Tuesday, July 16, 2013

The Cost of Lost Privacy: Search, Antitrust and the Economics of the Control of User Data

Posted by D. Daniel Sokol

Nathan Newman, Information Law Institute- New York University analyzes The Cost of Lost Privacy: Search, Antitrust and the Economics of the Control of User Data.

ABSTRACT: This article is a case for reorienting many antitrust investigations — and more generally regulatory approaches — to focus on how control of personal data by corporations can entrench monopoly power and harm consumer welfare in an economy shaped increasingly by the power of "big data." With firms knowing far more about consumers than those consumers know about their options in the marketplace, rising information asymmetry in markets is translating into rising overall economic inequality in the economy as well.

The core source of value being delivered to advertisers by a company like Google (as with many "new media" companies) is by all accounts how well it knows its users because of its vast databases of user personal data. As section II of this article will argue, what is largely missed in analyses defending Google from antitrust action is how that ever expanding control of user personal data and its critical value to online advertisers creates an insurmountable barrier to entry for new competition. And, contra the idea that Google just inherited that business advantage through its innovation in search engine technology, section III of this article will detail how Google has aggressively expanded its control of user data through expanding into new product sectors to collect additional user data with the intent to use its presence in those other markets to reinforce its core search advertising monopoly. Beyond the general expansion into tied markets for user data, Google’s "bad acts" have included multiple violations of the law through invading user privacy in pursuit of control of user data.

Section IV emphasizes the broad consumer harm from the extraction of personal user data deployed by Google for the benefit of its advertisers. The lack of competition means users of Google do not receive the full economic value of the personal data they provide Google. Without viable alternatives to Google, you therefore end up with a stunted "market" for valuing user privacy, so Google feels less and less compunction about violating personal privacy to benefit its advertising customers. More broadly, the deeper harm to consumers from Google’s power in the market — and one that is at the heart of the increasing economic equality in our society — is the way profiling by Google of its users for advertisers allows the kind of price discrimination and predatory marketing we saw in the subprime housing bubble globally and in a range of other sectors.

In section V, the article proposes remedies that can address Google’s dominance in three major ways, separately and in combination: (1) reduce Google’s control of overall user data, (2) create a real market for user data by empowering users, and (3) impose public interest obligations on Google to restrain damage to consumer welfare.

In section VI, the article concludes by noting how issues raised by the article present some fundamental challenges to the Chicago School approach, including highlighting how the lock-in of monopoly in online markets calls for earlier intervention in technology markets and a much broader recognition of how expanding information asymmetry due to data mining undermines the hope that the market itself will curb monopoly abuses in the economy.


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