Nicholas Economides and Ioannis Lianos on Privacy and Antitrust, forthcoming in the Journal of Competition Law and Economics

September 10, 2020

We discuss how the acquisition of private information by default without compensation by digital platforms such as Google and Facebook results in a market failure and can be grounds for antitrust enforcement. To avoid the market failure, the default in the collection of personal information should be changed by law to “opt-out.” This would allow the creation of a vibrant market for the sale of users’ personal information to digital platforms. Assuming that all parties are perfectly informed, users are better off in this functioning market and digital platforms are worse off compared to the default opt-in. However, just switching to a default opt-in will not restore competition to the but for world because of the immense market power and bargaining power towards an individual user that digital platforms have acquired. Digital platforms can use this power to reduce the compensation that a user would receive for his/her personal information compared to a competitive world. Additionally, it is likely that the digital platforms are much better informed than the user in this market, and can use this information to disadvantage users in the market for personal information.

Nicholas Economides is a Professor of Economics at NYU Stern.
Read full paper here.