professor peter p. swire ohio state university center for american progress the law & economics...
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Professor Peter P. SwireOhio State UniversityCenter for American ProgressThe Law & Economics of Innovation:Online Markets vs. Traditional MarketsMay 7,2009
The Basic IdeaBasic idea:
Price competition is part of antitrustNon-price competition is part of antitrustPrivacy can be a form of non-price competition
All 5 FTC Commissioners recognized this idea in the Google/DoubleClick opinion
So, privacy considerations will be part of antitrust analysis going forward
OverviewMy backgroundOther arguments for how privacy matters to
antitrustMy approach: privacy as non-price
competitionResponse to critiquesImplications for antitrust analysis and
remedies
My BackgroundPrivacy background
Chief Counselor for Privacy in OMB, 1999-2001Much writing on privacy & online issues since
thenAntitrust background
Practiced in antitrust before entering law teachingTeach antitrust lawSubmitted testimony on privacy & antitrust to FTC
in 2007: http://www.americanprogress.org/issues/2007/10/privacy.html
History of Privacy & AntitrustTraditionally, mergers were for products
Exxon/MobilBeer manufacturersEtc.
Information about individuals was not a major factor in the mergers
Practices about personally identifiable information were not a major factor in the businesses
2007 concerns about antitrust & privacy with the Google/DoubleClick merger
Other Views on Privacy & AntitrustU.S. Senator Kohl – “big is bad” so concern
about Google/DoubleClick mergerBigness has not been the focus of recent
merger lawMarc Rotenberg – privacy as fundamental
right, so scrutinize mergerWill return to this briefly at the end
Microsoft – merger as an exclusionary practiceFact-dependent, not accepted by regulators
My Approach:Privacy as Non-Price CompetitionNY Times May 2007: “Strictly speaking,
privacy is not an antitrust issue”Swire testimony for FTC Town Hall in
October, 2007The basic idea:
Privacy can be an important aspect of competition
Where it is, then a merger or other practice can reduce competition, triggering antitrust scrutiny
Peter Fleischer ResponsePeter Fleischer, for Google, critiqued my
approachPrecedents from 1970’s that competition law
should not consider effects on pollution and other non-competition issues
He says privacy protection is a non-competition issue
Therefore, he says privacy is not a proper subject of competition analysis
My Response to FleischerConsider a non-price factor for
automobilesMiles per gallon
Goal of reducing a country’s reliance on foreign oilI agree with FleischerThat is not a proper subject for
competition law
Response to Fleischer (2)Gas mileage as an important non-price aspect of
automobile competitionMany advertisements about gas mileageAn important aspect of competition – consumers care
about this in choosing their carIf proposed merger would reduce competition on
mileage it is a proper subject for antitrust analysisTo recap:
Effect of merger on foreign import of oil not part of antitrust
Effect of merger on gas mileage competition is part of antitrust – don’t reduce innovation & competition in that
Gas Mileage & PrivacyAs with gas mileage, privacy is relevant to
the antitrust analysis if:It is a material, non-price aspect of competition
that is relevant to a proposed merger or other antitrust action
FTC Decision on Google/DoubleClickFTC agrees with this approach, at least in theoryMajority upheld Google/DoubleClick merger (4 votes)
It specifically referenced the approach here: “We investigated the possibility that this transaction could adversely affect non-price attributes of competition, such as consumer privacy.”
Accepted the analysis, but held the facts not thereCommissioner Harbour dissented
She cited my testimony, saying antitrust law should ensure competition “based on privacy protections or related non-price dimensions.”
Second RequestsOne concrete way that privacy may figure in
future mergersCommr. Harbour: companies seeking a merger in
data-rich industries should receive detailed questions about privacy in “second requests”
Companies may thus be required to provide detailed answers and data about their privacy practices, and how the merger will affect those practices
Christine Varney is a privacy expert & so may be receptive to this approach as well
Is Privacy Important to Competition?Facts will matter going forwardFor many online markets, competition for
eyeballs is non-price competitionSearch enginesSocial networksOnline newspapers and other content
Online markets often two-sidedNeed eyeballs, where consumers do not pay moneyLarge number of eyeballs generates advertising and
other revenue sources Non-price competition is likely to be important for
many online markets
Evidence of Competition in Privacy?YesSearch engines:
Leapfrog announcements by Google, Yahoo, Microsoft, Ask on privacy features – length of time until delete; quality of the deletion; anonymous search
Social networks:Facebook & MySpace have different privacy
features, with competing announcements over time for why each is better
Facebook and Beacon – market reaction when intrusive on privacy
Does Privacy Matter?Quite possibly yesPersonal information practices – privacy &
security – clearly more important in the information economy
Westin surveys consistently show:“High privacy concern” group at 25-40 %Large “medium privacy concern” group as well
For these diverse consumer preferences, there is competitive advantage to having a good privacy reputation
What Implications for Antitrust?Exploring the implications of privacy as
material, non-price aspect of competitionMergers
Where significant effect on competition, could be a basis under U.S. or E.U. law for blocking a merger or imposing conditions
Second requests & companies have to do deeper analysis of effects of data practices on competition
Implications for Antitrust Remedies (2)Market power
Many online markets have strong network effectsNetwork effects lead to high market share, and
leapfrog competition may or may not be effectiveThus, risk to consumers of exercise of market
power, with harm to consumer privacy & other non-price aspects of competition
Possibly not legally actionable under competition lawSherman Act Sec. 2 requires “bad acts” & so may
be difficult to prove wrongful conduct even if monopoly power exists
Implications for Antitrust Remedies (3)If have monopoly power, but no remedy under
antitrust law, then have a new public policy rationale for regulation of privacyCompetition for privacy may be weak due to
monopoly powerA traditional public policy reason for public
utility or market failure regulationThis argument has not previously been explicit
in U.S. privacy debateI am not claiming this argument is dispositive,
but it adds a new piece to the privacy debate
Fundamental Rights & PrivacyFor “fundamental rights”, the government must consider
the right as part of official actionU.S. example of a fundamental right is 1st Amendment
(freedom of speech):For antitrust & other areas of law, judges strike down
the law if it violates the fundamental right of free speech In Europe, privacy clearly a fundamental right
That strengthens the case for privacy concerns to be explicitly considered in E.U. competition review
The Commission & other official actors should not take actions that violate a fundamental right
In Google/DoubleClick, DG-Comp left this to the privacy regulators
Going forward, European law has a stronger fundamental rights argument to supplement the privacy-as-non-price-competition argument
More to ExploreIssues for possible discussion:
How should we factually assess the likelihood that a merger will reduce competition for privacy?
How should we weigh possible harm to privacy felt by some consumers with possible benefits to consumers from more intensive personalization?
How well will antitrust agencies deal with these privacy-based problems? How do we use government competition and privacy expertise?
Let the debates begin
Contact [email protected]