Competition law and algorithms: the Luxembourg Competition Council exempts a booking platform in the taxi sector

Algorithms is the hot topic in competition law. In June 2017, the OECD published a paper on the risk of collusion in the use of algorithms. This issue has been regularly addressed by Commissioner Vestager in her speeches.

If algorithms can improve pricing models, customize services, predict market trends and thus generate efficiencies, competition authorities fear that the widespread use of algorithms could potentially produce anti-competitive effects by making it easier for undertakings to achieve and sustain collusion without any formal agreement or human interaction. For instance, the European Commission’s inquiry last year into e-commerce found that two-thirds of retailers use algorithms to track their competitors’ prices. Nevertheless, competition authorities’ decisions on that issue have been rare until now, which creates legal uncertainty for innovative undertakings.

The Luxembourg Competition Council has, however, opened new doors with a pragmatic decision regarding a booking platform for setting taxi fares.

In January 2016, the Luxembourg Competition Council received a complaint on the booking platform Webtaxi (formerly Procab), which offers a booking service by phone, the internet or an app. The booking service can be used by Webtaxi’s affiliates for a monthly fee When the client makes a booking, the platform allocates the taxi closest to the client and calculates the taxi fare via an algorithm. This fare, based on predetermined criteria (price per kilometre, length of journey, traffic conditions, pick-up charge, etc.), is set and non-negotiable. It is binding on both the client and the taxi driver.

Webtaxi is a platform in a two-sided market and it sets the fare. Therefore, this price setting constitutes a horizontal agreement on prices between several competitor taxi companies.

The Luxembourg Competition Council confirmed that the platform at stake constitutes a horizontal agreement between competitors that aims to set prices falling within the scope of Article 3 of the Luxembourg Act of 23 October 2011 on competition. Nevertheless, on 7 June 2018, it granted an individual exemption to this agreement on the basis of Article 4 of the same Act. Indeed, it assessed the conditions required for authorizing an agreement between competitors on the basis of the observations presented by the parties concerned, the efficiency gains generated by the platform (fewer empty journeys and shorter waiting times) and the benefit for the clients (reduction in taxi fares). It concluded that the price setting by the platform was necessary to achieve those efficiency gains and that no viable alternative with the same pro-competitive effects existed. Furthermore, the Council noted that the platform accounted for 26% of Luxembourg taxis and therefore did not eliminate all relevant competition.

This pragmatic approach based on the agreement’s impact on the market is to be encouraged. It is unusual for an individual exemption to be granted to an agreement that fixes prices between competitors.

The full decision is available via this link.

Finally, Commissioner Vestager announced recently that EU regulators may set up their own algorithms to find companies that use software to fix prices with peers or squeeze out their rivals. She had commissioned a study into the issue in order to upgrade her antitrust toolbox.

At the Belgian Competition Authority’s 25th anniversary conference, Vestager said: “It is a hypothesis that not all algorithms will have been to law school. So maybe there is a few out there who may get the idea that they should collude with another algorithm who haven’t been to law school either. So, of course, we would like to have our own algorithms to be out there, looking into the market, figuring out if there has been collusion taking place.”

Annabelle Lepièce, Partner, Brussels annabelle.lepiece@cms-db.com