How Pricing Bots Could Form Cartels and Make Things More Expensive by Maurice E. Stucke and Ariel Ezrachi published by Harvard Business Review (10/2016).
“How competitive is our market economy? Not as much as it ought to be. And the growth of big data threatens to make things even worse. Antitrust regulators already struggle to keep markets competitive. How will they fare in a world where intelligent pricing algorithms subtly collude with one another?
Before we get to how pricing algorithms might collude, it’s worth reviewing the state of antitrust regulation in the U.S. We are increasingly realizing the market failures and shortcomings of U.S. antitrust policy over the past 30 years. In April 2016 the White House issued an executive order and report on the state of competition in the U.S. The report identified several disturbing signs of competition’s decline since the 1970s. Competition appears to be decreasing in many economic sectors, including a decades-long decline in the number of new businesses being started and in the rate at which workers change jobs. At the same time, many industries have become more concentrated, with profits increasingly falling into the hands of fewer firms.
These concerns have been noticed by The Economist, The Atlantic, and Harvard Business School. The solution is more competition, which traditionally has meant more-robust antitrust enforcement. But ensuring competition today means looking at its next frontier: our online e-commerce environment. It means understanding the shift from competition as we know it to the era of big data and big analytics, which is radically changing our markets and competitive ecosystem.
Big data, sophisticated computer algorithms, and artificial intelligence are not inherently good or bad, but that doesn’t mean their effects on society are neutral. Their nature depends on how firms employ them, how markets are structured, and whether firms’ incentives are aligned with society’s interests. At times, big data and big analytics can promote competition and our welfare by making information more easily available and by providing access to markets…”
