Virtual Competition

Shoppers with Internet access and a bargain-hunting impulse can find auniverse of products at their fingertips. In this thought-provoking exposé, ArielEzrachi and Maurice Stucke invite us to take a harder look at today’sapp-assisted paradise of digital shopping. While consumers reap manybenefits from online purchasing, the sophisticated algorithms anddata-crunching that make browsing so convenient are also changing the natureof market competition and not always for the better.Computers colluding is one danger. Although long-standing laws preventcompanies from fixing prices, data-driven algorithms can now quickly monitorcompetitors’ prices and adjust their own prices accordingly. So what isseemingly beneficial—increased price transparency—ironically can end upharming consumers. A second danger is behavioral discrimination. Here,companies track and profile consumers to get them to buy goods at thehighest price they are willing to pay. The rise of super-platforms and their“frenemy” relationship with independent app developers raises a third danger.By controlling key platforms (such as the operating system of smartphones),data-driven monopolies dictate the flow of personal data and determine whogets to exploit potential buyers.
Virtual Competition raises timely questions. To what extent does the “invisiblehand” still hold sway? In markets continually manipulated by bots andalgorithms, is competitive pricing an illusion? Can our current laws protectconsumers? The changing market reality is already shifting power into thehands of the few. Ezrachi and Stucke explore the resulting risks to competition,our democratic ideals and our economic and overall well-being.