Category Archives: Antitrust and IT Markets

Mobile payments, antitrust and socio-economic development

Digital Markets, Mobile Payments Systems, and Development – Competition Policy Implications in Developing Countries in Light of the EU Experience

Abstract

The digitization of economic activity has important socio-economic development implications and at the same time creates challenges for antitrust analysis. These implications and challenges have been met differently in jurisdictions around the world. In this paper we analyze the different experiences in the EU and developing countries, focusing on mobile payments. We find that this market exhibits special characteristics that need to be taken into account in the analysis of competition conditions. First, it is enabled by mobile telecommunications infrastructure and is offered by network operators, which causes competition in both markets to be closely linked. Second, there are factors, such as the lack of interoperability and geographical reach, that make network effects in this industry different from those present in other platforms. Third, since mobile payments in developing countries serve a niche—the population underserved by mainstream banking—the definition of the relevant market is not straightforward. We propose the criteria to be applied when making such a definition. Finally, since mobile payments have associated financial services, there is an interaction between competition and financial stability that needs to be considered.”

You can download the paper here

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A contribution to the empirics of algorithmic pricing

An Empirical Analysis of Algorithmic Pricing on Amazon Marketplace

Abstract

The rise of e-commerce has unlocked practical applications for algorithmic pricing (also called dynamic pricing algorithms), where sellers set prices using computer algorithms. Travel websites and large, well known e-retailers have already adopted algorithmic pricing strategies, but the tools and techniques are now available to small-scale sellers as well. While algorithmic pricing can make merchants more competitive, it also creates new challenges. Examples have emerged of cases where competing pieces of algorithmic pricing software interacted in unexpected ways and produced unpredictable prices, as well as cases where algorithms were intentionally designed to implement price fixing. Unfortunately, the public currently lack comprehensive knowledge about the prevalence and behavior of algorithmic pricing algorithms in-the-wild. In this study, we develop a methodology for detecting algorithmic pricing, and use it empirically to analyze their prevalence and behavior on Amazon Marketplace. We gather four months of data covering all merchants selling any of 1,641 best-seller products. Using this dataset, we are able to uncover the algorithmic pricing strategies adopted by over 500 sellers. We explore the characteristics of these sellers and characterize the impact of these strategies on the dynamics of the marketplace.”

You can download the paper here

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What do computer scientists have to say about algorithmic collusion?

The importance of talking to computer scientists before making assumptions about what pricing algorithms can do:

Algorithms, Machine Learning, and Collusion

“Abstract

This paper discusses the question whether self-learning price-setting algorithms are able to coordinate their pricing behaviour to achieve a collusive outcome that maximizes the joint profits of the firms using these algorithms. While the legal literature generally as- sumes that algorithmic collusion is indeed possible and in fact very easy, the computer science literature on cooperation between algorithms as well as the economics literature on collusion in experimental oligopolies indicate that a coordinated and in particular tac- itly collusive behaviour is in general rather difficult to achieve. Many studies have shown that some form of communication is of vital importance for collusion if there are more than two firms in a market. Communication between algorithms is also a topic in ar- tificial intelligence research and some recent contributions indicate that algorithms may learn to communicate, albeit in a rather limited way. This leads to the conclusion that algorithmic collusion is currently much more difficult to achieve than often assumed in the legal literature and is therefore currently not a particularly important competitive concern. In addition, there are also several legal problems associated with algorithmic collusion, for example questions of liability, of auditing and monitoring algorithms as well as enforcement. The limited resources of competition authorities should rather be de- voted to more pressing problems as, for example, the abuse of dominant positions by large online-platforms.”

Download the paper at https://mikro.uni-hohenheim.de/please-change-url-alias-757369458/publikation/algorithmus-machine-learning-and-collusion

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Smarter solutions than breaking up Facebook

It’s time for Identity Portability

By Digitopoly

“You want people to be able to communicate across networks.

. . .

The solution . . . is to allow individuals to port their identity to other networks, With that identity comes a set of permissions associated with that identity and it is that which creates value here. A competitor to Facebook — call it, for the sake of argument, NoRussiaBook — could come in, offer a different ad policy and you could move there. Your friends and connections need not know the difference although I would not recommend that be hidden — just that defaults be set for ubiquity which can then be seen and adjusted at the discretion of individual users. To be sure, privacy is complicated here but that is because privacy is complicated, not because there is anything really special or risky about this proposal.

. . .

All of the other solutions — namely, breaking up Facebook — do nothing to resolve the underlying issue — network effects become barriers to entry. We need to start taking that seriously if we want to do something here.”

More at Digitopoly

Hipster antitrust

Policy debate has an important rhetoric component. An appealing metaphor can be powerful in swaying the opinion of policy makers and the public (remember trickle-down economics?). That said, there is a recent trend in the US and other parts of the world to depart from certain aspects of conventional antitrust wisdom and some scholars are expressing concerns about how digital markets will look like in the future. Some commentators are calling these new/refurbished ideas and gloomy views of the digital landscape hipster antitrust because they depart from what is deemed to be the mainstream.

To the best of my knowledge, the term started to be used as a twitter hashtag, mostly with a pejorative connotation. The problem with that, seems to me, is that being a hipster is not necessarily a bad thing and, therefore, the rhetoric trick may not be the best tactic for the defenders of the antitrust status quo.

Let me give you a brief historical timeline, which I think has led us to the use of this term. Back in the 1950s, there was discontent among a small group of academics with how antitrust laws were applied, mainly to single-firm conduct and mergers. These scholars and their ideas gave birth to the most influential school of thought in modern competition law: the Chicago School (CS) of antitrust. In those days, George Stigler and his colleagues were the outcasts who proposed non-mainstream, hipster ideas. Fast forward to the 1980s, and the Chicago School became conventional wisdom. Current antitrust law in the US still reflects a great deal of influence from it. I will not discuss the relative merits and flaws of the CS. I will just point to one common theme in the rhetoric of its proponents. Practitioners and academics who defend CS points of view have always said that they use the economic approach to antitrust.

Since now most of the CS views are mainstream, that formulation is very powerful. It implies that someone who tries to approach antitrust analysis with frameworks other than price theory does not deserve to be called an economist. Now, the rhetoric was freshened up and the advocates of ideas that depart from the mainstream are dismissed as antitrust hipsters. Some are even trying to make #adultantitrust (the opposite of #hipsterantitrust) a thing. This is problematic for one fundamental reason. The way a society is organized in order to produce goods and services depends on a myriad of important factors studied across many fields of the economics profession and other disciplines. Saying that price theory alone holds all the answers is, to put it mildly, myopic.

As I explained in a previous post, an intervention aimed to curtail market power can have detrimental/positive effects on other sources of market failure such as information asymmetries and externalities.[1] Therefore, the improvement of consumer welfare is too narrow a focus of antitrust enforcement policies. The first issue would, therefore, be to analyze the merits of including a holistic approach to efficiency.

In addition, there is the issue of whether to consider other policy objectives. In the US, Banks were allowed to merge and grow because it was thought that the financial system was going to become more efficient, which might have been true. However, as a result, too-big-to-fail institutions arose from this merger wave, which may have led to the reckless behavior that caused the global financial meltdown that started in 2007. The question in retrospect is whether such factors should have been taken into account by the antitrust authorities. One could say that other public entities are better suited to make such an evaluation of these peculiar issues. Even if that is true, policymakers still have to decide how the balancing of the interests will be carried out. Should financial stability, for instance, take precedence over consumer welfare?

The Chicago School of antitrust succeeded against the backdrop of the deep economic recession in the 1970s, which led to a change in economic thinking and the rise of Margaret Thatcher and Ronald Reagan. It comes, therefore, as little surprise that views of strong (though not blind) faith in market forces have come under attack after the Great Recession, with antitrust being no exception. The potential shift in competition policy could have deep repercussions at the global stage. Many countries in the world look to influential jurisdictions such as the US and the EU for guidance. If the consumer welfare paradigm falters in the former, the push for convergence toward the “economic approach” to antitrust could take a wild turn.

As a final consideration, it is important to keep in mind that each one of the new ideas and views in hipster antitrust analysis deserves its own individual trial. I, for one, do not question the merits of the law on vertical restrictions in the US compared to that in the EU. Another story is that of the relationship between political economy considerations and market dominance, topic on which I have already written before. Therefore, the doom of one hipster idea should not be taken to mean that all hipster points of views are baseless.

[1] See Markowitz, Richard (2014). Economics and the Interpretation and Application of U.S. and E.U. Antitrust Law (Vol. I). United States of America: Springer.

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Collaborative economy: a competition (or regulation) issue?

By Ángela María Noguera*

Some weeks ago I attended a conference about collaborative economy in Madrid (http://www.aedc.es/seminario-sobre-economia-colaborativa-y-promocion-de-la-libre-competencia-en-el-mercado/). The main purpose of the conference was to discuss whether this new way of approaching consumers (or better, of consumers approaching offered goods and services) should be analyzed from a competition law and economics perspective. I hadn’t thought about this phenomenon before, so I share some of what was discussed and the arising questions.

Collaborative economy or sharing economy consists basically in offering goods and services that are being sub utilized and which use can be maximized. It is the case, for example, of a spare room or guest room in a house, sharing a car with others to travel from one place to another, using a common backyard to plant vegetables in a neighborhood, sharing a meal, listening to music, etc. (v.gr., Airbnb, Bla Bla Car, Spotify, Deezer, Eatwithme). It is a change in the consumption paradigm as it is transforming from acquisitive consumption (buying goods and services) to consumption of use.

There is no novelty in the principles of the sharing economy if we think that many communities with certain degree of solidarity have been sharing their goods and services forever. And more than one of us has let the cousin of a friend sleep in our sofa or spare bedroom, or has traveled by car with the friend of a friend who is going to the same destination that one is heading to.

Thus, what appears to be the turning point is the organization of the sharing tradition. This well-known and anciently practiced solidarity is now a global phenomenon that is now accessible through virtual platforms. Thus, we may say that a market, in its simplest form, has been created.

A basic definition of market could be that it is a place where forces of supply and demand meet. So now, with this ancient/new paradigm of collaborative economy it is no longer necessary to have any kind of relationship (the cousin of the cousin of a friend) whatsoever to get to use someone’s sofa for a couple of nights. It is as simple as downloading an application on a smartphone or surfing the internet to find what you need. Then, with few clicks you can coordinate the service, set the date, pay and that’s all. That’s how demand and supply meet and that’s how the service is hired.

This organized scheme, the simplicity to acquire the services and the existence of online platforms of suppliers are the ingredients starting to raise some concerns from the authorities. Is offering these services legal? Is it necessary to regulate them?

What is the role of platforms? Services are often offered through legally established companies who are developing legal activities, so there is nothing bad about it. However, platforms do not provide the services they offer and only serve as “marketplace”. What’s their role? Should they be regulated? Can they charge commissions? Are they jointly responsible for service failures or if, for instance, someone has an accident in the property or car of the unknown person? Many questions with one foreseeable answer by authorities: “regulation”.

I’m not particularly fond of such an answer. I’m actually of the opinion that in many cases excessive regulation is more harmful than beneficial, but that is a whole discussion that might go in another post, so I won’t discuss it here.

Specific questions arise from a competition law perspective: are these services competing with traditional services or are they separate markets? For instance, it is worth wondering if Airbnb competes with regulated hotels, hostels and B&B. Or if Bla Bla Car competes with public transportation services. If that were the case, could we be in a discrimination scenario between traditional and non-traditional services? Some panelist in the conference recalled that hotels are obliged to comply with more than 50 specific regulations to be qualified to provide their services (sanitary regulations, noise control, fire and ventilation control, formally hired employees, food…) and the same goes for public transportation companies.

And even if the sharing economy services don’t compete with traditional services, why aren’t they regulated? Should they be? It may seem contradictory to think of regulation when apparently the role of these platforms is to aggregate information of something that has always existed (collaboration between people). However, what happens if the collaborative economy is provided by companies or individuals who buy cars or houses with the exclusive purpose of renting them via these platforms, detouring from the original principle of offering sub utilized goods? How to control such situations, which are evidently arising?

The way I see it, and as it was explained by some of the panelists, is that the current main concern seems to be of regulation policy more than competition policy. Nevertheless, I think we should be open to analyze how the new market dynamics and paradigms can affect the economic system that we currently know (or at least try to decipher). It is an additional challenge for competition policy, which sooner or later shall accommodate to this new reality.

*Associate at Garrigues (Colombian Office)
Majors in both economics and law, Universidad de los Andes (Bogota, Colombia)
LLM in International Business, Tilburg University (Netherlands)

Note from the editors: a spanish version of this post was originally published in Lalibrecompetencia.com. This blog entry comes as part of our collaboration agreement with Lalibrecompetencia.

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