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Tech@Stern | Privacy and Antitrust for Digital Platforms

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– Good morning, it's my great pleasure today to talk to Professor Nicholas Economides, from the Stern School's Department of Economics Nicholas is a world authority on network economics and policy

Technology regulation is in the forefront of news nowadays and governments are very involved in the US and Europe So I wanted to ask you today to share your views on digital platform regulation from your research perspective, as well as implications to the policy makers – Let me say about the regulation Right now, we have a number of authorities in the United States investigating Google, Facebook, Apple and Amazon And this is the Department of Justice, the Federal Trade Commission, Attorneys General of various states, plus the Judiciary Committee of Congress

So this is a lot of different bodies collecting information So we need to be careful to distinguish between cases where there is a potential antitrust violation And additionally, there is a possibility with the present anti-trust law for it to be addressed and cases in which the violations are minor So I think the most major issue, and that involves also privacy, is the way Google and Facebook collect information from users If you use Google search or Chrome, automatically Google picks up your information and wants that informationâ it's your IP address, your location, your zip code, all kinds of things that have to do with you

Plus, of course, your search pages and what you're interested in And similarly for Facebook So this is an automatic, default opt in So essentially, they have combined two markets: the market for Internet search, and the market for personal information So they put them in one, and for free you get search and for free they get from you personal data

So these markets are really separate And in principle, there are lots of people who might be willing to pay for search and not give their personal information Or there might be others who are willing to give their personal information, but not for free So they want to get paid So this combination of the market, this restriction, was imposed both by Facebook and Google and has made what economists call a market failure

It's made those markets fail because there's a single price and that's the only thing you can you can get in that price So this is a potential anti-trust violation And it can be âyou know, it can be investigated and possibly remedied I mean, the government could come and say, ÒLook, I mean, this is not OK You have to make the default be opt-out from collecting data

Then, if people want to opt in, you can pay them something and they can opt in And so that's kind of a potential solution to this problem Now, the European regulation for him to do GDPR makes the default be opt outâ but for completely different reasons They don't think of your personal data as a property, as your property They think of it, the fact that you have privacy, as a fundamental right

And from their point of view, it's a matter of rights, not a matter of transactions and value and things that anti-trust deals with An investigation in the United States could produce a better solution than GDPR are in the in the United States – So it's very interesting, you're saying that GDPR as a regulation focuses on rights, but what one would potentially think of it as a market failure and focus on price as a regulatory mechanism So what would be the kind of modifications that you would make to a regulation like GDPR? Because from what you've said so far, the opt out is a good thing But then what would be the kind of modifications that you would envision? – Opt out is a good thing but it depends on their own rationale

Yeah, because if the rationale is that there is a market failure, one of the objectives of anti-trust authorities should be to restore the market This is not the objective of GDPR Their objective is to make sure that the rights of people are respected But an American authority, for example, the Department of Justice, could come and say, "Look, we set the default to be opt out and then we make sure that the market works" Now, this market is hard to work right now because it's dominated by these two companies, Google and Facebook, which act as monopsonists

That is, they are the single buyer of this information And additionally, because they know so much about the user, they can act as an almost perfectly-priced discriminating monopolist, which means that they can offer you â since they know youâ they will offer you a very specific price to buy your information, which is just for you And that would offer me a different price and so on and so on So this is a serious issue in which there could be additional restrictions on Google and Facebook so they don't rip off the customers when the market actually works Soâ and that's something way beyond the control or the scope of GDPR because that's that they don't involve prices, they don't involve competition, they don't involve markets, this is not their fault at all

But an American perspective on this could be quite different and could be more effective to restore the functioning market for personal information – Would you then see potentially some competitors rising in such markets? – I think that the main function of the browser of Google is to collect data It's very hard I know if you haven't tried it, tried to delete your data from Chrome It takes a number of different steps, maybe more than 12

That's very hard On the other hand, there are browsers where as soon as you close the browser, everything gets erased And these guys don't have an objective to sell you ads and therefore, they don't have a problem with that So there is a lot of competition in browsers And if people become aware of how much of their data is being collected, I think that would be even more of a response

Some consumers don't care – That's the usual argument that people just don't care – Yeah They don't care In my class, I asked them how many of you keep cookies? 80 percent keep cookies

– Yeah – So obviously they don't care And that's fine But there will be another part of the population, maybe older, maybe more mature, who would care And they would say, "Look, I mean, this is a serious issue

Let's make sure that Google doesn't collect our data by default" We opt out in any market, you would expect that some people are going to have a high willingness to pay, a lower willingness to pay, or a high willingness to sell, low willingness to sell So we want to see a functioning market and that's normal I think it would be normal – You offered to comment a bit about on Apple and Amazon, which I take are a different set of problems

– I think there areâ it's not that there are no problems, but there are problems that even if Apple and Amazon were found liable for those problems, it wouldn't blow up their business model They would they could fix them and live with a fix What do I mean? Apple, the major allegation against Apple right now is that it monopolizes through its store the market for distribution of apps So you cannot have an app on an iPhone unless you go through the store and the store collects 30 percent from the software developer So there's a big suit against that which could reach the Supreme Court on the issue of whether you buy from Apple or from the software developer

Now, believe it or not, this is a crucial issue for the anti-trust And in the end, the Supreme Court said you buy from Apple, not from the developer And now it has come back to the lower court to decide whether it is really monopolization case or so on So, but I think that Well, suppose that Apple loses the case I mean, there would be ways to fix the distribution without killing the main Apple model So that's why I think that kind of is a more minor issue Similarly against Amazon, there are complaints that Amazon promotes its own brands compared to the brands of third parties

Like I want to buy a memory stick and Amazon says here is this memory stick is endorsed by Amazon as Amazon Basics or something like that So that's kind of them creating their own brand Now, in my opinion, this is not the most crucial thing, because in many distribution channels, for example, in the grocery store, we see their own grocery store brands They're there So you might make a case

Well, this is not a typical grocery store Apple is very big And so on But again, there could be a case, maybe not the strongest case, but it could be a case against Amazon Now, can Amazon fix this? Sure

It's not such a big deal to kill all Amazon basics or Amazon Brands And, you know, so I don't think that this is a major impediment to Amazon, even if it were if the allegation was brought against them And there wereand they lost – Do you feel there was some need for regulation in the digital market like this as compared to a grocery store, because I like this analogy When I go to a grocery store, I see lots of products Some of them are the store's brand When I go to Amazon, all of my first page could very well be all Amazon Brands with different labels

Right? Sometimes they are innovative and they don't call it Amazon Do you feel some regulation would be useful in there? – Is Amazon so big in terms of market share, is it dominating electronic commerce and therefore, like Microsoft was dominating PCs, we think it's a company that is obligated to follow excellent requirements And that question might come up in front of the regulators Right now, it's a bit early because the regulator started collecting data and we're also in an election year So the most likely thing is that sometime in the coming summer, there will come out some reports that say here are the problems we found and we're going to start pursuing them

But then they will wait until the election to see who gets elected and once the new Department of Justice had this change and so on and so on – But from what I understand, you are saying is that it is almost like an empirical question, as we say in research It's a question of like data about the market dominance after options So in my mind, for example, if you look at the Apple platform, there is at least Google, right? So in a sense, you could say we can count what is the dominance of Apple in the app space and make some argument about that – That's right

But at the same time, according to American anti-trust law, it doesn't matter that there is competition between Apple and Android If you have Apple, you have to use this at the store and the apps, and therefore the competition with Android doesn't matter Now, that's not the same without Amazon because you would say, OK, we have distribution Amazon has different market shares, and distribution of different things For example, in e-books, they have 85 percent; in apparel, they have 50 percent; in other things have different percentages

So American anti-trust law is written in such a way so that the government can even bring a case market by market They will say, look, I mean, you know, we're going to, we think that you're violating the law in the e-book market where we think you are violating the law in the distribution of apparel, and maybe you're not violating in distribution of computers But it doesn't matter, we you can bring the cases on this So that's why this kind of grand investigations are troublesome for companies because they really don't know where they're going to be hit – Okay

They might think a thing that it turns out to be – Yes And I'm not part of the investigation

I should say for the camera that I don't work for any of these people – Can I ask you to comment more broadly on this notion of breaking up these companies? We need to break them up And it reminds me of the Microsoft debate that you were part of many years ago about breaking Microsoft up So what about breaking things up? – I think that these are the comments by the politicians are populist and a bit naive I have to say, especially for the politician who is a law professor

This is inexcusable, because he's a law professor, he's supposed to know what the law is So a breakup is an extreme measure, a draconian measures And the way American anti-trust law works, it can only be applied in very extreme circumstances I think that the present law is unlikely to result in any break ups Even Microsoft, which was for sure, found liable for monopolization, even though the district court said, oh, yeah

Breakup Department of Justice said breakup District Court accepted breakup When it went on appeal, the appeals court said, look, there is all these other things that Microsoft can do to fix things And what ended up is an implementation of these business remedies or conduct remedies, which has lasted up to today

They still make meetings to try to make sure that Microsoft is compliant But it didn't result in a remedy So people have to be a bit more careful I think it's one thing to be a candidate It's one thing to say things as a candidate, it's a different thing to have to be a president or an elected representative, and you pass a new law, you implement the new, a new law

– Interesting So what you're saying in some sense, what we learned from Microsoft case, but there is a list of remedies There were some that we talked about today that should be tried first – Absolutely And they have to be proportional to the violation or order

I mean, suppose you cross the road illegally? That's a small violation I mean, you'll get a fine – Yeah – They don't put you in jail – Right

– So it's a different thing if you had a big violation, then you have a proportionally larger penalty And a lot of this idea of how proportional they are and how big they're supposed to be comes from a long history of enforcement The American antitrust law, the way it was written right after the Civil War is very vague It doesn't say, oh, yeah I mean, this is a real for sure problem this is not for sure a problem, it's pretty vague

And it's good it was vague, so it can be applied to many different industries They never thought of the digital economy at that point in time – Right – Of course not But at the same time, it can be applied because we have a history, a long history of decisions and of understanding of what is normal or what's kind of expected versus what is a weird aberration

– Like an egregious violation Yes, I mean, how far how far should the violation be? How extreme does it have to be to require a break up, for example? I mean, it's not out of the question that the breakup might be the right solution, but you have to have a very, very extreme violation – Very interesting Well, thank you very much for taking the time It's great to hear this sort of research-based, theory-based understanding of such complex phenomena

– Let me thank again the Fubon Center for Supporting the NET Institute Conference We give grants for people to do unrestricted research in this area and we bring them back here at Stern to actually present And we have been doing this for now 17 years I'm almost self- congratulating myself – I would like to join you in congratulating you and running this successful conference with the deep academic content

And I hope you continue It's our pleasure at the Fubon Center to support your efforts – Thank you very much Thank you again

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