Competition and algorithms


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One of the fathers of economics, Adam Smith, famously said:

people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

He was referring of course to the irresistible temptation by competitors to collude.

Business collusion to subvert competition may be as old as the hills but it is facing new challenges.

In today’s world, the combination of Big Data, speed-of-light digital connectivity and giga-normous computational capacity, allows for competitors to collude through algorithms in ways unimaginable in the pre-internet age.

It’s a challenge that Professor Michal Gal of the University of Haifa is paying close attention to.

In this episode of Competition Lore Michal explains how algorithms make coordination between rivals much easier and more efficient. She shares her creative thinking on how consumers themselves can use algorithms to counteract the anti-competitive effects. And she helps us to understand the extent to which the current law captures algorithmic collusion as well as the ways in which it needs to adapt to keep up with technological developments.

If you would like to learn more from Michal on the topics discussed in the episode, I highly recommend her papers:

Algorithmic Consumers, 2017 (with Niva Elkin-Koren), published in the Harvard Journal of Law and Technology

Algorithms as Illegal Agreements, 2018, to be published in the Berkeley Technology Law Journal

And here you can find out about the Topkins case that Michal referred to, a case brought by the US Department of Justice in 2015 which involved the use of dynamic pricing algorithms in the sale of online posters.

Michal also referred to research by John Connor (regarding cartel overcharges) and Oren Bar-Gill (regarding price discrimination).  If you are interested in reading some of this work, here are the references:

John Connor, Cartels Costly for Consumers, 2017

Oren Bar-Gill, Big Data, Privacy and Price Discrimination: A Behavioural Economics Perspective, 2015

Still hungry for more? Here are some of Michal’s other recent papers on related topics:

The Hidden Costs of Free Goods: Implications for Antitrust Enforcement, 2016 (with Daniel Rubinfeld)

Algorithmic Challenges to Autonomous Choice, 2017

The Social Contract at the Basis of Competition Law, 2017

The Power of the Crowd in the Sharing Economy, 2018

Featuring regular cut-through interviews with leading thinkers, movers and shakers, Competition Lore is a podcast series that engages us all in a debate about the transformative potential and risks of digitalised competition.

Join Caron Beaton-Wells, Professor in Competition Law at the University of Melbourne, to tackle what it means to participate as a competitor, consumer or citizen in a digital economy and society.

Competition Lore is produced by Written & Recorded.

Competition Lore