Distributive Justice Online

New Metaphors for Value and

Worth in the Digital Age

Frank Pasquale

Loftus Professor of Law, Seton Hall Law School

Fractal Inequality

– A fractal is generally "a rough or fragmented geometric shape that can be split into parts, each of which is (at least approximately) a reduced-size copy of the whole.”

– Patterns of income distributions replicate at various levels—what I call “fractal inequality”

Repeating Patterns of Distribution

• Worldwide: About 80% of consumption done by 20% of individuals– “The 2.7 billion people the World Bank counts as living below its . .

. $2 per day international poverty line consume only 1.3 percent of the global product."

• US Distribution of Wealth in 2004– Bottom 90%: 29%– Top 10%: 71%; about half of that held by top 1%– Within the top 1%, fractal patterns also hold up to the top 14,000

US households

• Income shows similar patterns “From 1990 to 2002, for every added dollar made by those in the

bottom 90 percent, those in the uppermost 0.01 percent (today around 14,000 households) made an additional $18,000.”

Rival narratives of inequality and innovation

– Capital accumulation allows investment and progress as surplus funds innovation

• Rising tide lifts all boats

– The wealthy are powerful because of their productivity.

– The buying power of the wealthy diverts resources from the nonwealthy—including innovation resources

• Self-reinforcing process

– Power, not productivity, explains the differential.

Rival Narratives Online?Innovation reigns in online meritocracy

• The virtuous Google beat out other search engines by offering truly “organic” links.

• The virtuous eBay set up a fair reputation system.

• The virtuous Facebook gave users an uncluttered, soothing interface.

Luck, power, and network effects drive success

• Modeling these sites as 1) Cultural voting machines

2) Parable of the “lucky restaurant”

3) Utilities/carriers

4) Private health Insurers

1) Cultural Voting Machines

• The labor of linking, friending, rating: votes for relevance– Black box voting?

• Deep problems raised by ranking and rating systems that are – dominant– nontransparent

• Personalized search/no accountability– “for the waking there is one world, and it is common; but

sleepers turn aside each one into a world of his own” (Heraclitus)

Shares of Market Leaders in Major Internet Platforms

           Measure Auctions Page Views Search Searches Social Networking Page Views

 Leading Platform Second Platform Leading Platform Second Platform Leading Platform Second

PlatformCountries

           Argentina Google 91% Yahoo! 4%Australia Google 79% eBay 6% MySpace 43% Bebo 25%Brazil Google 90% Yahoo! 2% Google 98% Fotolog 1%Canada Google 78% Microsoft 6%China Baidu 54% Google 19%France eBay 99% Delcampe 0% Google 82% Microsoft 3% Skyrock 78% Facebook 7Germany eBay 99% Yatego GmbH 0% Google 80% eBay 6% StudiVZ 43% Schueler 12Hong Kong Facebook 50% Xanga 30%India Google 81% Yahoo! 11% Google 87% Facebook 6%Italy eBay 99% Bidplaza 0% Google 85% Telecom Italia 3% Netlog 27% Badoo 23%

Japan Yahoo 49% Google 41% Mixi 62% Google 14%Malaysia Friendster 58% MySpace 25%Mexico Google 89% Microsoft 4%New Zealand Bebo 81% Facebook 7%Russia Yandex 52% Google 32%Singapore Friendster 54% Facebook 15%Spain eBay 94% MercadoL ibre 3% Google 93% Microsoft 2% Fotolog 50% Metro-flog 9%

South Korea NHN 65% Lycos 16% CyWorld 97% Paran.co m Club 0%

Taiwan Microsoft 23% Yahoo! 16%UK eBay 98% Price-drop tv 0% Google 74% eBay 6% Bebo 40% Facebook 28%USA eBay 96% Bidz 1% Google 53% Yahoo! 17% MySpace 62% Facebook 21%Worldwide eBay 57% Taobao 14% Google 62% Yahoo! 13% MySpace 17% Facebook 15%

Sources: David S. Evans, Antitrust Issues Raised By The Emerging Global Internet Economy, 102 Nw. U. L. Rev. Colloquy 285 (April 28, 2008) citing comScore, MyMetrix Key Measures Report (Dec. 2007); comScore, My-Metrix qSearch 2.0 Key Measures Report (Dec. 2007) .

These Trends Will Likely Continue

• Barriers to entry in the search market– Ever more expensive to map the web– Network power

• “chicken and egg” problem of platforms

– Licensed content/exclusive deals– Protected algorithms– Innovation powered by use

• Users “train” search engine; virtuous cycle

• Some similar dynamics in social networks, auction sites, though less profound lock-in problems

2) Self-reinforcing dominance

• Parable of the two restaurants• Alperovitz & Daly, Unjust Deserts

– “Warren Buffett is worth nearly $50 billion. Does he ‘deserve’ all this money? Buffett himself will tell you that ‘society is responsible for a very significant percentage of what I’ve earned.’”

• Even if the money is small for online tycoons (relative to the larger economy), the cultural power is not

Legal Realism Online

• Shell, Make the Rules or Your Rivals Will

• James K. Galbraith, The Predator State

Common Carrier Analogies

• From net neutrality to search neutrality• From Zittrain’s Future of the Internet (67)

– physical layer: “actual wires or airwaves over which data will flow.”

– application layer: “representing the tasks people might want to perform on the network.”

– content layer: “containing actual information exchanged among the network's users.”

– social layer: “where new behaviors and interactions among people are enabled by the technologies underneath.”

Should Google be able to . . . • Tier access to Google Books?

– Imagine Harvard gets everything for an undisclosed sum, and schools that can only pay $100,000 a year get “disabled version”

• Manually change rankings?– Downrank sites that sue it?

• That criticize Google executives?

– Uprank sites of business partners?

• Eliminate sites from its index?– As punishment?– As reward? (Doctorow’s Scroogled)

• Even if you think it should have all these prerogatives--should it have to disclose?

Should eBay be able to favor certain sellers?

Meg Whitman on the special Disney deal: “We’ve concluded that eBay has to be a level playing field. That is a core part of our DNA, and it has to be going forward.”

In 2000, eBay granted special perks to Disney on a platform within its auction site. After howls of protest from “the community,” the perks ceased.

Should law force that decision to be taken? Or at least the disclosure of favoritism?

Should Facebook be able to . . .

• Kick members off without due process?– Gossip blogger banished!

• One blogger says: “Facebook is shutting down accounts of users who are exhibiting any behavior it finds remotely suspicious.”

• Close access to your data?– Noticeably cool to proposals for

“OpenSocial” protocols• Compare Dataportability.org

– Google has also been criticized for reducing portability of AdSense data

Meditating on Middlemen

• By understanding the positive and negative roles of other middlemen, we can better understand how to regulate online intermediaries:– Work on common carrier analogy: Internet

Nondiscrimination Principles; Federal Search Commission

– Cultural Voting Machine: The Troubling Trend Toward Trade Secret Protection of Rankings and Ratings

– Insurer analogy: From Managed Care to Managed Knowledge?

Temptations of the Middlemen

• Troubling Insurer Practices– Charge the sick a

great deal– Squeeze providers,

but keep the profits– Bait & Switch; pre-

existing conditions– Trade secrecy in

pricing

• Temptations for Google/Registry?– Tiered access

schemes– Gradual price

increases– Darnton on “cocaine

pricing”– Opaque price

discrimination

How Health Law Responds

• A Public Alternative– From Medicare to A2K for all

• Digital deposit

• Mandatory Disclosure– From NY Doctor Rating Settlement to

Required Reporting of Pricing/Ranking practices

Medicare as Model

• Provides care to all in a certain vulnerable population.

• Sets a baseline of pricing in case of tacit collusion of providers/insurers.

• Compulsory license on works in a government database of digitized works could be parallel to price-making role of MedPAC.

Rival Narratives of Digitized Books

• Responsive regulation that balances– Incentives for private

companies to innovate– Public interest in

universal access to knowledge

– Medicare and private insurers coexist; so can a public and Google-run option.

• Faith in – Market forces– Proprietary black box

algorithms subject to manipulation

Closing Thoughts

• Eternally golden brands?– Google– Goldman– Ingenix

• Deconstructing entitlement at the top, to preserve it at the bottom

• Makers, takers, and fakers