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Restrictions on Privacy and Exploitation in the Digital Economy: A Market Failure Perspective

Author

Listed:
  • Nicholas Economides

    (Professor of Economics, NYU Stern School of Business, New York, New York 10012)

  • Ioannis Lianos

    (Professor of Global Competition Law and Public Policy, Faculty of Laws, University College London, and Hellenic Competition Commission)

Abstract

We discuss how the acquisition of private information by default without compensation by digital platforms such as Google and Facebook creates a market failure and can be grounds for antitrust enforcement. To avoid the market failure, the default in the collection of personal information has to 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.

Suggested Citation

  • Nicholas Economides & Ioannis Lianos, 2021. "Restrictions on Privacy and Exploitation in the Digital Economy: A Market Failure Perspective," Working Papers 21-02, NET Institute, revised Jan 2021.
    • Handle: RePEc:net:wpaper:2102
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    Cited by:

    1. Flavio Pino, 2022. "The microeconomics of data – a survey," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(3), pages 635-665, September.
    2. Beatriz Kira & Vikram Sinha & Sharmadha Srinivasan, 2021. "Regulating digital ecosystems: bridging the gap between competition policy and data protection [Merger policy in digital markets: an ex post assessment]," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 30(5), pages 1337-1360.
    3. Wolfgang Kerber & Karsten K. Zolna, 2022. "The German Facebook case: the law and economics of the relationship between competition and data protection law," European Journal of Law and Economics, Springer, vol. 54(2), pages 217-250, October.
    4. Michael G Jacobides & Ioannis Lianos, 2021. "Regulating platforms and ecosystems: an introduction [Ecosystem as structure: an actionable construct for strategy]," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 30(5), pages 1131-1142.
    5. Wolfgang Kerber & Karsten K. Zolna, 2021. "The German Facebook Case: The Law and Economics of the Relationship between Competition and Data Protection Law," MAGKS Papers on Economics 202114, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

    More about this item

    Keywords

    personal information; Internet search; Google; Facebook; digital; privacy; restrictions of competition; exploitation; market failure; hold up; merger; abuse of a dominant position; unfair commercial practices; excessive data extraction; self-determination; behavioral manipulation; remedies; portability; opt-in; opt-out.;
    All these keywords.

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • L88 - Industrial Organization - - Industry Studies: Services - - - Government Policy

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