Virtual competition : the promise and perils of the algorithm-driven economy

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Ariel Ezrachi and Maurice Stucke critically examine the implications of app-assisted digital shopping. While online purchasing offers convenience, the algorithms and data analytics that facilitate this ease are reshaping market competition, often detrimentally. One concern is the potential for computers to collude; although traditional laws prohibit price-fixing, algorithms can swiftly monitor and adjust prices based on competitors, leading to increased price transparency that may ultimately harm consumers. Another issue is behavioral discrimination, where companies profile consumers to charge them the highest prices they are willing to pay. Additionally, the dominance of superplatforms creates a 'frenemy' dynamic with independent app developers, as these data-driven monopolies control essential platforms and dictate the flow of personal data, influencing who can access potential buyers. The authors pose critical questions about the relevance of the 'invisible hand' in markets manipulated by algorithms and bots. They explore whether competitive pricing is merely an illusion and if current laws can adequately protect consumers. The evolving market landscape is shifting power toward a select few, raising significant risks to competition, democratic ideals, and overall economic well-being.