Online retailers collude to hike prices, economists find

Shopping online might not be as good a deal as it should be, new research concludes

Online shopping
Internet retailers can easily research rivals' prices and tacitly collude to avoid undercutting the market, boosting their profits at consumers' expense

Surging online sales could be opening up shoppers to new ripoffs as internet retailers may not be as competitive as usually thought.

Economists have long assumed that online shopping is a straightforward boon for consumers, with more competition resulting in lower prices as people can shop around for the cheapest goods quickly and easily.

But the findings of economist Hampus Poppius at Lund University indicate that businesses selling online may have more opportunity to collude, resulting in higher prices.

Even if companies are not directly contacting one another to agree to fix prices, they may engage in a “live and let live” attitude, competing only gently to preserve higher prices for both businesses.

This possibility is encouraged by the transparency of online markets.

“Cheap real-time monitoring of competitors’ prices already facilitates collusion between online retailers. In fact, 53pc of online retailers in the EU track competitors’ online prices, and 67pc of those that do use automatic software for it,” the report said.

As companies are in contact with rivals across more markets, prices can go up by as much as 7.5pc, the economist found.

The coronavirus pandemic has encouraged more online shopping, with physical stores closed through much of the lockdown, and worries over catching the bug pushing shoppers to stay at home and log on instead.

Even after stores reopened, online sales were 50pc higher in July than they had been in February.

It means the threat of artificially high prices online is an increasing risk.

Mr Poppius suggests that regulators follow his lead and monitor internet prices to see when firms could be behaving anti-competitively.

“The digital economy thus faces an increased risk of tacit collusion, but also new tools to combat it. If authorities collect data from the web, they can easily measure multimarket contact, track prices, and identify markets susceptible to collusion,” he said.

In Britain the Competition and Markets Authority has issued warnings about online behaviour.

In 2016 it fined a business more than £160,000 for colluding with a rival to promise not to undercut each other when selling posters and frames on Amazon.

The company used automatic pricing software to fulfil the cartel’s scheme, and its boss was disqualified from acting as a director of a UK firm for five years.