Opinion

Google and Facebook: Antitrust Concerns Reaching Beyond Privacy

Nicholas Economides

By Nicholas Economides

So, a vibrant market for personal information sold to Facebook or Google has been killed through the requirement practices of Facebook and Google that impose provision of personal data as a requirement for access to Facebook or Google Internet search service.

By Nicholas Economides

The antitrust concerns for Google and Facebook are similar. Both companies allow free access to their respective service in return for the user granting free access to his/her personal information. This information includes IP address, cookies, location, search history (and possibly parsing of emails) for Google and user posting and user “likes” history for Facebook. Data collection by the companies occurs with “no questions asked” since the default is to opt-in in the collection processes of both companies. The default opt-in and the zero price in data collection constitute a market failure. That is, the market between the user and company on acquisition of data does not function properly as a market, and everyone is giving their personal data for free. If the default were opt-out rather than opt-in and the market for data acquisition was properly functioning, users would receive various amounts of monetary compensation from the companies depending on each user’s features.

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 is restrictive to consumers especially those who might be willing to pay for Google or Facebook service but are unwilling to share their personal information.

Imposing the requirement of personal data provision to receive Internet search 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, this requirement increases Google’s market share in the data market. Since such data is used to sell ads, Google’s requirement 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 requirement 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 Google’s requirement.

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. Imposing the requirement of data provision to receive 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, the requirement increases the market share of Facebook in the data market. Since the data is used to sell ads, Facebook’s requirement 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 requirement 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 under Facebook’s requirement.

How would the world be without this requirement? 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 requirement 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.

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Based on findings from “Restrictions on Privacy and Exploitation in the Digital Economy,” by Nicholas Economides (Stern NYU) and Ioannis Lianos (University College London)

Nicholas Economides is a Professor of Economics at NYU Stern School of Business.