LIVRES : EZRACHI Ariel et STUCKE Maurice E., Harvard University Press, 2016, 368 p.

Virtual Competition. The Promise and Perils of the Algorithm-driven Economy.

Technological innovation and internet are one of the greatest social changes of the past decades. Nearly every aspect of our daily lives is affected by internet. The Web has not only infiltrated and modified many human interactions, the strength of this impact has multiplied in recent years, as internet has become faster, cheaper and more mobile. Necessarily, internet has also powerfully modified commerce. Competition law, policy and economics, being primarily concerned with economic activity, have followed this evolution of our societies, and innovation has become one of the most debated topics among competition experts.

Yet, much remains to be understood at the crossroads of competition and technology. In almost every aspect of antitrust, innovation has yet to be precisely quantified : From mergers to market power, from intellectual property to efficiencies, we have only started to take stock of how the formidable technological improvements of these past decades have affected the functioning of markets. Whilst innovation and market power, and innovation and merger control are getting a fair share of attention, collusion and consumer-focussed issues remained until recently the uncharted territories of innovation-focussed research.

Ariel Ezrachi and Maurice E. Stucke’s book, Virtual Competition. The Promise and Perils of the Algorithm-driven Economy,” fills this vacuum, with a bold and thorough assessment of how technology, and algorithms in particular, may affect the way firms compete with one another. The structure of the book is clear, despite the complexity of the theme and the high number of topics covered. A substantial introduction poses the scene : technology promises at first sight a more vigorous competitive environment, through higher price transparency, lower search costs, market entry and easier expansion, among other benefits supposedly offered to consumers and businesses. In many ways, the advent of internet has helped to put an end to an era of low-key competition (the 1970s) and strong monopolies. The book moves quickly into big data, and helpfully summarises how big data has affected traditional business models. This paints the picture of a world in movement, in which market power has shifted and is increasingly into the hands of those who have invested, not only in data, but in tools to analyse it and use it, including through algorithms.

The substance of the book resides in a series of three themes (collusion, behavioural discrimination, and frenemies). Each of these topics is spelt out, each in a different way, a method which spares the reader from an all too-common habit of academic authors, who tend to hammer the same argument in various shapes and forms, in a less than convincing way. Ariel Ezrachi and Maurice E. Stucke have made the effort to think about the way the message is carried. Taking the collusion chapter as an example, the authors have devised four scenarios : the “Messenger,” the “Hub and Spoke,” the “Predictable Agent” and the “Digital Eye.” Each of these practical case studies supposes a set of facts, and invites the reader to contemplate how competition understands and approaches each scenario. The trick is that each scenario is a variation of the previous one, in which the imaginary parties are colluding less and less, thanks to technological progress. At one point, competition law is necessarily powerless in capturing the proposed behaviour, and leaves us thinking about the limits of antitrust in a way that makes the reader think that the problem has always been there, in front of us, and that maybe technology and algorithms have only made it easier. The two other substantive chapters (on behavioural discrimination, and frenemies) are no less entertaining and thought-provoking. The authors take price transparency as an example, showing how online retailers can now collect prices practised by their competitors (prices which are in the public domain) much faster than before the age of big data. In short, an old problem—excessive price transparency—has become a major competition concerns as it could lead to patterns of price parallelism potentially worse than in a cartel, without an ounce of agreement.

Here resides the first great contribution of Ariel Ezrachi and Maurice E. Stucke’s work to competition law : illustrating the flaws of competition laws, which despite their evolutive and open-ended character, have been designed before any of these new issues were even imaginable. The second contribution is even greater : Ariel Ezrachi and Maurice E. Stucke genuinely explore whether supply-side measures are feasible and desirable. This second building block of the book, although not consistently developed through the book, shows a strong desire to study all possible solutions, and ultimately to remain cautious over the virtues of regulation. The authors are also realistic in the face of the intense lobbyism produced by some large IT companies. Space is missing here to mention all the achievements of this solid thesis on the role of technology in shaping the economy, but it is possible to mention a few. The authors delve heavily into marketing science and behavioural economics, which hopefully will remind the antitrust academic community that the real world matters, and that not all answers are to be found in legal textbooks and advocate general’s opinions.

Anyone looking for a solid, balanced and well-researched framework to assess the impact of technology on competition will be interested in Ariel Ezrachi and Maurice E. Stucke’s book. The book features a very high-quality index, a plus considering that this is often a fatal flaw to otherwise excellent pieces of work. Virtual Competition would have benefited for a couple of pages on the technological aspects of algorithms and big data—noting for instance that the authors did not explain how algorithms work, or how they have evolved. Nonetheless, the book is a superior piece of work, and will prove very helpful to competition economists, lawyers and professionals who are looking for an understanding of how IT is changing their world. Undecided readers who need a proof of this may want to look at Margrethe Vestager’s declarations, less than six months after the book was published, warning companies not to abuse algorithms.

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Knut Fournier, Virtual Competition. The Promise and Perils of the Algorithm-driven Economy., mai 2017, Concurrences N° 2-2017, Art. N° 84130, pp.241-242

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