Regulatory Approaches to Algorithmic Markets

The next ECREA 2014 speaker is Natascha Just, who highlights the high level of concentration to a handful of leading players in many markets where algorithms play a key role (e.g. search engines, social media, news aggregators); this also creates challenges for competition policy. Should law interfere in such fast-moving, innovative markets – for example in the search engine markets?

Market dominance alone is no reason to intervene in a market – only if the company exploits its position through anticompetitive behaviour a trigger for intervention emerges. The challenge, then, is to understand how these markets operate and where the focus of competition analysis should be.

For competition authorities, the lack of pricing for many Internet services further complicates this analysis – competition between search engines, for example, does not occur through lower pricing, but through innovation. Competition authorities have traditionally assumed that where there is no price, there is no market, but this is no longer true: as users, we pay no fees, but we pay with our data, which becomes the currency of this market.

Data have an important characteristic in that they generate dynamic network effect: the more searches a search engine processes, for example, the better its results get. This is problematic especially for new market entrants, who are usually unable to compete with the leading providers. Further, search engines are also bottleneck monopolists, as they control flow-on access to other providers; regulation must also address this.