Fighting The Digital Market’s Own “Invisible Hand”
In class, we have been talking a lot about advertisements and how search engines sell ad slots to buyers in a lucrative market. However, let’s take a look at the dangers present with all these advertisement schemes. Aman Brar, the author of the article, suggests that there exists a “digital hand” that replaces the “invisible hand” coined by Adam Smith. This digital hand engages in advertisements and online pricing that is determined with consumer data and behavior. As a result, companies are able to collude and use their immense power to participate in discriminatory pricing. Basically, a company like Amazon could potentially buy data from search engines and its own data to show different prices to different individuals. They would also be able to show ads that are inherited from their consumers’ spending habits. The downward spiral continues on when Amazon sells this collected data to other companies that are trying to sell products. What this does is increase profits and producer surplus, while decreasing consumer surplus to almost zero.
An example of a company that mildly participates in such collusion is Uber, which determines prices with its algorithm. When people need rides the most, they pay premiums and opt for surge pricing. However, they are able to do this because they have immense market power and future expansion capital. To price products based on spending habits and data is far worse.
This connects to class lectures in that advertisments and search engines are able to buy the consumer data and behavorial spending habits to sway consumer opinion. One can create easy landing pages, offers, and target audience ads to influence the market and its participants. The benefit to this is that one will be shown better products and services, which advertisments that matter. However, the mass collection of such data is still a scary place. One solution to this might be price comparison sites that present transparent market prices on products.
Article: http://themarketmogul.com/fighting-the-digital-markets-own-invisible-hand/