Virtual Competition - Ariel Ezrachi and Maurice E. Stucke

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Virtual Competition

by
Ariel Ezrachi
and
Maurice E. Stucke

general information | review summaries | our review | links | about the author

Title:	Virtual Competition
Authors:	Ariel Ezrachi/Maurice E. Stucke
Genre:	Non-fiction
Written:	2016
Length:	250 pages
Availability:	Virtual Competition - US
	Virtual Competition - UK
	Virtual Competition - Canada

The Promise and Perils of the Algorithm-Driven Economy

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Our Assessment:

B : useful overview and assessment of the consequences of new technologies on economic competition

See our review for fuller assessment.

Review Summaries
Source	Rating	Date	Reviewer
The NY Rev. of Books	.	22/12/2016	Sue Halpern
Times Higher Ed.	.	5/1/2017	Julia Powles
Wall St. Journal	.	14/11/2016	Burton G. Malkiel

From the Reviews:

"There is a lively gameness to Ezrachi and Stucke’s study, marked by their willingness to call out what the world’s internet users stare into every day -- monopoly power on a scale unlike any we have ever known -- and their systematic attempt to provide the language and tools needed to start tackling it." - Julia Powles, Times Higher Education

"Virtual Competition displays a deep understanding of the internet world and is outstandingly researched. The polymath authors illustrate their arguments with relevant case law as well as references to studies in economics and behavioral psychology. There are almost 100 pages of endnotes. But the writing is clear and lucid, and the text is sprinkled with wonderful illustrative vignettes. (...) The most controversial issue raised by the book concerns what governmental responses and intervention are appropriate." - Burton G. Malkiel, Wall Street Journal

Please note that these ratings solely represent the complete review's biased interpretation and subjective opinion of the actual reviews and do not claim to accurately reflect or represent the views of the reviewers. Similarly the illustrative quotes chosen here are merely those the complete review subjectively believes represent the tenor and judgment of the review as a whole. We acknowledge (and remind and warn you) that they may, in fact, be entirely unrepresentative of the actual reviews by any other measure.

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The complete review's Review:

With its seemingly low barriers to entry and essentially unlimited reach and access, digital commerce seems to offer the best of all business-worlds -- arguably a truly efficient market, with information (especially regarding pricing) apparently instantly and universally available, a nirvana for consumers seeking the best deal. But in Virtual Competition authors Ariel Ezrachi and Maurice E. Stucke -- both specializing in competition law -- advise caution, arguing that:

The digitized hand gives rise to new possible anticompetitive behaviors, for which competition authorities are ill-equipped.

As the authors note, there has been a great shift in American antitrust policy and enforcement since the 1970s, with considerably lighter government intervention. Except in the most egregious of cases -- cartel price-fixing -- competition has increasingly been seen to take care of itself. Now contemporary technology -- specifically the use of computers to collect and analyze data, and the connections and exchange of information facilitated by the internet -- would seem to enhance competition at all levels. But Ezrachi and Stucke suggest that:

once we look beyond the shiny outer layer, the emerging online markets reveal several significant dangers.

       The authors consider the various ways in which new technologies may affect competition, dividing the book into several sections dealing with the main problematic areas: the possibilities of collusion, behavioral discrimination, and what they call 'frenemies'.
       The case of algorithms being used to implement familiar forms of more or less direct collusion is the most straightforward -- clearly undesirable (as public policy) and illegal. But in distancing the individual from the act it already muddies the waters some, regarding questions of culpability and guilt. And it's the next steps where it gets more interesting, when the collusion is tacit (which the use of algorithms can fairly easily be used to facilitate) -- which is much harder to identify, and where it is much more difficult to determine the tipping point to anti-competitive behavior. With increasing reliance on algorithms -- and, significantly, much increased collection and use of data -- the authors also foresee 'tacit collusion on steroids', and an artificial intelligence-led 'digital eye' scenario where, instead of leading to greater competition these: "potentially mark a new, more durable form of collusion".
       The use of data and algorithms also allows for much better fine-tuned price and behavioral discrimination -- adjusting prices to maximize profit, which now can be done on an individual basis (and constantly (re)adjusted in real time), the price a consumer is presented with determined by what the algorithm calculates s/he will be willing to pay (which in turn is based on personal and public data), as well determining what products any given consumer is most likely to buy, and under what conditions.
       Online comparison and search platforms provide valuable competition-enhancing tools for consumers, but, as the authors show, these are not always as competitive or informative as consumers would like to believe, with subtle tricks and (dis)incentives (relying also on consumers' lazy willingness to rely on 'top' search results, and limiting their research to specific sites and platforms) directing consumer choice far beyond what the consumer is aware of (and, often, in ways that do not lead to the best outcomes -- the consumer getting the best product for their purposes at the best price).
       'Frenemies' refers to competitors who, at least in some ways, work together, for mutual benefit. Super-platforms, such as the mobile and smartphone dominating Apple iOS and Google's Android are at the heart of these, with both competition between each other and among those that that use the platforms (e.g. multiple travel-reservation apps). The authors use Uber as an example of a firm that is frenemies with both Apple and Google, all parties benefitting from their relationships while also in competition with each other. In particular, it is the sharing of information -- the data gathered from users -- that makes being frenemies beneficial for all concerned (but especially for the dominant super-platforms). Uber is, as they show, a particularly egregious data-collector, collecting an incredible amount of information that has little to do with -- and is entirely unnecessary to -- its use by consumers. But, as demonstrated throughout the book, data is key, and there is a lot that can be done with it.
       Having access to data gives companies a huge edge, and while it can be used to consumers' advantage there are also many potential drawbacks (beyond the obvious privacy issue problems), including many anti-competitive one. Apps already give customers less control over what information is passed on to companies than internet browsing, while the rise of the 'personal assistant' -- Siri (Apple), Echo (Amazon.com), etc. -- might easily blur the line between helpful and manipulative algorithm. So useful that it is easy to rely on them, the authors warn how quickly over-reliance could, in fact, not be in consumers' best interest.
       A final section is titled 'Intervention', where the authors consider how the new challenges posed by this transformation in the very nature of competition might or should be addressed. As they amusingly note, one of Friedrich A. Hayek's critiques of centrally planned economies was the fact that they relied on incomplete information -- woefully incomplete, by contemporary standards. With so much more and better information available, is there an argument for a planned economy ? The authors point out that there is, in fact the potential that modern-day platforms (including Google, Facebook, Apple, and Amazon):

could create an economy which, for all purposes, is planned, not by bureaucrats or CEOs, but by the technoculture.

       The new conditions arising from widespread reliance on technology (and data) clearly require a reassessment of competition law (and the economics behind it). Market power, and what constitutes abuse of it, are more difficult to assess in data-driven environments, for example, while appropriate intervention can also be more difficult to decide on.
       The authors see some areas where intervention is obviously desirable -- notably regarding privacy issues, as well as in the dubious 'terms of use'-agreements that consumers click through (almost universally without reading, and certainly largely unaware of what they are agreeing to) -- but on the whole tread carefully.
       The authors' main goal is to raise awareness of the (new) issues that arise, and to encourage policy discussion based on these. They make clear that the (big-)data-driven market operates differently, and that, while welcoming all the benefits arising from these, we have to be aware of the potential for abuse too. Government oversight and intervention must adapt to the new conditions -- and the public has to be aware of what's at issue. As they ominously note, technology firms have invested heavily in (secretive) lobbying, and while it's unclear whether or not what they're lobbying for is to the detriment of competition and consumers, there are good reasons for concern.
       Virtual Competition is a good introduction to and overview of a very changed competition-environment, where old theories and laws do not necessarily apply, and where new anti-competitive dangers arise. They acknowledge the many positives, as new technologies have allowed for greater competition in many areas, to the benefit of consumers, but helpfully remind and show to readers that the potential for abuse, especially by companies with dominant positions, is very real.

- M.A.Orthofer, 6 November 2016

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Links:

Virtual Competition:

Harvard University Press publicity page

Reviews:

Ariel Ezrachi:

Faculty page

Maurice E. Stucke:

Faculty page
Maurice E. Stucke at The Konkurrenz Group

Other books of interest under review:

See Index of books dealing with Business and Economics
See Index of Law-related books
See Index of books about the Internet and Computers

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About the Author:

Ariel Ezrachi teaches at Oxford.

Maurice E. Stucke teaches at the University of Tennessee College of Law, .

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