Academic journal article Iowa Law Review

Infracompetitive Privacy

Academic journal article Iowa Law Review

Infracompetitive Privacy

Article excerpt

I. Introduction

At first blush, Google's1 acquisition of the "smart" thermostat manufacturer, Nest Labs, was as astonishing as it was perplexing.2 observers were initially puzzled by Google's motivation. For a company synonymous with its search engine, email platform, and technology services, why had Google sought to enter the thermostat market?3 Perhaps even more interesting, why did Google spend $3.2 billion to do so?4 The answer to both questions relates to data and its collection.5

It is hard to overstate the modern value of data. Platform-based technology firms ("platforms") thrive by attracting users with "free"6 and lowpriced services, enabling these companies to mine, exploit, and market their users' data to third parties.7 Google, for example, is able to capture personal information from Gmail accounts8 while Uber can, as reports indicate, track certain user activities even after one has deleted the company's application ("app").9

The deal offered by platforms is this: Individuals may enjoy "free" or cheap services in exchange for their personal information, which is turned into revenue. Google's acquisition of Nest thus makes sense considering the volumes of user data collected by Nest and purchased by Google.10

Platforms can, however, inflict a greater cost on users in the form of lost privacy, outweighing the efficiencies generated by low prices. The issue is that platforms enjoy data's economic potential without bearing the full costs of protecting privacy. Society instead suffers deadweight loss, as consumers, companies, and governments spend billions of dollars annually to redress identity theft11 and data breaches.12 Enabled by inadequate security, hackers alone impose between $375 and $500 billion in damages per year.13 More subtly yet perhaps more importantly, platforms can manipulate their users' behaviors, prompting observers to remark that technology firms are compromising human agency.14 In fact, this landscape may qualify as a market failure-a condition whereby the market systemically encourages actors to engage in inefficient behaviors15-as platforms have little incentive to bolster data security as long as they can avoid scrutiny.

We demonstrate that "infracompetitive privacy" is the root of the problem. The term "supracompetitive" almost always refers to supracompetitive pricing-defined as the high prices a monopolist charges in the absence of competition16-which is the primary injury that antitrust law condemns.17 We assert that, like prices, privacy relies on competition. Because an array of platforms compete in markets devoid of meaningful competition,18 they enjoy insulation from market forces which incentivizes them to pass the burdens of protecting privacy onto users. Disguising this market failure is the cheap or "free" price of platform services-i.e., low prices create the illusion of vigorous competition.19 If technology markets were sufficiently competitive, as we explain, firms would enhance their privacy safeguards to vie for users.

Given that insufficient competition may enable privacy breaches, it is problematic that the laws meant to protect consumers from the ill effects of uncompetitive markets-i.e., the antitrust laws-are so far unable to remedy privacy injuries. To explain this blind spot, platform and tech firms have abandoned retail prices as their chief means of competition, creating fundamental problems for antitrust enforcers.20 Because antitrust law is solely meant to promote the economic interests of consumers,21 antitrust courts have typically conditioned liability on evidence that the defendant raised prices (i.e., supracompetitive prices) or restricted output (which produces supracompetitive prices).22 The issue is that, since the courts have yet to recognize privacy as a quality that antitrust may protect, the cheap prices offered by platforms have insulated them from antitrust scrutiny.23 Perhaps antitrust's architects never foresaw an era when firms could render anticompetitive effects without charging prices. …

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