How algorithms manipulate the market

In September 2015 I took part in a symposium about "digital capitalism" organised by CRASSH (the Centre for Research in the Arts, Social Sciences and Humanities). This culminated in an evening talk by Dan Schiller - Digital Capitalism: Stagnation and Contention? - with a main argument that:

in contrast to the unabashed triumphalism that greeted the rise of the Internet as a pole of growth during the 1990s, today we are living amid both persistent economic stagnation and escalating political contention over the structure and control of the world’s information infrastructure.

Last Friday I went to a related one-day conference - The Power Switch: How Power is Changing in a Networked World - also run by CRASSH.

One speaker – competition lawyer Ariel Ezrachi – gave a particularly eye-opening talk. (You can get a flavour of what some of the other speakers said in this 35 minute Talking Politics podcast, led by David Runciman. At some point videos of some or all of the event will (?) be available.)

Here’s the gist of Ezrachi's talk.

1. A popular premise is that the Internet is a blessing when it comes to competition. Except that "The invisible hand of competition is being displaced by a digitalized hand".
2. Monitoring of the market by the platform providers means you see what they want you to see, as in The Truman Show.
3. We think we are savvy because we ignore targeted adverts.
4. But it is much harder (impossible?) to escape the effects of dynamic and personalised pricing.
5. Systems know your location, how long you’ve been pondering a purchase, the path you took. You get offered lower prices if you first searched, than if you came direct. If you did not conclude a transaction you may find the prices falls.
6. You may be offered higher prices if you searched using a Macbook than a cheap Android tablet; or from a wealthy location. If you are a first time buyer you may get a lower-than-normal price: even lower if you seem to be a rich first time buyer (because getting a rich person’s sign-up is worth more than a poor person’s).
7. The net effect of this is a hidden and unrecognised anti-competitive interference in the operation of the market, in which the house always wins, and where there is a real problem of asymmetric information between buyer and seller. (Ranking of search results to put cheaper options lower down is another example of asymmetry. As is the way Uber operates; as will be the way that your “digital assistant” operates, using data about you to shape the prices it finds for you.)
8. In a shop you pay the list price or less; if you buy on the Internet the price will be the base price or more.
9. Users of mobile phones are stuck with only two platforms: Android and Apple, sitting underneath all mobile apps; and although Facebook is itself a super-platform, it is beholden to Google and Apple because the latter control the platforms through which mobile users access Facebook.
10. So, there is now an enormous concentration of power over the market – a new kind of power – in very few hands, with big scope to undermine new entrants, and reduced opportunities for disruptive innovation. (Thus Peter Thiel’s "competition is for losers".)

Summary. A fundamental change is taking place in the nature of market competition, with markets invisibly and continuously manipulated by bots and algorithms, making competitive pricing an illusion; and with power over the market infrastructure shifting (already shifted?) into very few hands, there are big and poorly understood risks to economic and overall well-being.