View source for Rule by Data and the End of Markets



'''* Article: Katharina Pistor, Rule by Data: The End of Markets?, 83 Law and Contemporary Problems 101-124 (2020)'''

URL = https://scholarship.law.duke.edu/lcp/vol83/iss2/6


=Description=

(excerpted from the introduction)

'''1.'''

"Given that both markets and firms are legal constructs, and that information
costs alone cannot explain when one prevails over the other, what or who
determines when either markets or firms shall reign? The case of Big Tech
suggests that private agents will often prefer hierarchy over markets, because it
greatly increases their control rights and creates economies of scale from which
they can benefit disproportionately, especially when they have free rein to design
the governance structure of these firms. If hierarchy is the “natural” outcome,
proactive intervention is needed to recreate the resemblance of markets in which
parties can bargain at least on formally equal footing."


'''2. Katharina Pistor:'''

"This Article explores data as a source and, in their processed variant, as a
means of governance that will likely replace both markets and the law. Discussing
data not as an object of transactions or an object of governance, but as a tool for
governing others on a scale that rivals that of nation states with their law, seems
a fitting topic for a special issue that is devoted to the legal construction of
markets. Here, I argue that while it may well be the case that law constitutes
markets, markets are not the only way in which economic relations may be
organized, and law is not the only feasible mode of governing these relations.
Central planning under socialism posed an alternative, which proved ultimately
non-viable.
 
The rise of big tech companies (Big Tech) and their accumulation of
vast amounts of data offers yet another possibility: the rule by data.
In his path-breaking article on the nature of the firm, published in 1937,
Ronald Coase famously posed the following question: if markets are the optimal
form of economic organization, why do firms exist? His answer to this question
was that some transactions are better governed inside hierarchically organized
firms than in open markets.
 
The explanation he gave focused on the inevitable
transaction costs that beset markets, where markets are defined by “price
movements [that] direct production, which is co-ordinated through a series of
exchange transactions on the market.”
 
Implied in this definition (which I will
embrace for this Article) is that goods or services are traded for a unit of account,
or money, and that a series of transactions reveals the prevailing market price.
And as Coase added in another seminal paper on the “problem of social costs,”
the allocation of property rights is key for market exchange.

Big Tech has found a way to retain ownership over data even as it
sells the data again and again, and on terms that Big Tech controls. Money
changes hands, yet only access to data and their predictive power is granted in
return. If this is a market in the original sense of the word, it is a rather peculiar
one.

The Coasean framework also suggests that the enormous reduction of
transaction costs would lessen the need for law. “[I]f market transactions were
costless, all that matters (questions of equity apart) is that the rights of the various
parties should be well-defined and the results of legal actions easy to forecast.”6
In other words, even in a hypothetical world with zero transaction costs, there is
still room for law to allocate the initial rights. How exactly these rights are
allocated does not matter much for efficiency (in contrast to distributional
effects) because zero transaction costs will ensure that these rights will eventually
be allocated to whoever can make the most efficient use of them."

[[Category:Mutual Coordination]]
[[Category:P2P Market Approaches]]
[[Category:Articles]]
[[Category:Big Data]]
[[Category:P2P Theory]]
[[Category:Governance]]

[[Category:Mutual Coordination]]
[[Category:P2P Market Approaches]]
[[Category:Articles]]
[[Category:Big Data]]
[[Category:P2P Theory]]
[[Category:Governance]]