February 8, 2011

Power, the human kind that is, requires a suspension of belief. It proclaims its permanence, yet a succession remains inevitable. The more successful it looks, the more likely its devolution will come as a revolution. Witness Egypt.

Indeed, like a material which is brittle for being so hard, too much stability and centralization render power inherently fragile. Take stability. Soon dangerous blind spots develop where views remain unquestioned. To uncover them, there is no better witness than language.

"Bribing a government official to secure a huge government contract that could otherwise gone elsewhere is one thing. [...] Another is bribing a chief of state to change the tax laws with regular political contributions entirely legal in that country." Paul Betts attributes this "illuminating speech" to "the then head of the US Securities and Exchange Commission Roderick Hills" (*).

He does castigate both behaviors as bribing. But stressing that what Lawrence Lessig calls "institutional corruption" must be tolerated because it is "legal in that country" is fraught with arrogance. "When in Rome do as the Romans" is not sound policy when one lives in Egypt, it implies, because this self-righteous autonomy is reserved for the United States and other Western pronaocracies.

Isn't our understanding of insider trading tainted by similarly tortured nuances? Azam Ahmed reports, "the Securities and Exchange Commission filed civil charges against six people [...] after criminal cases brought earlier by the Justice Department against the same group" (**). Why?

"The sharing of [...] non public information was facilitated by two employees at the expert network firm Primary Global Research, which connected the money managers to the executives for fees". Remember how targeted advertising networks connect advertisers to web site managers willing to sell the confidential information gathered during their regular job. Isn't there an uncanny parallel?

Both behaviors betray the trust of those whose private information is misappropriated without their consent to the benefit of the thieves, their fences and the latter's clients. Ah but you see, if the data is lifted from a public company, it's a crime, if it is from you and me, it's legal. We agreed to it!

Language is the passive recorder of too settled a world view. An excess of centralization tends to silence active dissenters. Justice is not perfect but there is a lot to say for what the French call "les petits juges", the petty judges whose independence allows them to air outrageous thoughts.

Calling "Juliane Kokott, on of the advocates-general, or senior legal officials, at the European Court of Justice" a petty judge is quite a stretch. But was she ever on Rupert Murdoch's list of important people, those who listen to the voice of his media and those whose voices his media listens to?

Now she is. She backed an English pub landlady's "claim that she should be allowed to show live matches from any European satellite broadcaster", as reported by Roger Blitz and Ben Fenton (***). Why indeed pay a fortune to BSkyB if one can buy the same rights for much less in Greece? Isn't Europe one big single market? Can't one freely travel back to London with a book bought in Athens? Why not a subscription card?

England's Premier League may well continue to carve out exclusive sales territories. But once sold to a European consumer through one such distributor, digital goods should not disappear at the limit of its territory.

Some implications are immediate. If the ECJ disavows Juliane Kokott, television set top boxes, smart phones and reading tablets will soon feature GPS-driven censorship. If the court follows its advocate-general, the Premier League may have to "sell a pan-European package of rights to a single broadcaster", likely for less than the current sum of its parts, and BSkyB may lose its lucrative English franchise.

Juliane Kokott however has raised an issue which goes far beyond how to finance the life style of Rupert Murdoch and a gaggle of soccer stars. By implying that market competition should be free to level the price of movable goods in all European countries, she highlights that conversely capitalists grow wealthy by creating price differences, a phenomenon well illustrated by Tim Harford in "The Undercover Economist" (1).

This trend, I have argued, signals a move away from price markets towards what I call value markets, on which price is but a feature. Value markets are necessary when the products exchanged are so unique as to make any comparison subjective, like in the art world or to some extent real estate. But airlines have become expert in turning the buying of a ticket into such a unique experience that few passengers pay the same for a given flight.

This opens the way to bypass Juliane Kokott's opinion. Use the power to personalize unleashed by Internet to make each Premier League subscription unique et voilà, you can set your price as high as the value at which each consumer appreciates your offer.

You may find this suggestion fishy, but can you explain what's wrong with it? Implementation? It's a matter of time. Principle? What principle?

It all comes back to competition. On the art market or the real estate market, prices can be personalized to individual buyers but at any one time each buyer can pick from a variety of unique sources. What's wrong with value markets is when one side gains enough monopoly power.

Selling a commodity on a price market, a monopolistic distributor would have to pick a common price. Even if this price is higher than what real market competition would allow, it remains limited by the need to appeal to hoi polloi with limited resources.

Selling a personalized offer on a value market enables very different tactics. Knowing the profile of a buyer, you can estimate the value this buyer is likely to put on your offer. By virtue of her being a pub owner in southern England, you know she is ripe for more than a retired Greek fisherman.

But pure "rational" economics do not explain all behaviors. What if you decide to charge smokers a premium? If you do not sell health insurance, you will needlessly lose some revenues but quite satisfy your ego. As one can guess, discriminating against smokers is only an appetizer.

Confidentiality is a condition of fairness on value markets and so capitalists rightly fear privacy. Instead of buying aristocrats as in Saint Petersburg, the game Tim Harford taught Michael Lewis as his personalized price for an interview (****), they buy themselves some US Congressmen.

Is this whole sorry state of affair so powerful it will per force lead to a revolution in the name of eprivacy?

Philippe Coueignoux

• (*) ....... Blame for corporate immorality goes beyond the board, by Paul Betts (Financial Times) - February 4, 2011
• (**) ..... S.E.C. Charges 6 in Insider Trading Cases, by Azam Ahmed (New York Times) - February 4, 2011
• (***) ... EU court shocks English football, by Roger Blitz and Ben Fenton (Financial Times) - February 4, 2011
• (****) . 'It's fun gambling with others' money', by Tim Harford (Financial Times) - February 5, 2011
• (1) see Tim Harford in the wikipedia