Big Data Industry, Personal Information, And Online Market Regulation

Mario Cistaro is an L.L.M candidate, 2020 at NYU School of Law.

The provision of free services by online platforms in exchange for the personal information of its users has brought about the creation of a global industry. The industry is dominated by few large platforms, and the market shows high levels of concentration. There are numerous economic factors that explain this current high degree of power concentration. The most important is the industry’s direct and indirect network effects, i.e., the more users there are on a platform, the more valuable that platform becomes for other users and, more crucially, this makes it possible to reach the critical mass of data of users required to offer more attractive services, but also economies of scale and scope, huge fixed costs, and relevant sunk costs for R&D.

Furthermore, the characteristics of the exchange of data between platform operators and users occurs through imperfect transactions, where users exchange personal information for free services provided by platforms without being aware of the actual scope of the transaction, the actual price paid for providing personal data, or the way personal information will be monetized by the platform operators. In other terms, users balance the immediate benefit of a free service against unknown costs, given that the most important indicator to determine the value of the market transaction, its price, is missing. These characteristics of the data exchange determine serious structural market inefficiency.

Market failure and concentration of economic power of online platforms are even more problematic given the increasingly important role played by some online platforms, such as the social network,  in the information system. An increasing share of people are globally shifting their information consumption to online platforms, with the result that platforms have increased their influence on political discourse.

To this regard, one of the most important concern is that the algorithmic source underlying the generation of information content by online platforms seems to lead to pathological forms of influence of the public opinion. For example, the polarization of citizens (the tendency to acquire mainly information consistent with their ideological preferences) and phenomena of disinformation (such as fake news). The control of communication channels through algorithmic sources may, therefore, have far reaching consequences for democratic discourse and destabilize the democratic social order.

There are different views on how to regulate the use of personal information in the Big Data industry. Some believe that the sole antitrust theory on which market power analysis is grounded is sufficient to protect consumer and societal welfare. The point here is that innovation and competition in dynamic markets, such as those where Big Data on personal information are used, will automatically reshape the landscape and actual dominant companies will be soon replaced by innovative services. As a result of this dynamism, there would be no need to undertake specific actions by governments. Others propose to introduce ex-ante regulation  in order to deal with the market failure in the Big Data industry and open the black box, Lastly, some few others propose a break-up of tech giants in order to mitigate their growing accumulation of economic and political influence. In balancing the interests affected by the industry, I would look with favor to measures that strengthen data protection law by introducing new rights of users to oversee how their personal data is used to draw inferences about them. The European Union General Data Protection Regulation (GDPR) is, at the moment, the most prominent and comprehensive set of rules regulating the different conflicting interests affected by the Big Data industry of personal information. However, it is also too early to say that it is satisfactory.