The rapid advance of technology over the last decade has brought about significant changes in how businesses operate. Companies are increasingly using Artificial Intelligence (AI) and third-party algorithmic tools to streamline operations, optimize pricing strategies, and gain a competitive edge.
However, the Department of Justice (DOJ) has recently argued that when used improperly, these same technologies can lead to antitrust violations, including unlawful price fixing.
This issue has now taken center stage in the DOJ's enforcement of antitrust laws, particularly under the Sherman Act, as it considers the use of algorithmic price fixing to be a per se violation of antitrust laws.
Simply put, the DOJ has reaffirmed its stance that algorithmic price fixing is a per se antitrust violation, meaning it is illegal regardless of the intent or specific circumstances. The Federal Trade Commission (FTC) supports this position as well.
The DOJ and FTC argue that even if an algorithm provides a starting point for pricing, competitor coordination still constitutes a per se unlawful violation of Section 1 of the Sherman Act.
They view algorithmic price fixing as a violation per se, similar to traditional price-fixing agreements between competitors. The agencies argue that even if the algorithm only sets a starting point for pricing, the coordination itself is unlawful.
The Sherman Act
The DOJ's stance is based on Section 1 of the Sherman Act, which prohibits unreasonable restraints of trade. They also have highlighted the potential for algorithmic price fixing to facilitate hub-and-spoke conspiracies, where a central entity, such as a software provider, acts as a hub, sharing information and potentially facilitating collusion among various companies.
The Sherman Antitrust Act, passed in 1890, is a United States antitrust law that prohibits certain anticompetitive business activities, such as monopolies and other restraints of trade.
It was named after its author, Senator John Sherman. The Act is divided into three sections, with Section 1 specifically outlawing contracts, combinations, or conspiracies that restrain trade or commerce among the several states or with foreign nations. This includes activities that are the basis for the DOJ's stance on algorithmic price fixing. Let's review each section below:
- Section 1. This section outlaws contracts, combinations, or conspiracies that restrain trade or commerce among the several states, or with foreign nations. This includes activities like price-fixing, bid-rigging, and market allocation agreements.
- Section 2. This section prohibits anyone from monopolizing, attempting to monopolize, or combining or conspiring with others to monopolize any part of trade or commerce.
- Section 3. This section extends the provisions of the Act to the District of Columbia and United States territories.
The Sherman Act seeks to promote free and fair competition by preventing companies from controlling markets and suppressing competition. The DOJ and FTC enforce it. Violations of the Act can result in criminal penalties, including fines and imprisonment.
The DOJ argues that sharing competitively sensitive information through an algorithm can be illegal, even if companies don't directly communicate with each other. The DOJ and FTC are actively investigating and pursuing cases involving algorithmic pricing, indicating a growing focus on this area of antitrust enforcement.
If your company is found to have engaged in algorithmic price fixing, the potential consequences are severe. You could be facing substantial fines, which can significantly impact your financial stability, and even criminal charges, which can tarnish your company's reputation and lead to imprisonment for individuals involved.
This underscores the critical importance of understanding and complying with antitrust laws in the digital age, not only to avoid legal penalties but also to maintain a fair and competitive market for consumers.
What is Algorithmic Price Fixing?
Algorithmic price fixing is when competitors use shared pricing algorithms to coordinate on prices. This practice can lead to artificially inflated prices and reduced competition, harming consumers.
While these algorithms may appear to operate independently, their widespread adoption can create a domino effect, with competitors adjusting prices in response to each other, effectively stifling competition and harming consumers.
This can lead to artificially inflated prices, making products and services less affordable for consumers, and reduced competition, limiting their choices and access to quality goods and services. This potential harm to consumers is a key concern in the fight against algorithmic price fixing, and businesses need to consider the broader impact of their pricing strategies.
This is a concern because current antitrust laws may not fully address algorithmic collusion, which can occur even without explicit agreements between competitors. Competitors may use algorithms to:
- Analyze market data,
- Competitor pricing,
- Consumer behavior, and
- Market trends.
These algorithms are then programmed to adjust prices based on this data, potentially leading to a coordinated increase in prices. Current antitrust laws may not fully address algorithmic collusion, which can occur even without explicit agreements between competitors.
The Department of Justice and the Federal Trade Commission have acknowledged the potential for algorithmic price fixing and have been exploring ways to address the issue. Some politicians have introduced legislation to address algorithmic price fixing, including the Preventing Algorithmic Collusion Act.
This legislation would prohibit the use of pricing algorithms that rely on non-public competitor data, require disclosure of algorithm use, and allow for algorithm audits to ensure they are not being used to fix prices. These ongoing efforts demonstrate a commitment to addressing the challenges of the digital age in antitrust law.
AI in Antitrust Violations
Pricing algorithms and AI models allow businesses to analyze market data and make informed pricing decisions. However, when competitors utilize third-party algorithms to exchange sensitive pricing information or coordinate their market behavior, these tools can be misused, leading to antitrust violations.
For instance, two or more companies may agree to adopt a common algorithm designed to recommend or set prices, effectively bypassing the competitive forces that the free market is meant to uphold. This practice, when established, significantly undermines market competition.
For example, instead of setting prices based on independent decision-making, competitors may tacitly use the algorithm to align their initial or final pricing strategies. This creates an environment where consumers and customers are left without the benefit of true competition, which should drive prices lower or maintain high-quality services.
DOJ's Position on Algorithmic Price Fixing
Under the Biden administration, the DOJ made its position on algorithmic price fixing clear in a detailed amicus brief submitted to the Ninth Circuit, a federal court with jurisdiction over several western states. The DOJ stated that price fixing facilitated by such algorithms is a per se violation of the Sherman Act.
The phrase "per se violation" is critical in antitrust law. It refers to conduct so inherently anticompetitive that it violates federal law without requiring further inquiry into its harmful effects or justification.
The DOJ specifically emphasized that an agreement among competitors to use pricing algorithms-even if there is no direct coordination on final prices, is illegal under the Sherman Act. Such agreements, by their nature, deprive the marketplace of independent decision-making, which is fundamental to a competitive economy, and businesses must understand this principle.
On March 27, 2025, the Trump administration reaffirmed similar views in a Statement of Interest submitted in a court case. The Statement underscored that horizontal price-fixing arrangements involving AI or third-party pricing algorithms may be unlawful, regardless of whether competitors explicitly agree to use the algorithm's output.
This is not a new position asserted by the Antitrust Division. Still, importantly, it is the first such recent filing. The DOJ is no stranger to algorithmic pricing. For example, the DOJ under the Biden administration brought its first algorithmic price-fixing case in August 2024 and has previously submitted SOIs in other algorithmic collusion cases.
Possible Punishments for Violations
Violating the Sherman Act can have serious consequences. If your company is found to have engaged in algorithmic price fixing, you could face steep fines and even criminal charges. These penalties are not to be taken lightly and can significantly impact your business and personal life.
The designation of algorithmic price fixing as a per se violation has serious implications for companies and individuals under investigation. Unlike other antitrust violations, where a "rule of reason" analysis may allow for some defense or justifications, per se violations do not permit such arguments.
Prosecutors and federal investigators only need to prove the existence of an agreement or coordinated action; the harmful effect on market competition is presumed. If federal investigators determine that you or your company has engaged in algorithmic price fixing, the potential consequences are severe.
On the criminal front, violations of the Sherman Act can result in steep fines. Corporations found guilty may face penalties of up to $100 million, or twice the gain derived from the unlawful conduct. Individuals, including executives or employees involved in the violation, may face up to 10 years in federal prison and personal fines of up to $1 million.
How a Federal Defense Attorney Can Help
If you or your company is under investigation for potential algorithmic price fixing or related antitrust violations, time is of the essence. Federal investigations into antitrust conduct are thorough and aggressive, often involving subpoenas, dawn raids, and interviews with employees.
Even inadvertent or unknowing involvement in a suspicious pricing scheme can put you on the DOJ's radar. An experienced federal criminal defense attorney can make all the difference. Attorneys specializing in antitrust law understand the complexities of federal investigations and can assess the nuances of your specific case. They can:
- Conduct an independent analysis of your company's practices and evaluate potential exposure risks.
- Advocate on your behalf during federal investigations to minimize the likelihood of charges being pursued.
- Develop a robust defense strategy focused on discrediting claims of coordinated or intentional actions.
- Assist with regulatory compliance, ensuring that your organization remains clear of potential antitrust violations in the future.
For more information, contact Eisner Gorin LLP, a federal criminal defense law firm in Los Angeles, California.
Related Content:
