Digital Market Perfection

50 Pages Posted: 11 Jan 2019 Last revised: 15 Apr 2019

See all articles by Rory Van Loo

Rory Van Loo

Boston University - School of Law; Yale University - Yale Information Society Project

Date Written: December 31, 2018

Abstract

Google’s, Apple’s, and other companies’ automated assistants are increasingly serving as personal shoppers. These digital intermediaries will save us time by purchasing grocery items, transferring bank accounts, and subscribing to cable. The literature has only begun to hint at the paradigm shift needed to navigate the legal risks and rewards of this coming era of automated commerce. This Article begins to fill that gap first by surveying legal battles related to contract exit, data access, and deception that will determine the extent to which automated assistants are able to help consumers to search and switch, potentially bringing tremendous societal benefits. Whereas observers have largely focused on protecting consumers and sellers from digital intermediaries’ market power, sellers like Amazon, Comcast, and Wells Fargo can also harm consumers by obstructing automated assistants. Advancing consumer welfare in the automated era requires not just consumer protection, but digital intermediary protection.

The Article also shows the unpredictable side of the end of switching costs. If digital assistants become pervasive, they could gain the ability to rapidly direct millions of consumers to new purchases whenever a lower price or new innovation becomes available. Significantly accelerated consumer switching — what I call hyperswitching — does not inevitably harm society. But in the extreme it could make some large markets more volatile, raising unemployment costs or financial stability concerns as more firms fail. This new kind of disruption could pose challenges for commercial and banking regulators akin to those familiar to securities regulators, who deploy idiosyncratic tools such as a pause button for the stock market. Even if sellers prevent extreme hyperswitching, managers may strategically prepare for hyperswitching with economically costly behavior such as hoarding liquid assets or forming conglomerates to provide insurance against a sudden exodus of customers. The transaction-cost focused literature has missed more macro-level drawbacks.

The regulatory architecture reflects these scholarly gaps. One set of agencies regulates automated assistants for consumer protection and antitrust violations, but does not go beyond those microeconomic inquiries. Nor do they prioritize strengthening digital intermediaries. Regulators with more macroeconomic missions lack jurisdiction over automated assistants. The intellectual framework and regulatory architecture should expand to encompass both the upsides and downsides of digital consumer sovereignty.

Keywords: artificial intelligence, algorithms, automation, regulation, systemic risk, technology

Suggested Citation

Van Loo, Rory, Digital Market Perfection (December 31, 2018). 117 Michigan Law Review 815 (2019). Available at SSRN: https://ssrn.com/abstract=3308524

Rory Van Loo (Contact Author)

Boston University - School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States

Yale University - Yale Information Society Project

127 Wall Street
New Haven, CT 06511
United States

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