Hub-and-Spoke Conspiracies: Can Big Data and Pricing Algorithms Form the Rim?

Abstract

A hub-and-spoke conspiracy is a metaphor used to describe an antitrust cartel that includes a firm at one level of a supply chain—such as a buyer or supplier—who acts like the “hub” of a wheel. Vertical agreements up or down the supply chain act as the “spokes,” and a horizontal agreement among the spokes acts as the “rim” of the wheel. Courts have considered hub-and-spoke conspiracies for more than eighty years, and there is large body of case law that pertains to the evidence that is necessary for proving this type of antitrust conspiracy. With the rise of modern digital technologies, firms have increased their reliance on “big data” and data-driven pricing algorithms to determine the prices for their products and services. Using big data, current pricing algorithms can quickly monitor market conditions, including the behavior of rival competitors, and adjust prices in near real-time. Analytical pricing tools that adjust prices based on supply-and-demand conditions and/or costs can create procompetitive benefits because they have the potential to increase efficiency. Anticompetitive effects can occur, however, when multiple competitors use the same pricing algorithm and data set supplied by a common service provider who acts as a hub. This article will explain the history, structure, and characteristics of hub-and-spoke conspiracies. It also will discuss agreements among competitors to exchange confidential price information, which itself can result in antitrust violations under certain circumstances. Finally, the article will summarize and comment on a new wave of antitrust lawsuits that allege hub-and-spoke conspiracies based on competitors’ mutual use of big data and algorithms to set prices.