Competition policymakers around the world have been expressing concerns about competition in emerging artificial-intelligence (AI) industries, with some taking steps to investigate them further. These fears are notably fueled by a sense that incumbent (albeit, in adjacent markets) digital platforms may use strategic partnerships with AI firms to stave off competition from this fast-growing field.

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The impetus for change in monopoly electric systems has ebbed and flowed for over three decades. Over the past 15 years the interest in and ability to update electricity system technologies has grown, due to the combination of changing policy objectives and widespread digital innovation. Whether you call it smart grid or grid modernization, digital technologies by now have long had the potential to transform electric systems, improving their operations, reducing waste and idleness, and (but I repeat myself) having more market-based systems. Separate but complementary improvements in the performance and production costs of distributed energy resources like solar PV, electric vehicles, and battery storage, along with the policy focus on decarbonization, have amplified interest in and work on digitalization. Digitalization has reduced transaction costs and created unforeseeable types and amounts of value in the rest of the economy. Shouldn’t it do so too in electricity?

With yet another net-neutrality order set to take effect (the link is to the draft version circulated before today’s Federal Communications Commission vote; the final version is expected to be published in a few weeks) and to impose common-carriage requirements on broadband internet-access service (BIAS) providers, it is worth considering how the question of whether online platforms (whether they be social media or internet service providers) have the right to editorial discretion keeps shifting.

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TL;DR

Background: There has been recent legislative movement on a pair of major bills related to children’s online safety and privacy. H.R. 7891, the Kids Online Safety Act (KOSA) has 62 cosponsors in the U.S. Senate. Meanwhile, H.R. 7890, the Children and Teens’ Online Privacy Protection Act (COPPA 2.0) also has bipartisan support within the U.S. Senate Commerce Committee. At the time of publication, these and a slate of other bills related to children’s online safety and privacy were scheduled to be marked up April 17 by the U.S. House Energy and Commerce Committee.

But… If enacted, the primary effect of these bills is likely to be less free online content for minors. Raising the regulatory burdens on online platforms that host minors, as well as restricting creators’ ability to monetize their content, are both likely to yield greater investment in identifying and excluding minors from online spaces, rather than creating safe and vibrant online ecosystems and content that cater to them. In other words, these bills could lead to minors losing the many benefits of internet usage. A more cost-effective way to address potential online harms to teens and children would be to encourage parents and minors to make use of available tools to avoid those harms and to dedicate more resources to prosecuting those who use online platforms to harm minors.

KEY TAKEAWAYS

RAISING THE COST TO SERVE MINORS COULD LEAD TO THEIR EXCLUSION

If the costs of serving minors surpass the revenues that online platforms can generate from serving them, those platforms will invest in excluding underage users, rather than creating safe and vibrant content and platforms for them. 

KOSA will substantially increase the costs that online platforms bear for serving minors. The bill would require a “high impact online company” to exercise “reasonable care” in its design features to “prevent and mitigate” certain harms. These harms include certain mental-health disorders and patterns indicating or encouraging compulsive use by minors, as well as physical violence, cyberbullying, and discriminatory harassment. Moreover, KOSA requires all covered platforms to implement default safeguards to limit design features that encourage minors’ use of the platforms and to control the use of personalized recommendation systems.

RESTRICTING TARGETED ADVERTISING LEADS TO LESS FREE CONTENT

A significant portion of internet content is delivered by what economists call multisided platforms. On one side of the platform, users enjoy free access to content, while on the other side, advertisers are granted a medium to reach users. In effect, advertisers subsidize users’ access to online content. Platforms also collect data from users in order to serve them targeted ads, the most lucrative form of advertising. Without those ads, there would be less revenue to fund access to, and creation of, content. This is no less true when it comes to content of interest to minors.

COPPA 2.0 would expand the protections granted by the Children’s Online Privacy Protection Act of 1998 to users under age 13 to also cover those between 13 and 17 years of age. Where the current law requires parental consent to collect and use persistent identifiers for “individual-specific advertising” directed to children under age 13, COPPA 2.0 would require the verifiable consent of the teen or a parent to serve such ads to teens. 

Obtaining verifiable consent has proven sufficiently costly under the current COPPA rule that almost no covered entities make efforts to obtain it. COPPA has instead largely prevented platforms from monetizing children’s content, which has meant that less of it is created. Extending the law to cover teens would generate similar results. Without the ability to serve them targeted ads, platforms will have less incentive to encourage the creation of teen-focused content.

DE-FACTO AGE VERIFICATION REQUIREMENTS

To comply with laws designed to protect minors, online platforms will need to verify whether its users are minors. While both KOSA and COPPA 2.0 disclaim establishing any age-verification requirements or the collection of any data not already collected “in the normal course of business,” they both establish constructive knowledge standards for violators (i.e., “should have known” or “knowledge fairly implied on the basis of objective circumstances”). Online platforms will need to be able to identify their users who are minors in order to comply with the prohibition on serving them personalized recommendations (KOSA) or targeted advertising (COPPA 2.0). 

Age-verification requirements have been found to violate the First Amendment, in part because they aren’t the least-restrictive means to protect children online. As one federal district court put it: “parents may rightly decide to regulate their children’s use of social media—including restricting the amount of time they spend on it, the content they may access, or even those they chat with. And many tools exist to help parents with this.”

A BETTER WAY FORWARD

Educating parents and minors about those widely available practical and technological tools to mitigate the harms of internet use is a better way to protect minors online, and would pass First Amendment scrutiny. Another way to address the problem would be to increase the resources available to law enforcement to go after predators. The Invest in Child Safety Act of 2024 is one such proposal to give overwhelmed investigators the necessary resources to combat child sexual exploitation.

For more on how to best protect minors online, see “A Law & Economics Approach to Social Media Regulation” and “A Coasean Analysis of Online Age-Verification and Parental-Consent Regimes.” 

With Monday’s oral arguments in Murthy v. Missouri, we now have more of a feel for how the U.S. Supreme Court appears to be considering the issues of social-media censorship—in this case, done allegedly at the behest of federal officials.

In the International Center for Law & Economics’ (ICLE) amicus brief in the case, we argued that the First Amendment protects a marketplace of ideas, and government agents can’t intervene in that marketplace by coercing social-media companies into removing disfavored speech. But if the oral arguments are any indication, there are reasons to be skeptical that the Court will uphold the preliminary injunction the district court issued against the government officials (later upheld in a more limited form by the 5th U.S. Circuit Court of Appeals).

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The European Parliament’s approval last week of the AI Act marked a significant milestone in the regulation of artificial intelligence. While the law’s final text is less alarming than what was initially proposed, it nonetheless still includes some ambiguities that could be exploited by regulators in ways that would hinder innovation in the EU. 

Among the key features emerging from the legislation are its introduction of “general purpose AI” (GPAI) as a regulatory category and the ways that these GPAI might interact with copyright rules. Moving forward in what is rapidly becoming a global market for generative-AI services, it also bears reflecting on how the AI Act’s copyright provisions contrast with current U.S. copyright law. 

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This week, the Department of Labor’s new rule on independent contracting goes into effect. It will now be more difficult to engage in freelancing, gig work or certain types of independent work — a Biden administration labor-agenda standard that is far stricter than it was under the Trump or Obama administrations.

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When COVID hit in the winter of 2020, hospitals were overflowing with the sick and dying. Public health experts worried that we’d be isolating for years because, although vaccines were possible, none had ever been developed in fewer than four years. Yet, within weeks of the identification of the virus’s genetic structure, two companies had settled on the basic frameworks for mRNA vaccines, which were then developed on an accelerated timeline.  Just as remarkable, after six months of testing, we were told they were over 90 percent effective against COVID.

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This is my third and final installment summarizing the arguments in my draft article The Cost of Justice at the Dawn of AI. In the first, I reviewed Baumol’s cost disease’s implications for the legal sector. Baumol recognized that if the productivity of any sector improved less than the productivity of the economy as a whole, the goods or services from that sector would become more expensive. In the second, I assessed whether the legal sector has stagnated in this way. This turns out to be difficult or impossible to measure conclusively, because it’s hard to assess whether legal work is improving in quality. But crude measures like consumer price indices suggest stagnation. Rapidly decreasing trial rates provide further evidence. It should not be surprising that fewer cases, civil and criminal, make it to trial if legal process is getting more expensive.