Is privacy an antitrust problem?

Privacy has just recently entered antitrust discussions. The debate has focused on whether concerns about privacy should be used as a criterion to regulate large firms that look like monopolies.

The question which US Senator Al Franken raises is whether a reduction in consumer harm due to privacy erosion should be treated in a similar manner to a reduction in consumer harm due to higher prices. Essentially, just as a lack of local cable TV companies might generate higher prices, a lack of internet companies providing useful services might generate unattractive privacy policies.

In contrast to this concern, in a recent paper we explore another important antitrust question related to privacy. Specifically, we ask whether the introduction of privacy regulation may ultimately lead to less competition. The paper uses an economic theory model to illustrate this point but the intuition is relatively straightforward as shown by this following thought experiment.

Imagine it is the late 1990s and you had the choice of the two search engines. Altavista is the incumbent that you regularly use and know well. Google is a recent upstart which has a better product but you know little about it. Imagine now that privacy regulation forced users to choose whether to give explicit opt-in consent to these two search engines upon first use (a common requirement in privacy regulation proposals in the US and abroad). It is likely that while users might be more comfortable with giving this consent to the well-known AltaVista, they would feel less comfortable with giving consent to the upstart Google. In this manner, privacy regulation can inadvertently favor incumbents and hamper the operations of start-ups.

Therefore, there is a risk that rather than privacy needing to be directly regulated by authorities because of antitrust concerns, privacy regulation might lead to antitrust concerns and a lack of competitive entry. An increased regulatory burden is likely to help large incumbents at the expense of small upstarts.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s