Google and Facebook: Antitrust Concerns Reaching Beyond Privacy
— August 12, 2019
By Nicholas Economides
Google offers free Internet search and requires data provision by the user at zero price. That is, it offers Internet search only if the user provides data. This setup, where one good/service is provided only if a second good is provided, is called tying of the two goods/services, and it punishable by US antitrust law if it reduces competition and hurts consumers, and is similarly in the EU. Since Google is dominant in Internet search with close to 90% market share, it has additional obligations with respect to this practice.
It is easy to show that tying of personal data provision with Internet search provision increases Google’s market power in the data market. A user who would not have freely given his/her personal data to Google is now doing so because this is a requirement to access Google’s Internet search. Thus, tying increases Google’s market share in the data market. Since such data is used to sell ads, Google’s tying directly increases its market power in the ads market, and stifles competition in this market. To the extent that users receiving free search do not receive in kind the full compensation for the data they provide, they are damaged by the tying practice. Additionally, there are users who would prefer to pay for search and not to provide their personal data to Google. They are also damaged by being compelled to provide personal data under tying.
Similarly, Facebook provides free access to its service and requires data provision at zero price. It offers Facebook service only if the user provides access to personal data. Similarly to the Google example above, this setup, one good/service provided only if a second good is provided, is tying of the two goods, and it punishable by US antitrust law if it reduces competition and hurts consumers, and similarly punished in the EU. Since Facebook is dominant in the social networks market with over 90% market share, it has additional obligations with respect to this practice. It is easy to show that tying of data provision with Facebook service increases Facebook’s market power in the data market. A user who would not have freely given his/her personal data to Facebook is now doing so because this is a requirement for access to Facebook service. Thus, tying increases the market share of Facebook in the data market. Since the data is used to sell ads, Facebook’s tying directly increases its market power in the ads market, and stifles competition in this market. To the extent that a user is not compensated adequately for his personal data by the free provision of Facebook service, he is damaged by the tying practice. Additionally, there are users who are willing to compensate Facebook for its service but are unwilling to provide their personal data to Facebook, who are damaged by the tying action of Facebook.
How would the world be without this tying? First, the default regime would be “opt-out,” likely imposed by regulation since Google and Facebook do not have incentives to change the opt-in default regime. In this regime, the company (Google or Facebook) is unable to legally use or sell the information it collects from a user who has not opted-in. To be able to use or sell information the company collects from a user, the user would need to affirmatively give his/her consent by opting-in. The user may demand compensation or be offered compensation for selling his/her data to the company, and opt-in occurs when a price has been determined and money changes hands.
So, a vibrant market for personal information sold to Facebook or Google has been killed through the tying practices of Facebook and Google that impose provision of personal data as a requirement for access to Facebook or Google Internet search service. This is a “market failure” and can be fixed by antitrust and competition authorities in the US and EU. This goes beyond privacy concerns on the acquisition of personal information that are typically based on “rights” of individuals (for example, see General Data Protection Regulation, GDPR of the EU) rather than failure of markets and antitrust violations.
Based on findings from “Competition and Privacy in the Digital Economy,” forthcoming, by Nicholas Economides (Stern NYU) and Ioannis Lianos (University College London)
Nicholas Economides is a Professor of Economics at NYU Stern School of Business.