Privacy law as price control
- 519 Downloads
The median Internet user is concerned about digital advertisers collecting personal information. To address these fears, the European Union passed the Privacy Directive to regulate the common business practice of information collection. This paper investigates the potential effects of this regulation, finding that the law is likely to generate several unintended consequences. Economists and legal scholars acknowledge that personal data serves as the “price” for accessing many digital platforms. I extend this logic to argue that if a regulation enables consumers to stop supplying this information, while continuing to consume the site’s content, it is equivalent to a price control. Next, I discuss unintended consequences that this price control may generate: tie-in sales, investment flight, and altered exchange characteristics. Lastly, I conclude that, just as with traditional price controls, the privacy price control may be a way for government officials to enhance their popularity with the citizenry. In short, my analysis suggests that one of the most well-researched policy interests of economics—the theory of price controls—can shed light on one of economists’ newest interests: digital privacy.
KeywordsDigital privacy Price control Regulation EU privacy directive
JEL classificationK39 L51 D04
I wish to thank Chris Coyne, Peter Leeson, Paola Suarez, David Lucas, Nicholas Pusateri, and two anonymous referees for their helpful comments on this paper. Any remaining errors are my own.
- Acquisti, A. (2012). Privacy and market failures: Three reasons for concern, and three reasons for hope. Journal on Telecommunications and High Technology Law, 10, 227.Google Scholar
- Acquisti, A., & Grossklags, J. (2007). What can behavioral economics teach us about privacy. In Digital privacy: Theory, technologies and practices (pp. 363–377).Google Scholar
- Adobe. (2012). Click here: The state of online advertising. http://www.adobe.com/aboutadobe/pressroom/pressreleases/201210/102412AdobeAdvertisingResearch.html. Accessed 10/25/2016.
- Alchian, A.A. (1967). Pricing and society. Institute of Economic Affairs.Google Scholar
- Alston, R. M., Kearl, J. R., & Vaughan, M. B. (1992). Is there a consensus among economists in the 1990’s? The American Economic Review, 82(2), 203–209.Google Scholar
- Boettke, P. (2001). Economic calculation: The Austrian contribution to political economy. In P. Boettke (Ed.), Calculation and coordination: Essays on socialism and transitional political economy.Google Scholar
- Borgesius, F. J. Z. (2015). Improving privacy protection in the area of behavioural targeting. Philadelphia: Wolters Kluwer Law and Business.Google Scholar
- EU (2002). Directive on privacy and electronic communications. http://eur-lex.europa.eu/legal-content/en/TXT/HTML/?uri=CELEX:32002L0058. Accessed 3/25/17.
- EU (2016). General data protection regulation. http://ec.europa.eu/justice/data-protection/reform/files/regulation_oj_en.pdf. Accessed 3/14/17.
- Facebook (2016). Company info. http://newsroom.fb.com/company-info/. Accessed 10/20/2016.
- Farrell, J. (2012). Can privacy be just another good. Journal on Telecommunications and High Technology Law, 10, 251.Google Scholar
- Fulgoni, G., Morn, M., & Shaw, M. (2010). How online advertising works: Whither the click in europe. http://www.comscore.com/Insights/Presentations-and-Whitepapers/2010/How-Online-Advertising-Works-Whither-the-Click-in-Europe?cs_edgescape_cc=US. Accessed 10/20/2016.
- Gellman, R. (2002). Privacy, consumers, and costs: How the lack of privacy costs consumers and why business studies of privacy costs are biased and incomplete. http://www.epic.org/reports/dmfprivacy.html. Accessed 10/15/2016.
- Gertz, J. D. (2002). Purloined personality: Consumer profiling in financial services. The San Diego Law Review, 39, 943.Google Scholar
- Handrahan, M. (2016). Iap the least popular form of monetisation among playrs. http://www.gamesindustry.biz/articles/2016-04-07-iap-the-least-popular-form-of-monetisation-among-players. Accessed 10/24/16.
- Hayek, F. A. (1945). The use of knowledge in society. The American Economic Review, 35, 519–530.Google Scholar
- Hirsch, D. D. (2010). Law and policy of online privacy: Regulation, self-regulation, or co-regulation. The Seattle University Law Review, 34, 439.Google Scholar
- Hoofnagle, C. J. (2003). Reflections on the nc jolt symposium: The privacy self-regulation race to the bottom. NC Journal of Law and Technology, 5, 213.Google Scholar
- Hoofnagle, C. J. (2005). Privacy self regulation: A decade of disappointment. In J. K. Winn (Ed.), Consumer protection in the age of the ‘information economy. Farnham: Ashgate.Google Scholar
- Hoofnagle, C.J., Whittington, J. (2014). Free: Accounting for the costs of the internet’s most popular price. UCLA Law Review, 61(2013), 606.Google Scholar
- Hui, K.L., Png, I.P. (2005). Economics of privacy. In Handbook of information systems and economics.Google Scholar
- Hummel, P., McAfee, R.P. (2015). When does improved targeting increase revenue? In Proceedings of the 24th International Conference on World Wide Web, International World Wide Web Conferences Steering Committee, pp 462–472.Google Scholar
- Jenkins, B. (2009). Rent control: Do economists agree? Econ Journal Watch, 6(1), 73–112.Google Scholar
- Johnson, B. (2010). Privacy’s dead: Facebook chief. http://www.smh.com.au/business/privacys-dead-facebook-chief-20100118-mgs8.html. Accessed 10/24/16.
- Khan, I., Weishaar, B., Karasyov, V., Polinsky, L., Boushelle, J. (2007). The rise of ad networks: An in-depth look at ad networks. http://www.slideshare.net/tinhanhvy/the-rise-of-ad-networks. Accessed 10/25/2016.
- Kincaid, J. (2009). Startup school: Wired editor chris anderson on freemium business models. https://techcrunch.com/2009/10/24/startup-school-wired-editor-chris-anderson-on-freemium-business-models/. Accessed 10/24/2016.
- Kohnstamm, J. (2013). Working document 02/2013 providing guidance on obtaining consent for cookies. http://ec.europa.eu/justice/data-protection/article-29/documentation/opinion-recommendation/files/2013/wp208_en.pdf. Accessed 3/14/17.
- Lenard, T.M., Rubin, P.H. (2009). In defense of data: Information and the costs of privacy. Technology Policy Institute Working Paper pp 9–44.Google Scholar
- Madden, M., Rainie, L. (2015). American attitudes about privacy, security, and surveillance. http://www.pewinternet.org/2015/05/20/americans-attitudes-about-privacy-security-and-surveillance/. Accessed 10/24/2016.
- Newman, N. (2014). The costs of lost privacy: Consumer harm and rising economic inequality in the age of google. William Mitchell Law Review, 40(2), 849–1611.Google Scholar
- Ohm, P. (2010). Broken promises of privacy: Responding to the surprising failure of anonymization. UCLA Law Review, 57, 1701.Google Scholar
- Pasquale, F. (2012). Privacy, antitrust, and power. George Mason Law Review, 20, 1009.Google Scholar
- Peppet, S. R. (2011). Unraveling privacy: The personal prospectus and the threat of a full-disclosure future. Northwestern University Law Review, 105, 1153.Google Scholar
- Posner, R. A. (1977). The Right of privacy. Georgia Law Review, 12, 393.Google Scholar
- Posner, R. A. (1981). The economics of privacy. The American Economic Review, 71(2), 405–409.Google Scholar
- Rochelandet, F., & Tai, S. H. (2012). Do privacy laws affect the location decisions of internet firms? Evidence for privacy havens. European Journal of Law and Economics, 42(2), 1–30.Google Scholar
- Rockoff, H. (1992). Price controls. http://www.econlib.org/library/Enc1/PriceControls.html. Accessed 10/10/2016.
- Romanosky, S., & Acquisti, A. (2009). Privacy costs and personal data protection: Economic and legal perspectives. Berkeley Technology Law Journal, 24(3), 1061–1101.Google Scholar
- Rosenberg, E. (2016). The business of google. http://www.investopedia.com/articles/investing/020515/business-google.asp. Accessed 10/25/2016.
- Rosoff, M. (2016). Facebook is killing it in the us. http://www.businessinsider.com/facebook-us-ad-revenue-2016-1. Accessed 10/25/2016.
- Scott, M. (2015). Europe approves tough new data protection rules. http://www.nytimes.com/2015/12/16/technology/eu-data-privacy.html?_r=0. Accessed 9/15/2016.
- Solove, D. J. (2004). The digital person: Technology and privacy in the information age. New York: NYU Press.Google Scholar
- Swire, P. (1997). Markets, self-regulation, and government enforcement in the protection of personal information, in privacy and self-regulation in the information age by the U.S. department of commerce. Available at SSRN.Google Scholar
- Thomson, J. J. (1975). The right to privacy. Philosophy and Public Affairs, 4(4), 295–314.Google Scholar
- Tucker, C. (2016). Privacy and the internet. In S. Anderson, J. Waldfogel, & D. Stromberg (Eds.), Handbook of Media Economics. Amsterdam: Elsevier.Google Scholar
- Turow, J., King, J., Hoofnagle, C.J., Bleakley, A., Hennessy, M. (2009). Americans reject tailored advertising and three activities that enable it. Available at SSRN 1478214.Google Scholar
- Varian, H.R. (1996). Economic aspects of personal privacy. In: Privacy and Self-regulation in the Information Age. National Telecommunications and Information Administration Report.Google Scholar
- Wauters, R. (2014). Analysis: An appraisal of the burgeoning european ‘app economy,’ and its growing pains. http://tech.eu/features/540/analysis-app-economy-europe/. Accessed 10/24/2016.
- Weyl, E.G. (2009). The price theory of two-sided markets. Available at SSRN 1324317.Google Scholar
- Whittington, J., Hoofnagle, C.J. (2012). Unpacking privacy’s price. North Carolina Law Review, 90(5), 1327.Google Scholar
- Yan, J., Liu, N., Wang, G., Zhang, W., Jiang, Y., Chen, Z. (2009). How much can behavioral targeting help online advertising? In Proceedings of the 18th International Conference on World Wide Web, ACM, pp 261–270.Google Scholar