The Concentration-after-Personalisation Index (CAPI): Governing Effects of Personalisation Using the Example of Targeted Online Advertising

30 Pages Posted: 19 Apr 2022

See all articles by Johann Laux

Johann Laux

University of Oxford - Oxford Internet Institute

Fabian Stephany

University of Oxford - Oxford Internet Institute; Bruegel; Alexander von Humboldt Institute for Internet and Society

Chris Russell

affiliation not provided to SSRN

Sandra Wachter

University of Oxford - Oxford Internet Institute

Brent Mittelstadt

University of Oxford - Oxford Internet Institute

Date Written: April 15, 2022

Abstract

Today’s technology allows firms to personalise their interaction with consumers to an unprecedented degree, leading to an ever finer-grained segmentation of consumers. Targeted online advertising and online price discrimination are amongst the most salient examples of this development. While personalisation’s effects on consumer welfare are expected to be ambiguous, we identify a particular risk to consumers: being trapped in a ‘targeting pocket’. Constellations are possible in which a market is generally open to competition, but the targeted consumer is only aware of one possible seller. Likewise, a given seller may target individual consumers exclusively with one variant of its product or service. From the perspective of the consumer, such a market could effectively resemble a monopoly without, however, being detected as such by competition-law metrics. We therefore suggest a novel metric with which to measure such concentration as a result of personalisation, the Concentration-after-Personalisation Index (CAPI). The CAPI treats every consumer as a separate ‘market’, computes a measure of concentration for personalised adverts and offers for each individual consumer separately, and then averages the result to measure the exposure to personalised adverts and offers experienced by an average consumer. We demonstrate how CAPI scores allow regulators and auditors to detect potentially harmful targeting pockets which would otherwise remain undiscovered by traditional means of public oversight of adverts. We imagine our index to serve as a monitoring tool which identifies areas of concern in the distribution of personalised offers and services. The CAPI could help to enforce proposed regulation such as, amongst others, the European Union’s Digital Services Act with its advertising repositories and the AI Act with its auditing mandates. We further suggest a novel regulatory response to the risk of consumer harms identified in this paper, the adding of optimised degrees of noise to targeting based on the CAPI. A complete ban of targeted advertising would eliminate all its possible economic benefits to consumers. A partial ban of certain targeting variables as currently envisioned in the Digital Services Act would still allow targeting pockets to occur. We show instead how adding noise via randomly distributed non-personalised adverts can dilute the potential harm of overly concentrated targeting. We further demonstrate how the CAPI can identify the optimal degree of added noise, balancing the protection of consumer choice with the economic interests of advertisers.

Keywords: targeted advertising, personalisation, consumer welfare, consumer protection, consumer law, competition law; EU law, platform regulation, Digital Services Act, AI Act, Unfair Commercial Practices Directive, digital markets, law and economics, novel metrics

JEL Classification: K20, K21, K24, M37, M38

Suggested Citation

Laux, Johann and Stephany, Fabian and Russell, Chris and Wachter, Sandra and Mittelstadt, Brent, The Concentration-after-Personalisation Index (CAPI): Governing Effects of Personalisation Using the Example of Targeted Online Advertising (April 15, 2022). Available at SSRN: https://ssrn.com/abstract=4084457 or http://dx.doi.org/10.2139/ssrn.4084457

Johann Laux (Contact Author)

University of Oxford - Oxford Internet Institute ( email )

1 St. Giles
University of Oxford
Oxford OX1 3PG Oxfordshire, Oxfordshire OX1 3JS
United Kingdom

Fabian Stephany

University of Oxford - Oxford Internet Institute ( email )

1 St. Giles
University of Oxford
Oxford OX1 3PG Oxfordshire, Oxfordshire OX1 3JS
United Kingdom

Bruegel ( email )

Rue de la Charité 33
B-1210 Brussels Belgium, 1210
Belgium

Alexander von Humboldt Institute for Internet and Society ( email )

Bebelplatz 1 | 10099
Berlin
Germany

Chris Russell

affiliation not provided to SSRN

Sandra Wachter

University of Oxford - Oxford Internet Institute ( email )

1 St. Giles
University of Oxford
Oxford OX1 3PG Oxfordshire, Oxfordshire OX1 3JS
United Kingdom

Brent Mittelstadt

University of Oxford - Oxford Internet Institute ( email )

1 St. Giles
University of Oxford
Oxford OX1 3PG Oxfordshire, Oxfordshire OX1 3JS
United Kingdom

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