HOW DO YOU THROW THE BOOK AT AN ALGORITHM?
When, in the mid-1990s, the world wide web transformed the internet from a geek playground into a global marketplace, I once had an image of seeing two elderly gentlemen dancing delightedly in that part of heaven reserved for political philosophers. Their names: Adam Smith and Friedrich Hayek.
Why were they celebrating? Because they saw in the internet a technology that would validate their most treasured beliefs. Smith saw vigorous competition as the benevolent “invisible hand” that ensured individuals’ efforts to pursue their own interests could benefit society more than if they were actually trying to achieve that end. Hayek foresaw the potential of the internet to turn almost any set of transactions into a marketplace as a way of corroborating his belief that price signals communicated via open markets were the optimum way for individuals to co-ordinate their activities. . . .
Spool forward two decades and the only thing that hasn’t changed is the evangelical rhetoric of the tech industry. The online economy has been utterly transformed. It’s dominated by huge companies that vacuum up the digital footprints of all their customers and feed them into algorithms that determine prices, respond instantly to competitors’ prices and decide what should be offered to each customer. But the rhetoric of perfect competition, sovereign consumer, free markets and the dangers of government regulation remains locked in the era of Hayek, if not of Smith.
Enter Ariel Ezrachi and Maurice Stucke, two distinguished scholars specialising in competition law, who decided to ask if the online emperor has any clothes. Is the veneer of competitiveness provided by the vigour and diversity of our online marketplaces just an illusion?
Stucke is my colleague at UT Law, and the book under review is Virtual Competition: The Promise and Perils of the Algorithm-Driven Economy.