Antitrust & Privacy: It's Complicated

Abstract

It has become almost an article of faith that large, zero-price platforms, such as Facebook and Google, exercise market power by offering lower levels of privacy. Yet, a rigorous examination of the assumptions underlying this data-price analogy is seriously lacking. Even more important, almost no empirical work has been done in this area. This Article contributes to the debate by filling these important gaps in the literature. After presenting a theoretical examination of the relationship between privacy and competition, we provide empirical evidence on the relationship between market power and privacy. First, using data from PrivacyGrade.org, we find no relationship between privacy grades and our proxies for market power. Second, we collected website traffic data from SimilarWeb and matched it to DuckDuckGo’s privacy ratings for sites in thirty-seven website categories. Again, the data suggest no systematic relationship between privacy ratings and market concentration. Our theoretical analysis and empirical results challenge conventional wisdom, suggesting that antitrust is a poor tool to address perceived privacy problems. Instead, if markets produce less than optimal levels of privacy, it is likely due to informational problems that have no relationship with competition. We suggest that absent specific allegations on (1) the causal link between conduct and degraded privacy, and (2) the lack of benefits from increased data collection, antitrust complaints that merely assert a causal link between privacy reductions and market power should not survive the Twombly-Iqbal plausibility standard. Further, we conclude that privacy regulation and competition policy might be complementary, but only in one direction: consumer protection designed to increase consumer access to information about firms’ privacy practices—and firms’ ability to credibly commit to these promises—could help foster competition over privacy, but the converse is not true.

Keywords: privacy, privacy ratings, market power, market concentration, antitrust, digital platform, app, Android, app marketplace, app privacy, Herfindahl-Hirschman Index

JEL Classification: K21, L12, L15, L25, L4, L41, L44, L5, D18