Restrictions on Privacy and Exploitation in the Digital Economy: A Market Failure Perspective

Privacy and Security and Competition Policy and Antitrust

Article Snapshot


Nicholas Economides and Ioannis Lianos


Journal of Competition Law and Economics, forthcoming


Digital platforms collect consumer data by default. Changing the default setting to require to consumers to “opt-in” to allow use of their data could create a market in data, but large platforms would still enjoy too much market power.

Policy Relevance

Regulators should use privacy and competition policy together to support markets in consumer data.

Main Points

  • Digital platforms such as Facebook and Microsoft track consumers as they use smartphones, tablets, laptops, and computers; tracking is increasingly concentrated in a small number of large companies.
  • Market failure affects the collection and use of consumer information online because of information asymmetries between the data controller and the data subject.
    • Users may not be aware that their data was collected.
    • Users have no choice but to allow use of their data when “locked in" to an online service.
    • Users are unaware of the costs of their online choices.
  • Firms seem to increase consumer welfare by offering benefits such as free search services in exchange for information; however, these benefits may be illusory.
  • Regulators could bar Google from using consumer data unless the consumer opted in, and could require Google to offer services even if the consumer refuses to share data; economic modelling suggests that:
    • If online search data markets are competitive, consumers would benefit.
    • If Google enjoys too much market power, consumers would benefit less.
  • Europe’s General Data Protection Regulation frames privacy as a fundamental right, but does not create property rights in data, which would allow consumers to sell their data; this creates a “missing market,” and users have little information about the value of their data or their privacy.
  • Google and Facebook enjoy “network effects,” that is, their services become more valuable as their user base grows; competition law authorities should intervene to limit their market power.
  • Antitrust authorities could explore different competition law theories in addressing the link between competition and privacy; for example, excessive data extraction by dominant firms could be treated as excessive pricing, as data allows firms to manipulate users and prices.
  • Use of data to support price discrimination is controversial; “personalized pricing” might help some consumers buy a good who could not otherwise afford it, but might allow firms to overcharge consumers with a high willingness to pay.
  • Competition law and privacy regulation should be used together to support a well-functioning market in consumer data.
    • Regulators could support collective bargaining by users for compensation.
    • Regulators should support data portability, which allows consumers to move data from one provider to another.
    • Diffusion of data collected by governments could support competition.

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