Ariel Ezrachi

E-commerce promises to bring us closer to some economists’ ideal of perfect competition – where ample choice, better quality and lower prices reign. The new online world promises to reduce entry barriers and search costs, and increase transparency and market access. But a closer look reveals an imperfect online environment. Following the wave of innovation and competitiveness introduced by e-commerce are powerful anti-competitive undercurrents. More online markets are exhibiting increased concentration, barriers to expansion and entry, and anticompetitive strategies. At times, these anticompetitive strategies may be based on contractual frameworks – such as parity clauses and online marketplace bans. Indeed, the European Commission’s sector inquiry on e-commerce noted the increased use of selective distribution systems online ‘to better control their distribution networks, in particular in terms of the quality of distribution but also price.’ It also noted increasing ‘restrictions on the use of price comparison tools and exclusion of pure online players from distribution networks.’ Moreover, licensing practices may impede entry by new online business models and services. Rather than promoting the flow of goods and services across the EU, the sector inquiry found that ‘almost 60% of digital content providers who participated in the inquiry have contractually agreed with right holders to “geo-block,”’ which ‘prevents consumers from purchasing consumer goods and accessing digital content online from other EU Member States.’ At other times, competition may be at risk due to other potential anticompetitive strategies, from algorithmic tacit collusion to abusive behaviour by powerful providers or gatekeepers. This paper explores three emerging antitrust threats in the online world -- algorithmic tacit collusion, behavioural discrimination, and abuses by the emerging super-platforms – and the enforcement challenges they raise. We note the growing realisation by competition agencies as to the imperfections of the online environment, the ability to utilise new technologies to dampen competition, and additional risks of data-opolies.

“All you need to do is say,” a recent article proclaimed, “‘I want a beer’ and Alexa will oblige. The future is now.” Advances in technology have seemingly increased consumers’ choices and opened markets to competition. As sales migrate from brick–and–mortar shops to online sites, consumers seemingly are getting more of what they desire, including better prices and quality. And yet, looking beyond the ease of online shopping, several emerging threats arise, including algorithmic collusion, behavioral discrimination and abuses by dominant super–platforms. Thus, a more complex reality exists. To see why, this Article examines the emerging frontier of personal digital assistants. These helpers are being developed by the leading online platforms: Google Assistant, Apple’s Siri, Facebook’s M, and Amazon’s Alexa–powered Echo. These super–platforms are heavily investing to improve their digital assistant offerings. We show how network effects, big data and big analytics will likely undermine attempts to curtail the digital assistant’s power, and will likely allow it to operate below the regulatory and antitrust radar screens. As a result, rather than advance overall welfare, these digital assistants—if left to their own devices—can undermine our collective welfare. But the harm is not just economic. The potential anticompetitive consequences from these assistants will likely take a toll on privacy, well–being and democracy. For those who grew up watching The Jetsons, the prospect of a personal helper might seem marvelous. Many already rely on Google’s search engine to find relevant results, Facebook to identify relevant news stories, Amazon for book recommendations, and Siri to place phone calls, send text messages, and find a good restaurant nearby. Many also already benefit from basic digital assistants. Apple iPhones users may instruct Siri to call their family members on speakerphone. Siri can “predict” what app users might want to use, which music they would like to listen to. Navigation apps can anticipate where the individual is heading throughout the day and provide traffic updates and time estimates. Even one’s favorite coffee outlet may send a notification and prepare the loyalty card on one’s device whenever one is near an outlet. Now personal digital assistants—or “digital assistants”—are seeking to interact with users in a human–like way. With its increasing sophistication, a digital assistant promises to transform how individuals access information, communicate, shop, are entertained, control smart household appliances, and raise their children. The digital assistant will also undertake mundane tasks and free our time. Amazon’s voice recognition personal assistant, Alexa, for example, can already perform many tasks. Alexa can shop for its users (knowing everything its user previously bought through Amazon); plan one’s mornings, including accounting for upcoming meetings, traffic, and weather; entertain one with music; suggest movies, shows, or audiobooks; and control one’s house’s smart appliances. In 2016, Google showed a video of a suburban family undergoing its morning wakeup routine: “The dad made French press coffee while telling Google to turn on the lights and start playing music in his kids’ rooms. The mom asked if ‘my package’ had shipped. It did, Google said. The daughter asked for help with her Spanish homework.” As the digital assistant—powered by sophisticated algorithms—learns more about its users, their routine, desires, and communications, it can excel in its role. In a human–like manner, it can be funny—at just the appropriate level—and trustworthy. These digital assistants can provide more than information and services; they can anticipate one’s needs and requests. After all, being privy to so many of its users’ activities, the assistant will become their digital shadow. As Alphabet’s CEO noted, “[y]our phone should proactively bring up the right documents, schedule and map your meetings, let people know if you are late, suggest responses to messages, handle your payments and expenses, etc.” The digital assistant, with their users’ trust and consent, will likely become the key gateway to the World Wide Web. Consumers will happily relinquish other less personal and useful interfaces, and increasingly rely on their digital assistant to anticipate and fulfill their needs. With this unique position of power, the digital assistant will act as a gatekeeper in a multi–sided market. And yet, despite their promise, can digital assistants actually reduce one’s welfare? Might their rise reduce the number of gateways to the digital world, increase a few firms’ market power, and limit competition? And if so, what are the potential social, political, and economic concerns? Our Article seeks to address these questions. Part II discusses the current race among Google, Apple, and Amazon to control as many aspects of the online interface and reap the associated benefits. The stakes are high, given several data–driven network effects, that will likely lead to one or two digital assistants that primarily undertake most people’s tasks and make the majority of decisions. So what are the implications of this winner–take–all contest to be the chief digital assistant? Part III considers the toll a dominant digital assistant can have on competition, democracy, and privacy. Given these risks, one would expect and hope for a “virtuous assistant”—a class of independent assistants, developed by independent firms with the users’ personal interests paramount. Part IV identifies several factors that favor one of the four super-platforms (Google, Apple, Amazon, and Facebook) capturing the digital assistant market, and disfavoring the independent virtuous assistant. As market forces will not necessarily prevent and correct the harms we identify, Part V outlines several issues and challenges confronting antitrust enforcers. Part VI concludes.

When government officials argue for purity, one would expect raised eyebrows. But few question competition officials who, in speeches in foreign lands, praise the “purity” of competition law. They warn the hosts of polluting competition policy with social, ethical, and moral concerns. They warn of industrial policy, regulation, and rent-seeking. After the hosts provide dinner, the competition officials leave for the airport, where they prepare the same speech for another audience. The hosts will politely agree on the key objectives that competition policy should promote, but beneath this veneer, ill-defined terminology, open-ended goals and differences in enforcement philosophy remain. Differences, in one’s understanding of the ends of competition law often transform into a ‘purity battle’ – the claim that competition analysis has been polluted by some, and that a pure approach, as propagated by others, would deliver better, optimal results. Often, these claims accompany large transactions, state aid, and foreign jurisdictions, possibly threatening the domination of national champions through enforcement of their competition laws. Sometimes these claims will be made by the competition agency. Sometimes by politicians or leading corporations. At times, the true source of the claim – politics, business, law or economics – may be hard to ascertain. This is not to say that purity arguments are without merit. A consensus exists that competition law cannot be all things to all people: a panacea for every policy concern, ranging from labour to the protection of national champions. And yet, the pretence of purity may be misleading as it propagates a mirage of objectivity, clarity and analytical superiority – traits that are not always present. Indeed, competition law is often perceived as a stable discipline. In fact, one is often reminded that competition law must be based on economic considerations and reject external social, or political objectives. This paper argues that this appealing view – which embodies a sense of purity – is merely an illusion. It ignores the ‘sponge-like’ characteristics of the law – its susceptibility to national peculiarities originating in its design and evident in its application and its exposure to intellectual and regulatory capture. While the idea of a stable, predictable and economically-based antitrust discipline is in all of our interests, these traits are not inherent to the law. They are forced onto the sponge in an attempt to ‘discipline’ its natural tendencies, and propagated as reality, to support its legitimacy.

Technological advancements, big data and big analytics have changed, and will continue to change, the dynamics of virtual competition. Notably, they have significantly affected pricing strategies, including the stealth-mode use of dynamic personalized pricing. Retailers and service providers can approximate consumers’ reservation price and engage in “almost perfect” price discrimination. Among the key market conditions necessary for successful online discrimination are access to personal data, ability to predict the consumer’s willingness to pay, and ability to monitor and limit available outside options. When observing discrimination in our modern online environment, notable is the shift from third-degree, imperfect price discrimination to near perfect, or first-degree, price discrimination. Online sellers, in tracking us, collecting data about us, and segmenting us into smaller groups can better identify our reservation price—our willingness to pay.

The progressive, anti-monopoly, New Brandeis School of antitrust is making the news. Its rise follows mounting evidence indicating greater concentration, greater profits in the hands of fewer firms, and greater wealth inequality world-wide. Driven by concerns as to the competitive dynamic (or lack of it) in many markets, it advocates for more intervention. Signs of this trend are evident across the board. More antitrust enforcers and courts are emphasizing fairness. Liberals and conservatives are increasingly warning that consumers are not benefitting from the (meager) competition in many markets. Their concern is that the current state of competition law (and crony capitalism) benefits the select few at the expense of nearly everyone else. Even the laissez faire “Chicago School” ideology has lost some of its appeal, most notably at the University of Chicago. Furthermore, legislation in the U.S. is being proposed to restore the Clayton Act to its original purpose. Against this wave, others, in advocating antitrust’s purity, warn of an overly inclusive approach to competition law. Ironically, this claim sometimes arises in conferences sponsored by monopolies, and at times by speakers whose work is funded directly or indirectly by these same monopolies. In arguing for a “pure” antitrust, they endorse, outside of cartels, a “light” touch enforcement, if any. They warn about enforcement chilling pro-competitive behavior, and undermining the market’s ability to self-correct. They are content with the lack of antitrust enforcement against monopolies in the U.S., critical of enforcement actions in the EU, unconcerned about the trend toward concentration, and reject fairness or distribution concerns as part of competition policy. The debate has intensified with the rise of virtual competition. On the one hand, non-interventionists state that the threat of disruptive innovation pressures even dominant firms to innovate and compete. This, they argue, justifies the light, if any, touch. Others, on the other hand, warn of the increased concentration and rise of gatekeepers, which benefit from network effects, and access to big data and big analytics. While monopolies of the past might subject us to higher prices and poorer quality products, abuses by today’s super-platforms will affect not only our wallets. They can affect the news and entertainment we receive and ultimately, our privacy, well-being, and democracy. So what is going on here? One may attribute the increasingly polarizing debate to an ideological divide: between those who believe markets necessarily self-correct and those who believe intervention is necessary to safeguard long-term innovation and prevent the abuse of market power. Increasing the friction are other divisions: Between those who believe that the rising economic consolidation is yielding significant efficiencies and those warning about the detrimental effects that economic consolidation has on the person, the family, the community, and society; between those who believe that what is easily measurable, largely counts, and those, like economist F.A. Hayek, who dismiss the notion that only what is countable primarily counts (especially when many goods and services today are ostensibly free, and where our data and privacy are the cost). Ultimately the divide is over the soul of antitrust: Is antitrust solely about promoting some form of economic efficiency (or as cynics argue, the interests of the powerful who hide behind a narrow utilitarian approach) or the welfare of the powerless (the majority of citizens who feel increasingly disenfranchised by big government and big business)? Not surprisingly, with so much profit (and power) at stake, corporate interests are fueling the debate. Some who favour a narrow technocratic antitrust policy – including some dominant firms, their investment bankers, and their legal and economic experts - want to keep the M&A pipeline open and minimize the relevance of ex-post intervention. For them competition policy has evolved to its optimal point. Some who favour more intervention do so selectively when it promotes their commercial interest: Encouraging a particular enforcement action which may help improve their (or their client’s) market position and profitability, but not society overall. In an environment so captured, those in search of purity should look elsewhere. The reality is that ‘competition law’ has never been, nor will it ever be, pure from normative political, social and economic values. Ultimately it comes down to the values we want to promote and our belief in how competition works. Granted, antitrust cannot cure every ailment. A consensus exists that competition law cannot be all things to all people. Indeed, other vehicles, such as data protection law, may better remedy some of today’s concerns. And yet, competition law cannot be Orwellian -- sanctioning anticompetitive agreements, monopolistic abuses, and greater consolidation in already concentrated markets, all for the sake of promoting a vague “consumer welfare” objective. Also counselling against antitrust’s “purity” is that its objectives and legal standards often reflect trade-offs. For example, a society may sacrifice some efficiency in media markets to promote a vibrant marketplace of ideas. So, antitrust law does not exist as a Platonic ideal out there for us to find. Rather it is for us to design. As we design, we must return to antitrust’s core values: what do we, as a society, want to promote? What South Africa, the EU, the U.S., and other jurisdictions seek to promote may differ at the margins. Calling one country’s antitrust goals impure hardly advances the debate. While differences may exist at the margin, ultimately, competition law worldwide can advance several common political, social and economic goals. One would hope that our common optimal goal will be to promote our welfare in an economy that is inclusive (i.e., benefits many citizens, not just the wealthiest 1 percent), protects the privacy interests of its citizens, promotes overall well-being, and promotes a healthy democracy.

Winner of the 2016 ‘Concurences’ prize for best article on collusion.

The strive for tighter control of distribution, quality and price - has led an increasing number of producers to include restrictions on the use of online marketplaces in their selective distribution agreements. This paper considers the effects of such restrictions and the legal approach they call for. While acknowledging the legitimacy of proportionate restrictions on distribution, the article illustrates how an absolute ban on the use of online marketplaces may have a detrimental effect on market transparency, price competition, entry and expansion. The discussion illustrates how the legitimate interests of producers may be protected through less onerous means, without the increase in consumers’ search costs and the dampening of price competition. With that in mind, it is argued that these restrictions should be analysed on a case-by-case basis and should not benefit from the Vertical Block Exemption. Furthermore, the article considers whether absent proportionality and objective justification, the harmful effect of online marketplace bans, justifies their condemnation as anticompetitive by object.

“This is a groundbreaking, critical work—a major contribution to the field of competition law.”—Frank Pasquale, author of The Black Box Society “Ezrachi and Stucke provide a compelling analysis challenging the orthodoxy that modern technology empowers consumers. Their findings will send a shiver down the spine of consumers, businesses, public policy makers and anyone working in the competition field. Virtual Competition is a fast-paced, mind-boggling thriller that you can’t put down; a thriller in which we are all set to be the victim.”—Alan Giles, Saïd Business School, University of Oxford “Virtual Competition provides an intriguing and provocative look at the potential dark side of big data and big analytics. The debate over digital competition is just beginning, and Ezrachi and Stucke have laid down a marker that is likely to capture wide attention.”—Jonathan Levin, Stanford Graduate School of Business “Ezrachi and Stucke’s insights into data-driven opportunities, collusion scenarios, discrimination, and ‘frenemies’ will help authorities distinguish between true efficiencies and anti-competitive problems, and ensure that most enforcement at least keeps up with technological developments. Forward-thinking competition authorities can use these insights proactively to help craft government policies that ensure that innovation and competition are real, while problems are addressed quickly and thus—hopefully—remain virtual.”—Philip Marsden, Inquiry Chair, Competition and Markets Authority “A thought-provoking, clearly written examination of the coming effects on markets and competition of computer algorithms, big data, big analytics, and ‘super-platforms,’ drawing on real-life examples, on neoclassical and behavioral economics, and on the authors’ deep understanding of U.S. and EU competition law.”—Harry First, New York University School of Law