Free Fall: The Online Market's Consumer Preference Disconnect

Abstract

Do Internet users “pay” for online products and services with personal data? The common analogy between online data collection for behaviorally targeted advertising and payment for purchases is seriously misleading. There is no functioning market based on exchanges of personal information for access to online products and services. In a functioning market, payment of a given price signals consumer demand for particular goods and services, transmitting consumer preferences to producers. Data collection serves as “payment” in that critical sense only if its transfer from users to collectors adequately signals user preferences for online goods and services. It does not. Indeed, for reasons explored in this article, the behavioral advertising business model leads to a failed online market and erects barriers to entry for no-data-collection alternatives. The market failure is due in part to the intertwined nature of personal information and involves collective action problems that cannot be solved by consent-based approaches to single transactions. Those collective action problems, in turn, erect barriers to entry for online businesses employing paid or contextual advertising business models. As a result of these factors, the online market is likely to be stuck in a failed state in which products and services are tailored to advertiser preferences for data extraction, rather than to consumer preferences.

Keywords: behavioral advertising, information law, information privacy