UK Furman Report – Unlocking digital competition, Report of the Digital Competition Expert Panel,

This Report, which can be found here, follows a review ordered by the UK’s Treasury to make recommendations on changes to competition and pro-competition policy to help unlock the opportunities of the digital economy. The report’s recommendations build on a number of propositions, namely that: the digital economy is creating substantial benefits; that a number of digital markets are prone to tipping and being ‘winner-takes-all’; market concentration in these markets both creates benefits and incurs costs; but government policy and regulation have limitations. In the light of this, the report found that the standard tools of competition policy, evaluating whether mergers can proceed and whether antitrust action is warranted to remedy abuses by companies, could play a role in helping to promote competition and the associated better outcomes for consumers and innovation. To do so, competition policy will need to be updated to address the novel challenges posed by the digital economy. Some of these updates can happen within current powers,…

EU group of experts, ‘Competition Policy for the digital era’

This Report, which can be found here, explores how competition policy should evolve to continue to promote pro-consumer innovation in the digital age. It is structured as follows. Chapter 2 describes the digital world and markets. The report focuses on three key characteristics of the digital economy: extreme returns to scale, networks externalities and role of data. Regarding returns to scale, the cost of production of digital services is disproportionate to the number of customers served. While this aspect is not novel as such (bigger factories or retailers are often more efficient than smaller ones), the digital world pushes it to the extreme and this can result in a significant competitive advantage for incumbents. Concerning network externalities, the convenience of using a technology or a service increases with the number of users that adopt it. Consequently, it is not enough for a new entrant to offer better quality and/or a lower price than the incumbent does; it also has to…

Stigler Center (University of Chicago) Report on Digital Platforms

This Report, which can be found here, was written by a working group who came together to address specific problems arising from the digital platforms’ reach, scale, scope, and use of data. They examined concerns stemming from the market structure contemporary platforms have created, and to investigate their competitive behaviour, including the consequences of network effects that can create barriers to entry for new innovators and entrench incumbents. The theme that runs throughout the report is the difficulty of entry into digital platform businesses once an incumbent is established. Whether the entrant is vertical or horizontal, has succeeded to some degree, is nascent, is a potential entrant, or is a large platform in an adjacent space, market entry improves consumer welfare by either providing more choice, different features, and a chance of higher quality, or creating a threat that spurs the incumbent to provide lower prices, higher quality and innovation, and to do so more quickly. The Report is structured…

Ariel Ezrachi and Maurice E. Stucke ‘Sustainable and Unchallenged Algorithmic Tacit Collusion’ Oxford Legal Studies Research Paper No. 16/2019

This piece is similar to last week’s papers in that if focuses on the challenges posed by algorithmic tacit collusion, but arguably goes further. In previous work, the authors outlined four scenarios where algorithms may be used to facilitate collusion. There is a consensus that their first two scenarios – Messenger, where algorithms help humans collude; and Hub and Spoke, where a common intermediary provides the algorithm and the pricing decision mechanism that could facilitate collusion – pose competition issues that should be addressed under existing rules. Their third and fourth scenarios have proved more controversial. Under the third scenario, called Tacit Collusion on Steroids – The Predictable Agent, companies could unilaterally use algorithms with the intent to facilitate conscious parallelism (also known as tacit collusion). Under the fourth scenario, called Artificial Intelligence, God View, and the Digital Eye, algorithms may arrive at this anticompetitive outcome on their own. Tacit collusion is beyond the reach of the competition laws of…

German Monopolies Commission ‘Algorithms and Collusion’, Chapter I of the XXII. Biennial Report

The Monopolies Commission is a permanent, independent expert committee which advises the German government and legislature as regards competition policy-making, competition law and regulation. The chapter is already one year old, and can be accessed here. In data-intensive sectors such of the digital economy, pricing algorithms can facilitate collusion by automating collusive behaviour. For example, algorithms can stabilise collusion by allowing the collection of information on competitors’ prices and sanctioning deviations from collusive market outcomes more quickly. The use of pricing algorithms can also render explicit anticompetitive agreements or concerted practices dispensable. As a result, difficulties with determining whether a concerted practice is actually taking place will increase with the use of pricing algorithms. The Monopolies Commission considers that the use of pricing algorithms makes it necessary to strengthen market monitoring through sector inquiries. Since consumer associations are most likely to have indications of collusive overpricing, the Monopolies Commission recommends that consumer associations obtain the right to initiate competition sector…

Emilio Calvano, Giacomo Calzolari, Vincenzo Denicol and Sergio Pastorello ‘Artificial Intelligence, Algorithmic Pricing and Collusion’ Centre for Economic Policy Research, London

Algorithmic pricing is not new, but newer software programs are much more “autonomous” than their precursors. Powered by Artificial Intelligence (AI), pricing algorithms can develop their pricing strategies from scratch, engaging in active experimentation and adapting to the evolving environment. In this learning process, they require little or no external guidance. Taken together with the diffusion and evolution of pricing algorithms, these developments raise various issues for competition policy, particularly as regards tacit collusion. While so far no one has brought an antitrust case against autonomously colluding algorithms, antitrust agencies are discussing the problem seriously. In addition to the OECD, competition authorities in the US, Canada and UK have held roundtable or issued papers on the topic. This paper, available here, tries to understand whether tacit collusion arising from AI should be a real concern by looking, for the first time, at the emergence of collusive strategies among autonomous pricing algorithms. It takes an experimental approach, by constructing AI pricing agents and…

Francisco Beneke and Mark-Oliver Mackenrodt ‘Artificial Intelligence and Collusion’ (2019) International Review of Intellectual Property and Competition Law 50 109

Current technological developments in the field of artificial intelligence (AI) have added further complexity to the discussion of whether, in the absence of overt communications, mere tacit coordination between competitors should be outlawed. Whereas some commentators argue that the dangers posed by AI should tip the balance towards making tacit coordination illegal, there are others who are either not entirely persuaded of the plausibility of such dangers or who point out that a competition rule focusing on mere inter-firm interdependence is not administrable. This paper, available here, reviews this debate with a view to establishing whether successful price coordination achieved by self-learning algorithms should be punishable under EU competition law, and whether the current regulatory framework is suitable. Section 2 explains how AI relates to antitrust. AI is expected to arise from certain types of software algorithms. An algorithm is merely a specified sequence of steps for producing a solution to a problem. Software is a composition of individual algorithms…

Ioannis Lianos’ ‘Blockchain Competition’ in Ph. Hacker, I. Lianos, G. Dimitropoulos & S. Eich, Regulating Blockchain: Political and Legal Challenges (OUP, 2019, forthcoming)

I highly recommend this paper, available here. I was unable to review it on time, in part because it is long, demanding and comprehensive, as is often the case with Ioannis’ papers. If you are unable to read this 93-page primer, many of the main points are neatly summarised in this video interview Ioannis gave at the OECD. If you have a bit of time, I suggest you read the discussion of the various potential competition concerns raised by the blockchain from an EU law perspective in the paper’s last 25 pages or so (starting on page 65).

Konstantinos Stylianou ‘What can the first blockchain antitrust case teach us about the crypto-economy?’

This note, available here, describes the first ever blockchain antitrust case. In December 2018, UnitedCorp, a diversified technology company, sued Bitmain, the largest Bitcoin mining pool, in the first blockchain dispute with a focus on antitrust (United American Corp. v. Bitmain, Inc. Complaint). The case, pending before the District Court for the Southern District of Florida, is at its core a familiar collusion claim. The facts and allegations are as follows. UnitedCorp offers a number of blockchain solutions. These include BlockNum, which allows the execution of blockchain transactions using regular phone numbers; and BlockchainDome, a cryptocurrency mining system that uses the heat generated from the mining process to heat greenhouses for agricultural purposes. Both technologies rely on a cryptocurrency called Bitcoin Cash, one of the hundreds of publicly available (permissionless) cryptocurrencies. As with other cryptocurrencies, Bitcoin Cash’s whitepaper and protocols set out its rules and governance. In November 2018, protocol developers disagreed on how to update Bitcoin Cash’s protocols. This resulted…

Konstantinos Stylianou and Nic Carter ‘Calculating Cryptoasset Market Shares’

A number of laws and regulations, such as antitrust laws and financial regulations, are informed by the relative economic size of the companies or assets under investigation. For the blockchain, this means that cryptoassets – i.e. digital instruments of economic value that are developed and traded on blockchain networks (e.g. cryptocurrencies, tokenised securities, crypto-derivatives, etc.) – with larger market shares are likelier targets for law enforcement or regulation. Properly measuring the economic footprint of cryptoassets becomes imperative. However, measuring the relative economic size of cryptoassets has proven challenging for multiple reasons. This paper. available here, presents the first systematic examination of the economic footprint of cryptoassets and their constituent actors, with the goal of providing comprehensive guidance into the size of the crypto-economy. The article proceeds in three steps: Part II explains the function and challenges of market share calculation. While some rules and obligations apply uniformly across industries, many are contingent on the relative size of the regulated subjects, meaning that smaller…