Unpacking Privacy's Price

Abstract

This is the first in a two-part series of articles exploring consumer-oriented internet services through the lens of transaction cost economics. This work shows how personal information transactions—“free” exchanges—can be uneconomical: consumers cannot exit these arrangements; they create lock-in; and ultimately this is a deep moat against competition. Free transactions enable companies to bait consumers with what appears to be a good deal, but then substitute a switch—degrading privacy quality. This work has important antitrust law implications: the scaling and lock-in made possible by zero price inducements makes it next to impossible for competitors to swoop in with better products.

Under current structures of governance, there is no exit for consumers who wish to leave an SNS. In other contexts, similar transactions are bounded by tailored consumer protections. This article explains the need for tailored consumer protection in the SNS context to promote fair competition. Specifically, we argue that a consumer right to rescind enrollment in an SNS, triggering a deletion of and ability to export information shared with the service, is appropriate given the skewed aspects of personal information transactions.

Keywords: antitrust, transaction cost economics, TCE, free, competition law, privacy, Facebook, social network services, right to delete, portability, right to be forgotten, Williamson, New Institutional Economics, Federal Trade Commission, FTC free guide, platform economics, zero price antitrust

JEL Classification: A13, B25, D18, D23, D82, D18, K20