What is the Price of Free Content? Chris Hoofnagle Studies the Consumer Implications

Free services are ubiquitous on the Internet — from social media networks to games to mobile apps — but what is the consumer cost to access that content?

Free content becomes problematic as it relates to consumer privacy protection because courts don’t take complaints about such content as seriously since they don’t actually cost consumers money. In one recent case, the California Supreme Court found that consumer protection law does not apply to online businesses. However, what courts and policymakers do not take into consideration is the hidden costs of free products, mainly surrounding the personal data disclosed in order to access them.

A forthcoming paper in the UCLA Law Review, “The Price of ‘Free’: Accounting for the Cost of the Internet’s Most Popular Price,” by Berkeley School of Law’s Chris Hoofnagle and University of Washington’s Jan Whittington discusses these issues. Using a transaction cost economic (TCE) approach, the scholars look at “free” transactions that require personal information to uncover the true costs. The authors suggest that some information-intensive companies misuse the term “free” to promote products and services that have hidden, non-monetary costs.

Current regulation allows companies to collect valuable personal information before the consumer signs up for a service. Companies then monetize that data once collected. This is in spite of the fact that the product or service was promoted as “free” by the company. Data is the currency in all cases, whether the consumer is asked to divulge that information before trying a free product or, in the case of social networks, data is what fuels the business itself.

The paper also explores what these “costs” mean for consumers. These include the targeted advertising that stems out of the data disclosure, the cost to switch to the paid version or an equivalent product, and the time spent monitoring the actions of the company. Some companies under-invest in information security, increasing the potential hazards and transaction costs to consumers, should the data be leaked.

Hoofnagle and Whittington suggest policy reform that would place data security risk more firmly in the hands of businesses, going beyond the traditional transparency and accuracy requirements that privacy law suggests. The two authors recommend eliminating avoidable costs that arise for consumers when asked to provide personal information and requiring third parties interested in accessing this data to obtain consumer opt-ins through full disclosure with privacy policies.

TAP Scholar Chris Hoofnagle is director of the Berkeley Center for Law & Technology's information privacy programs and senior fellow at the Samuelson Law, Technology & Public Policy Clinic. He is an expert in information privacy law. More information about his background and academic research is available on TAP's Chris Hoofnagle page. Additional scholars with expertise in privacy and security, and a select list of research papers are available on TAP’s privacy and security page.