are more likely to buy.

This trend should raise concerns for consumers, says University of Tennessee Knoxville Law Professor Maurice Stucke.

While there are anti-trust tools in place to address overt pricing conspiracies or price fixing, the anti-trust enforcer doesn’t have the tools to curb tacit collusion – which takes place when two firms agree to play a certain pricing strategy without explicitly saying so.

To best define the idea of tacit collusion, consider a town with only a few gas stations, Stucke says. If the owners collectively agree among themselves to raise their gas prices, they can go to jail. But if each one watches what the others do and follow a rival’s price increase, that’s legal.

A retailer could decide “Oh, you’re raising your price, I’ll follow,” Stucke said. “If you lower your price, I’ll follow you as well. And in doing so, prices will creep up without any formal agreement. That’s the real concern.”

In a recent interview with KCBS radio in San Francisco (click the link below to listen), Stucke suggests tacit collusion should be a concern for consumers because of retailers’ ability to use the internet to instantaneously see what their rivals are doing. Stucke was also sourced recently by The Economist in stories about this subject.

“It’s a problem, without an easy solution,” Stucke said.

This evolutionary nature of market competition is also the subject of Stucke’s book “Virtual Competition” which he co-authored with Ariel Ezrachi.