When Push Comes to Shove

When does a nudge turn into a push? And when does a push become outright coercion? These are questions that ought to confront cyber businesses nowadays, especially those that have gained market dominance on account of an ill-understood thing called the ‘network effect’.

A nudge in itself would be quite alright, at least as outlined as a strategy in a 2008 book by Richard Thaler and Cass Sunstein titled Nudge: Improving Decisions About Health, Wealth, and Happiness (Yale University Press, 312 pages). In this splendid volume, these two behavioural economists make a case for what they call ‘libertarian paternalism’—a gentle way for leaders to redirect incentives in ways that achieve favourable outcomes. The idea was aimed not at CEOs, but at governments, which were urged to craft public policy in a way that would nudge people to act as desired, usually done by framing clever choices for them based on behavioural insights. Instead of forcing every mobike rider to wear a helmet, for example, they suggested a financial penalty—in the form of a much higher insurance premium—for opting not to. This would be a ‘nudge’. On this sort of logic, instead of shunting even numbered cars off the roads on odd days, Delhi would adopt variable pricing for the use of its streets. Consider what Singapore has done to decongest its traffic: its vehicles have bank-linked radio chips that levy (and auto-deduct) road charges displayed on e-signboards which keep changing as traffic data gets crunched in real-time, and all this nudges drivers to opt for cheaper routes instead of busier— and costlier—ones. Of course, Delhi is way too grisly a gridlock to achieve anything of the same order of sophistication, but some version of the same tech bandobast could potentially nudge odd and even cars off the streets on alternate days.

The truly odd thing, however, is that instead of governments going libertarian, businesses appear to be turning more and more coercive. Take taxi-hailing services, for example. At one time, Ola would cheerfully accept passengers who rang up a call centre. Now it demands the installation of its app on your handset, and it’s just too bad, as a voice at the other end will say, if your device is neither an iPhone nor Android. The business intent here, clearly, is to popularise its app, and if this restricts customer choice, so be it.

Is it a nudge? Yes. But if Ola’s rivals turn out to be playing the same game (and Uber certainly is), it’s a push.

Apps that are already on your phone can be even pushier. WhatsApp, for instance, doesn’t just make you hand over your contact list (by default under its terms of usage), it insists on routine upgradation, which it gleefully does by knocking off your access with this terse explanation: ‘Sorry, this version of the application is too old and no longer functions.’ This particular app is owned by Facebook Inc, which bought it in February 2014 for a stunning $19.3 billion—a sum that should nudge anyone to wonder what Mark Zuckerberg saw in it. A social media soulmate? Possibly, and this draws one back to the phenomenon of market dominance brought about by the so-called ‘network effect’.

Its first few mentions appeared in the early days of the internet in the shape of a nerdy math formula: that the value of a network rises as an exponential function of its number of users. Shorn of big words, this means that a larger platform of link-ups has far greater clout than what a simple count of its extra users might suggest. After a certain point, as the count rises, its clout skyrockets. This also implies that the market leader has an almost unassailable lead. And if the whole point of the app is for people to get in touch with one another, the top player tends to get a perpetual monopoly of the entire market—which, once got, can be abused. Economics 101. It’s not for nothing that every monopoly, private or public, attracts such intense scrutiny.

With some 400 million internet users in India, a public debate over all this was long overdue. And it has begun. Under the scanner at the moment is Facebook’s Free Basics, and while it is clearly over the top to liken its tactics to those of the East India Company—as PayTM’s Vijay Shekhar Sharma has done—it would be naïve to think of it as philanthropy.

There are other firms that also deserve a closer look. Cyberspace, after all, abounds with pushes in the guise of nudges. But so long as nobody gets to be the be-all and end-all of the internet, push will not come to shove. Not yet anyway. The force is not with them.

Cass Sunsteinlibertarian paternalismNudgePaytmRichard ThalerVijay Shekhar Sharma