The rapid adoption of algorithms has ushered in a new era of efficiency for market players in digital markets. However, it may also create modern, advanced ways for firms to collude, presenting unique challenges for competition agencies whose primary aim is to detect and investigate collusion.
Algorithmic cartels, in which automated systems facilitate or maintain anticompetitive co-ordination, have become a significant cause for concern.
Mechanism of algorithmic collusion
Algorithms can facilitate collusion through various mechanisms. For instance, firms may use real-time data analysis to monitor compliance, with an explicit agreement that may resemble a traditional cartel. They may share identical pricing algorithms that allow them to simultaneously adjust prices based on the inflow of market data.
At a more complex level, firms may use big data to facilitate tacit collusion by improving market transparency or making actions more interdependent through programmed, immediate retaliation to price falls.
Whether achieved by using the same third-party IT service provider or simply aligning market strategies, the outcome is the same: co-ordinated market conduct.
SA’s enforcement gap
In South Africa the algorithmic cartels landscape is marked by a large degree of underenforcement. There has been no prosecution, and competition authorities have instituted no confirmed investigation. Algorithmic pricing thus remains primarily a matter of academic or conference-level concern rather than enforcement action.
This lack of action suggests a lack of urgency, raising the question, when will South Africa join the enforcement stage? While competition authorities elsewhere have already brought cases or introduced regulation, the focus of the Competition Commission in South Africa has primarily been to discuss these challenges at conferences and in strategic documents.
The successful detection, investigation and prosecution of such cartels require the commission to have the relevant tools, skills and jurisdiction to do so effectively. The commission itself acknowledged this as far back as 2021.
In 2020 it published its strategic review, “Competition in the Digital Economy”, acknowledging these challenges. In a publication indicating its approach to regulating competition in the digital economy, the commission outlined its intended actions to address the emerging threats as follows:
- Developing appropriate tools for detecting digital cartels and assessing the effects of agreements among competitors;
- Piloting a tender bid rigging detection programme; and
- Building and staffing a cartels forensic lab.
It has been almost five years since these intentions were announced, yet there is no operational cartel forensic lab, no pilot tender bid rigging detection programme has been implemented and no specific tools have been developed or deployed to detect digital cartels.
In 2023 the commission published the final report on the Online Intermediation Platforms Market Inquiry, which stemmed from a general recognition that normal enforcement tools may be inadequate on their own to prevent initial market leaders from durably entrenching their positions. The commission’s annual performance plan for 2024/25 indicated a continued intention to adopt and deploy advanced technologies for detection.
While these strategic steps show a recognition of the problem and an intent to act, actual enforcement remains elusive. The situation highlights a clear disparity between the theoretical understanding of algorithmic collusion and the appropriate tools in South African law to address emerging concerns.
The foundation for understanding the problem has been laid and the strategic intent has been declared. However, the continued under-enforcement regarding algorithmic cartels in South Africa is a huge vulnerability.
Building a forensic lab and developing new tools is a necessary first step, but the market awaits the commission’s first digital-era cartel case. Until then the risk remains that algorithmic collusion could operate with impunity in the shadows of the digital economy, undermining competition and harming South African consumers.
• Tlhong is director corporate commercial at TGR Attorneys.
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