Are large online platforms squeezing the last cent out of your pocket? Professor Ariel Ezrachi and Professor Maurice E. Stucke think so, describing “How online retailers ripped you off this holiday”(1). Or perhaps you’re more interested in how to prevent your medical information being used for personalised ads on your Facebook account. In The Netherlands, insurance companies swiftly promised to alter tracking features on their websites when journalists found out that they were sharing detailed client search queries with Facebook (2). Ultimately, you may be less interested in how this can happen, and more interested in how to make sure that it doesn’t happen again.
Throughout the EU (and elsewhere (3)), regulators are investigating how to carry out oversight tasks in an increasingly interconnected digital world. There will be a step up in privacy protection soon, when the GDPR (the EU’s General Data Protection Regulation) comes into force on 25 May 2018. Important features of this regulation are privacy by default and privacy by design (by default means that there are choices of privacy level, with the most privacy-friendly one as the standard. By design means that privacy protection is already incorporated into the development process). However, today’s challenge goes beyond privacy questions. It involves the way the economy works and especially how competition works in the digital age.
The Truman show: your perfect price
“There is just a nice facade. A nice ecosystem that was created just for you. We refer to this as The Truman Show. If you remember the Truman Show, Truman lived a relatively happy life in a universe that looked completely natural. Yet, it was the creation of a production company. And the only ones who benefited were the producer and the company. And in many ways, in the modern era, when you go online, what you see is very much what Truman saw when he was walking in his neighbourhood.”(4)
In theory, competition will lead to lower prices, better products, wider choice and greater efficiency. Online platforms have introduced unprecedented ways for consumers to compare the availability of products and services, providing a better chance of getting a good price/higher quality than the limited comparison tools available offline. However, this online solution can also lead to the ultimate in personalised offers providing you with hits for products priced at exactly the maximum you are willing to pay . Furthermore, “improved” algorithms may lead to artificial competition in which pricing mechanisms minimise competition.
God & the invisible hand
A key point when looking out for anti-competitive, collusive behaviour is to see whether there is an element of communication (signalling). That is, is there clearly an intention to change the market dynamic?
“If market participants’ algorithms can attain a God View, then enforcers must consider the possibility of tacit collusion beyond price and highly concentrated industries.”(5, p. 219)
There is currently a discussion about who is responsible for AI, and some are wondering: “If algorithms collude or price discriminate, are humans liable?” The answer to this question is clearly presented by Germany’s anti-trust chief Andreas Mundt: Unternehmen können sich bei der Preisgestaltung nicht hinter Algorithmen verstecken. Diese seien "ja nicht im Himmel vom lieben Gott geschrieben".(6)
In a presentation to the Dutch Competition Law Association(7), Professor Ezrachi posed the following fair questions: “To what extent does the ‘invisible hand’ still hold sway? Should some sort of competition enforcement algorithm be used to correct other algorithms?”
My question is: should the European Commission design the ultimate algorithm to which algorithms active on EU markets should automatically concede in order to preserve healthy competition? I would like to suggest a working title for this algorithm: the Vestager Code.
– to be continued –
Since you’ve already read this far, you may also be interested in:
Or you might like to take a look at the ACM 2018 Conference Programme titled The Digital Economy – Friend or Foe?: “The digital economy offers exciting opportunities and options. But do consumers understand what companies do with their data? Do dominant positions or online platforms kill competition? And how should regulators deal with the digital economy?”
References
6. http://www.sueddeutsche.de/wirtschaft/nach-air-berlin-pleite-bundeskartellamt-ruegt-lufthansa-1.3806188 translation: “Companies can’t hide behind algorithms. Such algorithms aren’t written by god in the heavens.”
7. Competition, big data and big analytics. VvM 14 June 2016