Infracompetitive Privacy

One of the chief anticompetitive effects of modern business lies in antitrust's blind spot. Platform-based companies (“platforms”) have innovated a business model whereby they offer consumers “free" and low-priced services in exchange for their personal information. With this data, platforms can design products, target consumers, and sell such information to third parties. The problem is that platforms can inflict greater costs on users and markets in the form of lost privacy than efficiencies generated from their low prices. Consumers, as examples, spend billions of dollars annually to remedy privacy breaches and, alarmingly, participate unwittingly in experiments designed to manipulate their behaviors, compromising human agency. But because antitrust law uses consumer prices to measure welfare, platforms and privacy injuries have avoided antitrust scrutiny. We show that insufficient competition enables platforms to capture the economic benefits of data while externalizing the costs of protecting it. As we find, consumers demand privacy yet firms in monopolized markets have powerful incentives to shift the costs of protecting privacy onto society. To reduce the rate of privacy breaches, we show that increasing competition would 1) allow users to punish offending firms, 2) disseminate information about the true costs of privacy, and 3) introduce more secure services into the market. As such, because monopoly power encourages firms to disregard the privacy demands of users, antitrust must evolve to recognize that the costs of inadequate privacy can degrade consumer welfare more than artificially high prices