On October 6th, the House Subcommittee on Antitrust released its Investigation of Competition in Digital Markets, an analysis of the anticompetitive effects of the major tech companies. Though not the primary focus of the report, data protection and privacy practices are a consistent concern throughout the 449-page document. In particular, privacy and data protection issues are highlighted in a 6-page section under the “Effects of Platform Market Power” heading.[1]
The committee, incredibly, shoehorns many of the concerns about privacy in Big Tech into a document ostensibly focused on competition in Big Tech. Though I agree with many of the observations the committee makes about the state of consumer privacy, I am baffled by their ultimate conclusion is that these firms are monopolists because rather than raising prices they degrade privacy. Abusive data collection is not a symptom of monopoly but the evidence of monopoly itself. Or, in the committee’s own words, “The best evidence of platform market power therefore is not prices charged but rather the degree to which platforms have eroded consumer privacy without prompting a response from the market.”[2]
The logic is this: traditional antitrust says that monopolies will raise consumer prices. Insufficient competition means you can do what you want, and what do monopolies want? Money! Monopolists can raise prices without fear of losing customers. However, on the internet consumers are accustomed to paying nothing for services. The House Committee argues that instead of raising prices the monopolists decrease privacy practices, and choose to monetize that data. Similar to traditional antitrust, without competition consumers cannot respond to these practices by switching to alternatives. As the monopolists consolidate power, privacy enters a free-fall and consumers are trapped.
To support the claim that privacy has become a proxy for pricing, the Committee twists itself into some pretzels I’d like to unwind. Remember, many of the observations about privacy and tech are correct, but I’m concerned about the conclusions here and how it implies Democrats would like to exercise their power if they win the election next month.
After establishing their thesis, the Committee states consumers often aren’t aware of intrusive data collection practices because they’re hidden in lengthy and confusing disclosures.[3] Consumers are usually only aware of data collection practices after data breaches/incidents or reporting by investigative journalists.[4] Intuitively we understand this is true. Further damning, these companies engage in “dark patterns” or “behavioral nudges” that use consumer data to “maximize e-commerce profits” by influencing consumers to surrender personal data and push them towards purchasing products.[5] All of this evidence implies consumers are unaware and influenced by Big Tech, suffering from a pernicious but novel harm.
But then the committee turns around and declares that when consumers do hear about degrading privacy practices, they “often switch to a competitor that offers a better product or service.”[6] Which is it? Are consumers stuck in a system that harvests data as a monopolistic practice or are they unaware but responsive when informed? The latter implies that privacy focused competition should be flourishing, because a privacy centric company could attack rivals based on bad practices. Later, DuckDuckGo (a privacy focused search engine) is cited as an alternative that can’t succeed because “they’re not compatible with the business models that have made the Internet platforms so successful.”[7] The Committee says it’s found an example that fits its conclusion: A competitor that distinguishes itself via privacy cannot compete because it cannot sell exploitative ads. From what I can tell reading the DuckDuckGo Wikipedia page, the 12-year-old competitor to Google is doing fine. It seems like the company makes consistent revenue from selling ads, has over 100 employees, and is the favorite search engine of Twitter/Square CEO Jack Dorsey.[8] Another counterexample is in messaging. There appears to be a robust market for private messaging apps. Signal has gained a lot of popularity in the U.S. during the summer of 2020 as a secure way for activists to communicate.[9] Before its acquisition by Facebook, WhatsApp built a user base in the hundreds of millions on a privacy-focused subscription model. While DuckDuckGo and Signal may have miniscule market shares compared to their large rivals,[10] their existence and flourishing seems to disprove the theory that privacy loss is an indicator of monopoly, because a small competitor has been thriving in the shadows for so long. Rather it suggests that privacy alone is not a sufficient competitive feature, for most people, to get them to stop using a Big Tech service.
Ultimately the Committee believes that a lack of competition has led to a “race to the bottom” in privacy.[11] David Heinemeier Hansson, co-Founder of Basecamp, is quoted, “When businesses do not have to account for the negative externalities they cause, it’s a race to the bottom.”[12] This is a statement I wholeheartedly agree with. But the Committee presupposes that competition should force companies to account for this externality, by providing other privacy-positive services that diminish the market shares of bad actors. We (and the Committee) already identified a few privacy-focused competitors that disprove this notion. If only there was a government actor that could force companies to reckon with negative privacy externalities.
Where is the FTC in all this? The FTC has Congressional authority to enforce violations of federal privacy laws. What better way to force a reckoning with negative externalities, in concrete terms, than levying a fine for bad privacy practices? FTC fines for privacy violations have been repeatedly characterized as a “slap on the wrist.”[13] It seems like a much simpler proposition than antitrust breakup to staff the FTC with commissioners committed to taking privacy seriously and levying large fines.
I’ll buy the idea that bad privacy practices can be a symptom of poor competition, even if I’m not sure the Committee presents sufficient evidence to support the assertion. But I don’t buy the idea that privacy alone can be evidence for monopolies. While the Committee brushes aside the “privacy paradox” I don’t think it can be waved away – the loss of privacy, especially on the internet, is very difficult to conceptualize. The harm is incredibly diffuse. Asking consumers to consider their privacy in product decisions is like asking someone to buy insurance but not telling them what they’re buying insurance for, and never letting them know if the insurance has paid out and protected them from harm. The committee hints at solutions but doesn’t delve into them because they’re outside of the competition framework of the report – Congress and the FTC should establish a clearer framework to allow consumers to understand their privacy and enforce that framework robustly. This solves the problem of transparency. If Congress feels that the “negative externalities” of data practices are not being considered by businesses, then it should invest the FTC with the power to fine them appropriately so they will consider those externalities.
All of the companies the Committee investigates in the report have robust legal departments and regularly consult with outside counsel. If the government starts taking privacy protection seriously, these companies have people whose job it is to pay attention and respond accordingly. And perhaps some if some of these companies are broken up, some of the baby Amazons and baby Alphabet enterprises will focus on privacy. But I remain unconvinced of the report’s assertion that privacy loss is the evidence of monopoly the committee presents or a harm that will be solved by breakups. I’m further worried that this suggests the Democrats are putting all their internet problem eggs in one basket (the Dems are not alone in this – Republicans seem to have folded their content moderation boogeyman into this debate as well)[14] and hoping to solve them in one fell swoop. However, a lot needs to go right for antitrust to get passed – Congress is a chaotic body to begin with, and Dems would need to win the presidency and the senate and complete what promises to be a hostile transfer of power.
An institution already exists to address the privacy concerns the House Committee raises in the report. Why not use it?
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Finally, the good tweet of the week:
[1] The other issues of platform market power are Innovation and Entrepreneurship (5 pages), The Free and Diverse Press (16 pages), and Political and Economic Liberty (4 pages). Isn’t the point of antitrust to regulate competition, i.e. innovation and entrepreneurship? I guess everything is about content moderation these days.
[2] At 52.
[3] At 53.
[4] At 54.
[5] At 53.
[6] At 54. Citing testimony of Dina Srinivasan
[7] At 55. Citing testimony of Roger McNamee, Elevation Partners (VC?)
[8] https://en.wikipedia.org/wiki/DuckDuckGo
[9] https://www.nytimes.com/2020/06/11/style/signal-messaging-app-encryption-protests.html. The messenger was created by WhatsApp founder Brian Acton after he left Facebook following the company’s record breaking $19 billion purchase of WhatsApp, over fears of Facebooks’ attempt to monetize the platform and infringe on user privacy.
[10] It looks like Google has a consistent ~ 82% market share in search. DuckDuckGo, by comparison, has 0.30%. (of mobile and desktop search combined) https://www.netmarketshare.com/search-engine-market-share
[11] At 54.
[12] At 55
[13] I could go on and on citing articles here. I’ll leave it with this one: https://techcrunch.com/2019/07/12/ftc-gives-facebook-5-billion-wrist-slap/
[14] “Republicans split with the Democratic majority over proposed solutions to monopolistic behavior and that they were upset the report didn’t discuss claims that tech companies discriminate against conservative users.” https://www.theverge.com/2020/10/6/21504814/congress-antitrust-report-house-judiciary-committee-apple-google-amazon-facebook
Dumb Privacy Guy 
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