Algorithm facilitated LG price coordination, Russian enforcer says. Vitaly Dianov comments for Global Competition Review

27.02.2018

Russia’s competition watchdog has decided that LG engaged in unlawful coordination of the prices for its smartphones, finding the electronics company used an algorithm to monitor its resellers’ prices and forced retailers to comply with its price recommendations.

The Federal Antimonopoly Service said yesterday that LG Russia established recommended retail prices for LG smartphones with Russian retailers, and published the prices on LG Russia’s website. Retailers informed LG of rival retailers who did not comply with its recommended prices, and LG contacted those non-compliant companies to correct their retail prices, the authority said – with shipments terminated to companies that persisted in independent pricing.

An FAS spokesperson said during the investigation it was “obvious” LG monitored retailers’ prices “efficiently enough” using special software. Representatives of LG admitted to using price algorithms, but said it was only for information purposes, the spokesperson said.

To be guilty of illegal coordination in Russia, the coordinator must influence at least two market participants; its actions must lead to one of the anticompetitive consequences specified under Russian competition law; and the coordinator must operate in a different market from the other companies in the agreement. Such coordination is per se illegal; the authority need not prove the agreement adversely affected competition.

Under Russian law, manufacturers can suggest retail prices for their products but cannot force retailers to comply with the recommendation.

The enforcer said LG’s anticompetitive conduct lasted from 2014 to 2017, with the authority starting its investigation in 2016. The maximum penalty the agency can impose for unlawful coordination is 5 million roubles (€72,000); it has not yet announced the fine on LG.

Andrey Zakataev, a partner at Antimonopoly Law Office in Moscow, said it is more common for industry associations to violate the law against illegal coordination, as its members cannot be in the same market as the association.

“I was surprised that the FAS did not try to find illegal vertical agreements or even a hub-and-spoke cartel conspiracy in this case. Those two options would have led to much larger fines,” he said.

This is one of the first competition cases in Russia where an algorithm handled data collection, Zakataev noted.

Goltsblat BLP partner Vitaly Dianov in Moscow said algorithms are a “very new topic” for all competition authorities, and a “new reality” for the FAS to consider and investigate.

“I think this case will have an impact for the future, and I know the FAS will discuss algorithms with the public in the next few months”, he said.

Alexander Egorushkin at Antitrust Advisory in Moscow said the beginning of the FAS’s investigation of LG coincided with probes involving two other phone manufacturers, Apple and Sony.

In 2016, the FAS investigated Apple over allegations the technology company colluded with retailers to set the price of iPhones on the Russian market. Apple agreed to halt its practices, and to pay a nominal fine last year. The FAS decided not to investigate Sony, after finding no evidence of competition violations.

Egorushkin said the LG case will set a precedent for companies using specific monitoring software, and the FAS is looking to develop guidelines for the use of such software.

LG did not respond to request for comment.

Author: Janith Aranze

Source: https://globalcompetitionreview.com/article/1166162/algorithm-facilitated-lg-price-coordination-russian-enforcer-says

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