Competition and algorithmic risk: how should algorithms be regulated?

The GovReg Notes produced by the Governance and Regulation Chair are intended to bring to light, on the basis of recognised research and the solid arguments that stem from it, the issues at stake in a subject that is the subject of public debate or that is structuring public debate.

With this in mind, this new note looks at the regulation of algorithms.

The use of algorithms in many sectors of economic activity is changing the competitive operation of markets, through its effects not only on consumer choices and patterns, but also on corporate strategies and decisions. As a result, questions are being raised about the potential impact on competition. This raises the question of how algorithms should be regulated, as they could pose a threat to competition in the marketplace.

The paper first identifies the main effects of algorithms in terms of collusion and abuse of dominant position and discusses the reality of the associated competitive risk, bearing in mind that the impact of algorithms on competition is still poorly assessed by economic analysis. Secondly, it suggests ways in which algorithms can be regulated when they give rise to significant competitive risk. Two scenarios are considered, depending on whether or not the risk is disruptive, leading to its management by using existing tools in competition and regulatory law or, on the contrary, requiring innovation in terms of regulation.