Algorithmic Pricing Draws Legal Scrutiny

Algorithmic pricing is the controversial practice of using software to set variable prices for individuals or groups that change with the elasticity of demand. Consumers and regulators are growing skeptical of the practice, and lawsuits alleging antitrust violations have seen some success. A recent Baker Hostetler memo warns of increased legal scrutiny. The memo offers the following takeaways:

• “Expect continued scrutiny of algorithmic pricing tools. Courts and enforcers are increasingly willing to probe how shared algorithms influence pricing behavior and are less inclined to dismiss coordination theories early.
• Clear data transparency around pricing tools is now essential. Companies should be prepared to clearly explain how data is used, shared and integrated within pricing systems, including vendor access and model design.
• Vendor relationships require careful management. As reliance on third‑party pricing tools expands, so does the importance of strong contractual safeguards and ongoing oversight.
• The enforcement landscape is shifting quickly. Companies should actively track new legislative developments, government enforcement actions and private litigation trends to ensure compliance programs evolve with the landscape.”

Algorithmic pricing raises several legal risks. Pricing software can run afoul of antitrust law, civil rights law, and industry regulations. Companies using such software shouldn’t assume that third-party tools are compliant. Ultimately, liability extends beyond software providers, so any algorithmic pricing tools should be carefully vetted by your legal department. In regulated industries like healthcare and real estate, industry-level regulations may make general-purpose pricing tools unfit for use. Like with any emerging technology, just because something is new doesn’t mean it isn’t subject to established rules. The body of case law surrounding algorithmic pricing is developing, and its outcomes will be rooted in long-standing legal principles.