At a hearing Friday at the U.S. House Committee on the Judiciary, lawmakers discussed the role tech giants' dominance in the marketplace may or may not harm consumer privacy and the role regulation should play as a result.
The hearing was the third in a series on the role of data privacy in competition and featured academics from both the U.S. and the EU, as well as Federal Trade Commissioner Rohit Chopra.
Rep. Jerry Nadler, D-N.Y., said the rapid digital transformation has "upended the balance of power across our economy," adding lawmakers are seeking to learn what's causing these "asymmetries of power and whether these new and growing inequalities are compatible with our Democratic values." Nadler noted the few dominant companies have the ability to track and surveil Americans' transactions across their networks, data collection like shopping and reading habits, the time they wake up and go to sleep, their precise location through the day, and the content of their most private communications. And because these firms are fueled by selling advertisements, they're incentivized to collect as much data as possible to sell precise targeted ads.
Nadler said he wanted to answer two questions at the hearing: First, how are digital technologies and the constant data collection they enable affecting competition. "Is there something unique about digital markets that enables firms to acquire and maintain market power in novel ways?" Nadler asked.
Second, the most dominant firms are the ones who have captured the most data from the most sources, he said, leading to what scholars have called "winner-take-all" markets. So lawmakers sought to figure out how data collection increases the number of ways dominant companies can abuse their market power. Is this behavior anti-competitive? Do firms have insights, given the pervasive data collection of their users, over how their competitors are operating?
Two of the witnesses testified on the importance of mergers and acquisitions in balancing power. Jason Furman, a professor of the practice of economic policy at Harvard Kennedy School, called for more robust merger enforcement in the digital sector. He said most of the growth in the marketplace has been due to acquisitions and not via "organic growth." And while more robust merger enforcement won't do much in the way of balancing power regarding the "horses that’ve already left the barn," Furman proposes the establishment of a digital markets unit that would oversee a code of conduct to ensure there's no anti-competitive conduct and encourage systems with open standards and a greater degree of data openness so more players have access to the valuable data large firms are leveraging to dominate the marketplace.
However, Roslyn Layton, a visiting scholar at the American Enterprise Institute, had a different story to tell.
"We know very little about the economics of privacy," she testified. "The number and severity of privacy violations, the quantification of harm." She said it would be ill advised to build a regime presuming regulators are "in the know," adding it's estimated there are just a few hundred privacy violations a year, a small number given the size of the digital economy. Since the EU General Data Protection Regulation came into force, she said, the "largest companies are winning while fledgling competitors suffer." She said it's only the big players that can afford lawyer's fees, audits, chief privacy officers, data protection impact assessments and software updates.
Under regulation, the costs "go to privacy lawyers and consultants. It's hard to see what’s progressive about giving a windfall to the privacy bar at the expense of consumers or business," she said, adding that small companies would "bear the brunt."
But Tommaso Valletti, professor of economics at Imperial College Business School, disagreed with Layton. He said he's "very skeptical when I hear some of these numbers," adding they're typically coming from studies done by institutions funded by Google and Facebook, adding the two companies actually lost advertising dollars after the introduction of the GDPR. "The narrative you hear is from the big guys and not the small guys," he said.
Valletti thinks antitrust cases involving data privacy can and should be done. "Data, privacy and competition are not separable," he said. Asked by lawmakers why antitrust regulation should be based in part on data privacy, he said the "locus of competition is multi faceted ... it can be prices, can be innovation, can be quality. Since the consumer cares about privacy, this is one of the things a healthy competitive market should give, healthy privacy to individuals."
"One of the objections I had to the FTC’s settlement with Facebook for the company's early and repeated violations of a law enforcement order was their desire to maintain their dominance by collecting more and more and more data, because guess what, it gets more valuable as you get more," Chopra said. "We need to start thinking not just about ticky-tack privacy rules, but what's the reason why companies invade our privacy? And one of those reasons is the business model." He said ads targeted to a specific individual is manipulative, and "we have to think about how these companies are incentivized and structured."
Chopra said of the FTC's recent settlement with Facebook "not only completely let executives off the hook, and they paid a small fine and their stock went up, [but] there’s no substantive limitations of their use or sharing of data, and for repeat offenders, there needs to be some bans on this kind of behavior, because if they’re going to break the law we need to look at the economic incentive that’s driving it."
Chopra called for Congress to create robust rules on individual liability for company executives who's organizations are found to have broken the rules, which he'd advocated for in the Facebook settlement but was overruled by his Republican colleagues.
"In the FTC’s Facebook settlement, we did not depose Mr. Zuckerberg nor Ms. Sandberg, and guess what? They got full immunity in the settlement, and if the court approves that, what kind of standards are we setting? And I just think that’s fundamentally wrong."
Chopra called for brightline rules and even bans that would create a fair playing ground for both large and small players in the marketplace. If the rules are complicated, "Guess what? The largest banks in the world, they find their way in and get their exemptions. They win and the small guys lose. That’s not a system or a country I want to live in," he said.
If you missed the hearing and want more than a recap, you can watch the archived video in full here.
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