Tech Bulls v Bears

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The stock prices of Facebook and Amazon seem to be tanking.

In just over two weeks, Facebook stock price lost 13% on account of (alleged) careless privacy ethics.

And every Amazon-obsessed Trump tweet comes with a significant down on share price.

Stock prices movements are predominantly discussed by asset managers in buy v sell terms.

But asset prices also disguise a question of policy interest: can policymakers forbear in light of financial market correction?

Or put differently: can we socially delegate to financial markets the dirty job of disciplining bad players?

As much as I am a believer in economic freedom and open markets, my answer at this stage is no.

In capital market theory, asset prices are just a reflection of expected cash flows. When asset prices go down, this is because investors anticipate less profits.

If, like me, you dont believe in the success of #DeleteFacebook, the share price decrease of Facebook and Amazon can plausibly be imputed to investors’ expectations of stricter privacy regulation or antitrust intervention.

Remove such threats, and the stock price will go up again.

In brief, a credible threat of regulatory intervention is part of the disciplining (bear) effect of financial markets.

In contrast, an institutionalized policy of forbearance would turn the market in the other sense (bull).

 

Automated Law Enforcement

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I have uploaded on ssrn a new working paper on automated law enforcement.

Admitedly, this work and my previous paper on AI are fairly theoretical.

At a high level, both essays discuss the issue of law creation for emerging technologies with uncertain but potentially terminal consequences. Nicholas Nassim Taleb talks of tail events.

I am looking for comments on this paper and the previous one.

Both are works in progress, and should appear in a book at some point.

A quick and dirty note on FB, competition and individualism

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If there was competition, we’d not be stuck with Facebook (FB).

In a competitive market, bad behavior is not left unpunished. Users flee in droves to the next best alternative.

Yet, moving to Instagram (that’s FB btw) or Snap does not even make second best (except perhaps for youngsters). Until now, #DeleteFacebook has not picked up much network effects.

Or perhaps we are looking on the wrong side? A very thorough paper from the Wall Street Journal suggests that there is pushback from upstream advertisers. Query what the end equilibrium will be.

As an aside,  I can’t help but thinking that we are individually as much part of the problem, as of the solution (note to readers: the following may be the byproduct of me being on a sabbatical at the Hoover Institution, though I am always intellectually suspicious of ideology).

For indeed, we’ve built FB as our digital lives repository.

As is well-known, prohibiting drug usage does not starve addiction. Education is key. Yet, the pundits make the case agst FB, w/o ever talking of people’s digital exhibition or of our own lack of curiosity.

We live in a strange world. We’re treated as infants. We’re considered unable of critical thinking and of interest for the other side.

Perhaps, we should think more about what we can individually do, instead of letting States roll out content police and other Orwellian evils.

As far as I know, it’s people who put a ballot in for Trump and Brexit. And until now, there’s been no app for that.

FB’s Privacy SNAFU

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4 quick thoughts – with links – on FB’s recent mess.

1/. But for Cambridge Analytica’s fraudulent grab on data – and Russian ads  – it is still  pretense to claim that Donald Trump would not be President. And more generally, all the disorders of the world cannot be blammed on bigtech; the elephant in the room being: do we individually share responsibility here?

2/. There are rogue agents everywhere, not only in bigtech. What we are witnessing here may just be classic lone wolf stuff. Remember Nick Leeson, Bernie Madoff or, more recently, Elizabeth Holmes? (here’s a good story on Theranos BTW). Hopefully, the investigation will cast light on whether we have here a systemic problem, worthy of regulatory attention.

3/. Scale – or size – is a liability, a point often forgotten by tech breakup activists. Large organisations face higher costs detecting opportunistic conduct. But with bigtech, this problem is squared. Surveillance operations must be conducted within the organisation (here is a quite sensational piece on leaks to the press) as well as outside, with users’ communities on all edges of the platform. The decadence of MySpace or – less well-known – Chatroulette – both terminologically and semantically – are good proof of this. Moazed and Johnson show it very convincingly in their book on modern monopolies.

4/. In addition to market (competition), technological (disruptive innovation), and legal (regulation) risks, bigtech faces deadly moral threats. As we can already gather from the stock markets (here and here), carelessness with cultural, ethical or moral issues comes with a price. Query whether this could trigger churn in users, and eventually reverse networks effects.

A heretical rationale for antitrust: transfers

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Many ex post rationalisations of antitrust have been proposed: efficiency, freedom and fairness.

Here is an additional one based on transfers.

Governments expend resources to make individuals wealthier.

This is achieved through a variety of welfare programs, subsidies and tax measures.

A firm with monopoly power can undermine such payments by appropriating them.

Hence, societies would need antitrust laws to preserve the effectiveness of public transfers.

Some policy implications?

  • Where individuals do not enjoy transfers, there is no place for antitrust;
  • Where individuals enjoy transfers, there should be antitrust protection.

Applied to tech, there would be no State aid case against Apple.

A new beginning

I have now completed my relocation to the US.

For the next 6 months, I will be a Visiting Scholar at Stanford University’s Hoover Institution.

The game plan is: think, write, think and write again.

Topic on my mind for this first day of work: should I have a chapter on tech giants and patent policy?

If you are around, and interested to meet, please contact me.

Fragile by design?

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Last week, this Kylie Jenner tweet inflicted a USD $1.3 billion share loss on Snapchat.

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A  reminder that some of the tech giants have feet of clay.

Content-mediating platforms may be particularly at risk here.

On some content-dependent mediums, the platform may become impersonated by certain icons.

Any of that icon’s act of bad behavior – Kevin Spacey? – or unsupportive statement – K Jenner – can potentially precipitate the platform closer to the bottom.

Again proof that platforms must carefully control content if they want to survive.

Money Talks

So as to avoid manure throwing in future conversations on this blog, I feel important to disclose that I have shunned funding from any of the big tech companies (and those who complain in proceedings against them).

I additionally want to disclose that I will not disqualify arguments on the ground that they come from someone who has touched money from the private sector, a law firm, an economic consultancy or Government.

I am interested in ideas, not in witch hunts.

As long as funding is disclosed, all is fine.