Infracompetitive Privacy

• Author: Gregory Day & Abbey Stemler
• Position: Assistant Professor, University of Georgia, Terry College of Business, Courtesy Appointment, University of Georgia School of Law/Assistant Professor, Indiana University, Kelley School of Business; Faculty Associate, Berkman Klein Center for Internet and Society at Harvard University; Consultant, World Bank Group; Affiliate, Ostrom Workshop
• Pages: 61-106

61

Infracompetitive Privacy

Gregory Day* & Abbey Stemler**

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.

I.INTRODUCTION ............................................................................... 62

II. THE UNIQUE COMMERCIAL NATURE OF TECHNOLOGY

PLATFORMS ..................................................................................... 67

A.THE DOMINANT PLATFORMS AND THEIR BUSINESSES .................. 68

B.CAPTURING AND EXTRACTING VALUE FROM DATA ...................... 72



*

Assistant Professor, University of Georgia, Terry College of Business, Courtesy

Appointment, University of Georgia School of Law.

** Assistant Professor, Indiana University, Kelley School of Business; Faculty Associate,

Berkman Klein Center for Internet and Society at Harvard University; Consultant, World Bank

Group; Affiliate, Ostrom Workshop.

62 IOWA LAW REVIEW [Vol. 105:61

C.FROM PIECES TO POWER ............................................................ 74

III. PRIVACY VULNERABILITY IN THE AGE OF PLATFORMS ..................... 78

A.THE LEGAL SCOPE OF PRIVACY ................................................... 78

B.PRIVACY HARMS ........................................................................ 80

1.Harms from Collecting Information ............................. 80

2.Harms from Analyzing Information .............................. 81

3.Harms from Disseminating Information ....................... 82

4.Harms from Manipulation Based on Information

and Insights ..................................................................... 84

IV. ANTITRUST AND INFRACOMPETITIVE PRIVACY ................................. 86

A.ANTITRUST EXPLAINED THROUGH A HISTORICAL CONTEXT ........ 86

B.THE SALIENCY OF PRICES, NOT PRIVACY, IN ANTITRUST’S

FRAMEWORK ............................................................................. 89

C.COMPETITION, PRIVACY, AND MARKET FAILURE ......................... 91

1.Punishment ...................................................................... 92

2.Information ..................................................................... 92

3.Consumer Choice & Quality .......................................... 93

D.ADDITIONAL SUPPORT ............................................................... 94

E.WHAT DOES THIS ALL MEAN .................................................... 96

V. BROADER IMPLICATIONS ................................................................. 98

A.WHEN MONOPOLY POWER, TECHNOLOGY AND THE

GOVERNMENT MEET ................................................................. 98

B.MERGER POLICY...................................................................... 101

C.RATIONALITY, BOUNDED RATIONALITY, AND IRRATIONAL

BEHAVIOR ............................................................................... 103

D.FUTURE RESEARCH .................................................................. 105

VI. CONCLUSION ................................................................................ 106

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



1. Now organized under the umbrella company Alphabet. Larry Page, G Is for Google,

ALPHABET, https://abc.xyz [https://perma.cc/9NUE-FRNP]. Throughout this Article we will

refer to Alphabet and its subsidiaries as “Google.”

2. See generally James Walker, Google to Merge with Alphabet Smart Home Subsidiary Nest,

DIGITAL J. (Feb. 8, 2018), http://www.digitaljournal.com/tech-and-science/technology/google-

to-merge-with-alphabet-smart-home-subsidiary-nest/article/514340 [https://perma.cc/WSD5-

746L] (describing the acquisition).

2019] INFRACOMPETITIVE PRIVACY 63

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 low-

priced 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



3. See Trefis Team, Google’s Strategy Behind the $3.2 Billion Acquisition of Nest Labs, FORBES

(Jan. 17, 2014, 2:57 PM), https://www.forbes.com/sites/greatspeculations/2014/01/17/googles-

strategy-behind-the-3-2-billion-acquisition-of-nest-labs [https://perma.cc/9AJ3-RHWV] (attempting

to explain why Google purchased Nest).

4. Lance Whitney, Google Closes $3.2 Billion Pu rchase of Nest, CNET (Feb. 12, 2014, 5:00

AM), https://www.cnet.com/news/google-closes-3-2-billion-purchase-of-nest [https://perma.cc/

5XC3-U8TF].

5. Casey Johnston, What Google Can Really Do with Nest, or Really, Nest’s Data, ARS TECHNICA

(Jan. 15, 2014, 6:30 PM), https://arstechnica.com/information-technology/2014/01/what-

google-can-really-do-with-nest-or-really-nests-data [https://perma.cc/3WW2-7VSU]; Leo Kelion,

Google-Nest Merger Raises Privacy Issues, BBC NEWS (Feb. 8, 2018), https://www.bbc.com/news/

technology-42989073 [https://perma.cc/L2M7-2YA2]; Rakesh Sharma, Google’s Acquisition of

Nest and Your Privacy, FORBES (Jan. 13, 2014, 9:07 PM), https://www.forbes.com/sites/rakesh

sharma/2014/01/13/googles-acquisition-of-nest-and-your-privacy [https://perma.cc/JU6E-2R9Y].

6. See John M. Newman, The Myth of Free, 86 GEO. WASH. L. REV. 513, 524–26 (2018)

(explaining the economics of “free”).

7. See Kevin Granville, Facebook and Cambridge Analytica: What You Need to Know as Fallout

Widens, N.Y. TIMES (Mar. 19, 2018), https://www.nytimes.com/2018/03/19/technology/

facebook-cambridge-analytica-explained.html [https://perma.cc/UB23-9DXH]. See generally

Agnieszka McPeak, Disappearing Data, 2018 WIS. L. REV. 17 (explaining the use and exploitation

of data by technology firms).

8. John D. McKinnon & Douglas MacMillan, Google Says It Continues to Allow Apps to Scan

Data from Gmail Accounts, WALL ST. J. (Sept. 20, 2018, 12:27 PM), https://www.wsj.com/articles/

google-says-it-continues-t o-allow-apps-to-scan-data-from-gmail-accounts-1537459989 [https://

perma.cc/7GAW-QBM8]; see also Todd Haselton, How to Find Out What Google Knows About You

and Limit the Data It Collects, CNBC (Dec. 6, 2017, 4:15 PM), https://www.cnbc.com/

2017/11/20/what-does-google-know-about-me.html [https://perma.cc/S6LF-GN4C] (summarizing

Google’s privacy policies and what data consumers “agree” to allow Google to collect).

9. Jefferson Graham, Can an App Really Track You After You Delete It?, USA TODAY (Apr. 27,

2017, 6:28 AM), https://www.usatoday.com/story/tech/talkingtech/2017 /04/26/can-app-really-

track-you-after-you-delete/100864168 [ht tps://perma.cc/R6Z3-SPYF]; see also Kate Conger, Uber

Responds to Report That It Tracked Devices After Its App Was Deleted, TECHCRUNCH, https://

techcrunch.com/2017/04/23/uber-responds-to-report-that-it-tracked-users-who-deleted-its-app

[https://perma.cc/YC2H-TB2X] (detailing how Uber tracked users).