Cognitive Foreclosure

• Jurisdiction: United States,Federal
• Publication year: 2022
• Citation: Vol. 38 No. 4

Cognitive Foreclosure

Peter O'Loughlin
peter.oloughlin@univ.ox.ac.uk

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COGNITIVE FORECLOSURE

Peter O'Loughlin^*

You've been living in a dream world, Neo.¹ The Matrix

There are only two industries that call their customers "users ": illegal drugs and software.² Edward Tufte

[Y]ou're manipulating the situation in a way that gives no one a way out.³ Gilmore Girls

Abstract

Digital markets now fundamentally intertwine with our social and economic lives. International enforcement actions—the United States (U.S.) and European Union (E.U.) Google cases in particular—demonstrate from a behavioral economic perspective how digital platforms may be beginning to implicate antitrust's two most fundamental doctrinal components—conduct and market power—in nuanced ways. In short, the regulatory and policy landscape showcases that we may be moving closer towards an antitrust world whereby firms can manipulate consumers' psychological shortcomings to foreclose competition—a new form of nefarious conduct that might appropriately be termed "cognitive foreclosure." Yet as a demand-side market failure, one should be cautious about categorizing behavioral market failures as antitrust issues. The

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behavioral deviation from perfect competition, then, would need to be "substantial" and "sustainable" if such market failures are to justifiably attract antitrust scrutiny.

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CONTENTS

Abstract..............................................................................1097

Introduction.......................................................................1101

I. "Antitrust Foreclosure" Retrospective-A Pernicious Evolution.....................................................................1109

A. Transparent Exclusion ............................................. 1111
B. Less Transparent Exclusion.....................................1114
C. Obscure Exclusion...................................................1118

II. Consumer Susceptibility to Manipulation in the Digital World.............................................................1123

A. Amplified Heuristics and Biases..............................1125

1. Information Overload, Information Complexity, and Attention Scarcity...............................................1125

B. Amplified Abilities to Manipulate............................1130

1. Control................................................................1130

a. Big Data ....................................................... 1132
b. Addiction-Induced Cognitive Impairment .... 1134

2. Amplified Incentives to Manipulate....................1137

a. Competitive Pressures .................................. 1137
b. Almost "Perfect" Switching.........................1138
c. Pernicious Self-Preferencing........................1140

III. Behavioral Frustration of Consumer Switching at Inter- and Intra-platform levels.............................1143

A. Scrambling Switching Incentives..............................1148

1. Framing Effects..................................................1148

a. Emotional Losses..........................................1149
b. Willingness to Pay as a Function of Switching Incentives ...................................................... 1151

B. Stifling Switching Abilities.......................................1155

1. Willpower and Rationality as a Function of Switching Abilities..............................................1155
2. Perpetuating Addiction-Induced Attention.........1157

a. Defaults and Inertia......................................1161
b. Dark Patterns...............................................1163
c. Summary ....................................................... 1165

IV. Behavioral Market Power—A "Substantial" and "Sustainable" Deviation from Perfection in Digital Platform Markets?....................................................1166

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A. Illustrations of "Substantial" Behavioral Market Power in Digital Platform Markets.....................................1170
B. The Potential "Sustainability" of Cognitive Foreclosure in Digital Platform Markets.....................................1171

Conclusion..........................................................................1174

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INTRODUCTION

The behavioral economic (BE) attack on economics' rational actor model is now well-established and has voluminously showcased anomalous deviations from the assumption of perfect rationality.⁴ In short, scholars had developed axioms of rationality—like preference transitivity⁵ and preference invariance⁶ —and subsequent work identified phenomena that seemed to contradict these axioms. These "deviations"—induced by the mental shortcuts (biases and heuristics) that actors had to take due to their bounded rationality⁷ —have seen

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empirical validation, along with important theoretical (and practical) implications across diverse fields such as health, environment, and education.⁸ BE now even has its own card game.⁹ In fact, this evolving concept of "irrationality," which seems to continually encompass a never-ending list of biases and heuristics,¹⁰ has expanded so much that the "dream world" which Morpheus described to Neo in The Matrix is perhaps becoming a pessimistically accurate description of human decision-making.¹¹

Perhaps the most potent and obvious application for BE was the legal system given the significant impact of Law and Economics, which revolutionized legal thinking across an impressive array of legal topics.¹² Thus arrived the field of Behavioral Law and Economics (BLE), which leveraged the biases and heuristics identified by earlier work and challenged the Law and Economics' assumption of "strict"¹³ rationality.¹⁴ It was only natural, then, that such behavioral phenomena

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would eventually breathe their way into antitrust debate and challenge, among other things, the insights of the Chicago School and its strong belief in efficient markets that self-correct.¹⁵ Indeed, if efficient entry and efficient switching were now cast in doubt because of BE findings, we would find ourselves believing less in a market's self-correcting capacities and preferring more antitrust enforcement.¹⁶

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BE clearly has significance for antitrust, though we are only now beginning to see some inroads into enforcement as the Google cases demonstrate—where the theories of harm are premised on consumers' behavioral shortcomings.¹⁷ Indeed, at the time of writing, the United states Department of Justice (u.s. DoJ) has instigated a formal complaint against Google, part of which is grounded on a behavioral theory of "sticky" consumers—in other words, consumers who do not change default applications on their mobile devices.¹⁸ As Devlin and Jacobs explain after emphasizing the importance of the "substitution effect" for antitrust¹⁹ : "What does the behavioral literature say about this, perhaps the most critical question in antitrust law? It offers a litany of biases, some of which might add to, while others of which might detract from, the market's tendency to self-correct through prompt consumer substitution."²⁰

Despite the significance of substitution for antitrust (and the potential BE consequences for this concept), much of the scholarly and regulatory literature has yet to systematically examine the BE

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implications for antitrust enforcement's two most fundamental doctrinal components: conduct and market power.²¹ This seems a strange omission not only because of the ascending inclination to categorize behavioral shortcomings as an emerging form of market failure²² but also, more pertinently, because a unilateral antitrust infringement depends on a firm engaging in anticompetitive conduct²³

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and possessing "antitrust" market power (which, as we will see, means "substantial" and "sustainable" market power). Consequently, there is a need to comprehensively assess (1) the extent to which firms can generate demand-side foreclosure through manipulation of consumer biases and (2) whether behavioral shortcomings as a deviation from perfection are "substantial" and "sustainable" enough to constitute "antitrust" market power. To the extent that the latter deviation satisfies these criteria, it will serve to illuminate when BE may transform from a consumer protection issue—an area of law regulating more de minimis market failures—into an antitrust issue.²⁴

These two parameters—manipulative conduct and irrationally-generated market power—are both emerging as significant antitrust concerns in the digital sphere and relevant considerations of competition appraisal. The recent and long-awaited Google LLC & Alphabet, Inc. v. Commission (Google Shopping)²⁵ judgment vindicates these concerns in significant respects—particularly the emerging phenomenon of manipulative self-preferencing and the pernicious foreclosure of rivals. Indeed, recent digital market regulatory and policy investigations and reports are now starting to acknowledge the potential power of digital platforms to manipulate consumers' behavioral biases and foreclose competition.²⁶

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Additionally, consumers can (unknowingly) contribute to creating market power themselves by failing to take actions "that may look like poor decisions if those consumers like to choose among options and experience competition" in digital markets.²⁷ In any case, the revelation that digital platforms possess continuous and ubiquitous insight into our daily lives and may shape our opinions and decision-making processes through Big Data analytics²⁸ highlights on

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its own accord that, at least in the context of digital platform markets, we may be moving closer towards a new, more pernicious form of antitrust foreclosure that might appropriately be termed "cognitive foreclosure."

Against this backdrop, this Article unfolds as follows. Part I examines the development of foreclosure cases and illustrates how the advent of technology has led to a new wave...