Virtual Competition: The Promise and Perils of the Algorithm-Driven Economy

Virtual Competition: The Promise and Perils of the Algorithm-Driven Economy by Ariel Ezrachi and Maurice E. Stucke

Virtual competition was written by two legal scholars. The book is copiously annotated, but very repetitive. It describes what it will describe multiple times. The book is ideal for "speed-read" skimming, with detailed reading only for some of the key details and examples.

The book looks at how computer algorithms can help stifle competition, all while being outside the range of enforcement. Traditional collusion scenarios like messenger and hub and spoke can be amplified via algorithm. Others, like predictable agents and Digital Eye are enabled by algorithm, yet outside the typical law. While "full knowledge" may seem to be beneficial for competition, it also serves to enable more abuses. Competitors can understand what the competition is doing and use that to raise prices with minimal fear of negative impact. (An example is given of gas stations on Martha's Vineyard.)

A section of the book discusses behavior discrimination. Computers can do a great job of finding an "optimal" price. Different people may be willing to pay different amounts for the same item. A computer can use this to charge people different prices to optimize profit. Alas, options can be limited. Customers are used to paying a different price for airline tickets based on time and when the ticket was booked. However, they would be much more reluctant to pay a different price for a physical good than the person standing next to them. 

The final section talks of "frenemies" and the mega-platforms. Here the discussions shifts into privacy concerns. Huge amounts of data are collected in order to better market. The platforms, like Google, Facebook and Apple are keen to protect their interests. Many are in the advertising business, and thus are reluctant to do things that would hurt that. The platforms are also often competing with companies that they are working with. Uber depends on maps and app platforms from Apple and Google, yet Apple and Google also have autonomous car initiatives that could hurt Uber. There are various challenges in the relationships.

Regulation of privacy and mega-platforms is a challenge. The current tools do not work well, and had not been extensively used against big tech as the book was written. Things have changed in the last 8 years, with the government taking a much more aggressive in countering big-tech. There have been objections from both sides of the aisle in tech's dominance. Concerns about free-speech, privacy and dominance have all been voiced.  The platforms have become so big that competition is extremely difficult. Will government or the invisible hand do the best job of managing algorithms?