ICLE Comments, the regulation of consumer data
These comments were submitted to the FTC as part of its hearings on “Competition and Consumer Protection in the 21st Century.” In these comments, we analyze three overarching topics relevant for the regulation of data: (1) The role of privacy as an element of non-price competition; (2) The potential privacy harms that could arise from price discrimination; and (3) How, if at all, data possession could serve as a barrier to entry.
In part I, we note that, despite their best efforts, privacy advocates have yet to make a compelling case that quality-adjusted price may be affected by monopolization of data or a merger of entities with large quantities of data. Making such a case requires considerably more analysis than that offered by privacy advocates to date. Rather, the collection and use of relatively large amounts of information by a large firm actually serves as a tool to help such a firm improve the quality of its products. In the modern tech economy, large pools of data and their effective use frequently permit firms to offer services to consumers for zero price. Improving product quality (as through offer more tailored products with collected data) while maintaining a constant zero price — i.e., decreasing quality-adjusted price — is not normally an antitrust injury.
In part II we explore the potential, if any, for price discrimination practices to cause privacy harms to consumers. One argument offered by critics of data collection is that price discrimination could become a harm when large tech platforms are able to collect a great deal of data about their users for analysis, and could thereby segment their users along certain private characteristics in order to offer tailored services. The resulting price discrimination could lead to many consumers paying more than they would in the absence of the data collection. Therefore, the data collection by these major online companies can be alleged to facilitate price discrimination that harms consumer welfare. This argument misses a large part of the story, however. The flip side is that price discrimination could have benefits to those who receive lower prices from the scheme than they would have in the absence of the data collection. While privacy advocates have focused on the possible negative effects of price discrimination to one subset of consumers, they generally ignore the positive effects of businesses being able to expand output by serving previously underserved consumers.
Part III of the comments explores the alleged ability of tech platforms to employ large pools of data as barriers to entry against competitors. The various theories of how this can arise all stem from an underlying assumption about the inability or difficulty of competitors to develop alternative products in the marketplace. The argument is that upstarts do not have sufficient data to compete with established players which in turn employ their data to attract online advertisers and to foreclose their competitors from this crucial source of revenue. This argument suffers from a number of deficiencies.
First, superior competition, notably through data, is not a barrier to entry. We argue that it is a mistake to regard data as essential in many, if not all, cases, particularly in the complex ecosystem of online platforms, where that same data can be used by platforms to facilitate new entry. Second, data is useful to all industries — this is not a new phenomenon particular to online companies. Companies have historically employed a variety of measures to gather data on their customers. Third, it is a mistake to assume that simply having a large amount of data is worth anything at all. It is not in the possession of data that a firm finds success, but in how intelligently the firm uses that data to optimize its services or otherwise generate a revenue stream. Start-ups are not necessarily less capable of generating value from relatively smaller pools of data simply by virtue of having a small set of data. Fourth, possession of data provides no absolute advantage to a firm in a world in which competition is just a click or a swipe away. Users can and do defect from products easily. Finally, access to data is not exclusive to any firm. If one platform collects certain useful data about a user it does not possess that data to the exclusion of all others. Other firms are free to make the same observations about the same sets of users.