105 Iowa L. Rev. 61 (2019)

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Abstract

One of the chief anticompetitive effects of modern business lies in antitrust’s blind spot. Platform-based companies (“platforms”) have mastered a business model whereby they offer users “free” and low-priced services in exchange for their personal information. With this data, platforms can design products, target advertising, and sell user information to third parties. The problem is that platforms can inflict greater costs on users and markets in the form of lost privacy than the efficiencies generated from their low prices. As an example, users spend billions of dollars annually to remedy privacy breaches and, indirectly but alarmingly, many users participate without realization in experiments designed to manipulate their behaviors, compromising their agency. But because antitrust’s framework typically uses consumer prices to measure welfare, platforms and privacy injuries have largely avoided antitrust scrutiny.

We argue that insufficient competition enables platforms to capture the economic benefits of data while externalizing the costs of protecting it. Consumers demand privacy yet firms in monopolized markets have powerful incentives to shift the costs of protecting privacy onto society. To reduce the rate of privacy breaches, an increase of competition would (1) allow users to punish offending firms, (2) disseminate information about the true costs of privacy, and (3) introduce more secure services into the market. Because monopoly power encourages firms to disregard the privacy demands of users, antitrust must evolve to recognize that the costs of inadequate privacy can degrade consumer welfare more than artificially high prices.