Social Networks and Antitrust: The Problem of Diverse Consumer Preferences

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1 Social Networks and Antitrust: The Problem of Diverse Consumer Preferences Frank Pasquale Schering-Plough Professor in Health Care Regulation and Enforcement, Seton Hall Law Affiliate Fellow, Yale Information Society Project GMU Law Review Conference 2012

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3 Privacy and Antitrust FTC addresses both Competition Consumer protection Does privacy fit into both? Or only consumer protection mission?

4 Peter Swire s Approach Argument in context of Google/DoubleClick Merger: Price competition is part of antitrust Non-price competition is part of antitrust Privacy can be a form of non-price competition

5 Swire on Google/DoubleClick [i]f the merger is approved, then individuals using the market leader in search may face a search product that has both deep and broad collection of information. For the many millions of individuals with high privacy preferences, this may be a significant reduction in the quality of the search product

6 Value of Privacy Threat theory Health/profiling/hired & fired by software Data out of control; Intelliscript case study Can you really opt out? Chesterman: One Nation Under Surveillance Peppet: Unraveling One person s necessity is another s luxury and is another s burden Does the concept of the median or average user have meaning here?

7 Theory of Privacy as Product Quality - While traditionally firms have competed on the basis of price, competition can also arise through other factors that are important to consumers, such as privacy policies. - Many large firms have taken steps to ensure transparency of their privacy policies, and make adjustments to their policies in response to changes in competitors policies. - Query: will users flee if a dominant firm radically alters privacy policies? If they don t, is that due to: - Lack of alternatives - Lack of concern - Positive desire to be tracked (Eric Goldman)

8 Picker: Privacy vs. Competition With Web 2.0 [data] arises naturally from the very services provided. We will see a similar pattern as cloud computing becomes more important There is no obvious limit to its scale and an advertising-supported business adds revenue with each additional screen that is viewed. In the past, we have regulated intermediaries at these transactional bottlenecks - banks, cable companies, phone companies and the like - and limited the ways in which they can use the information that they see. Bank of Facebook game credits

9 Unintended Consequences of Restricting Data Sharing Picker: An uneven playing field - allowing one firm to use the information that it sees while blocking others from doing the same thing - creates market power through limiting competition. Privacy rules that limit how information can be used and shared across firms will artificially push towards greater consolidation, something which again usually works against maintaining robust competition. An answer: focus on use, not collection/sharing

10 FTC on G/DoubleClick Majority of 4: We investigated the possibility that this transaction could adversely affect non-price attributes of competition, such as consumer privacy. Not found to be a problem in that case

11 Harbour on Data-Rich Industries merger in data-rich industries Ideally leads to query about privacy in second requests Swire: Companies may thus be required to provide detailed answers and data about their privacy practices, and how the merger will affect those practices.

12 The Diversity of Privacy Preferences Could the track me more preferences outweigh those of the track me less preferences? Might efficiency depend on letting oneself be tracked more? Market dynamics erode privacy as product; gradually disappears in these contexts Can only be preserved as social practice

13 Is Twitter a Substitute or Complement for Facebook? Substitute For those that primarily share ideas and links, Twitter may be better When Facebook changes for the worse for some people, do they leave for Twitter? Other social networks? Complement People are joining multiple networks. They may multihome, but there s only one place with the mix of content that Facebook has Strong ties Weak ties

14 Comparing High Tech Entities In the US, it does seem easier to use a rival search engine than to port a social graph over to a rival social network. But here again, much depends on how much the user has invested in the experience

15 Co-Creation, Commons, and Competition Users with the most at stake may not always want exit, or even rapid innovation Alternate goal: a stable platform for social connection, archiving, finding & narrow- or broadcasting content Model of co-creation or managed commons? As essential facility less for advertisers or rival networks than for users.

16 Balancing Antitrust and Regulatory Approaches Dilemma: advertisers may want multiple social networks competing, but users may want to home in on one or a few Two balances to strike: Multiple users of a two or multi-sided platform Antitrust (pro-competition) and regulation (of concentrated industry)

17 Principles for Balance We should rely on competition-promotion via markets and antitrust only to the extent that a) the intermediary in question is an economic (as opposed to cultural or political) force; b) the voice of the intermediary's user community is strong; c) competition is likely to be genuine rather than contrived or forced

18 Auction Platforms A purely economic, antitrust-driven approach to possible problems is more appropriate. a) a site like ebay is a very important online marketplace, but has less cultural or political impact and b) the user community at ebay understands its reputation rankings very well, and has shown remarkable capacities for cohesion and self-organization to protest (and occasionally overturn) policies it dislikes c) real competition between it and sites like Amazon and other innovative specialized retailers. Users don t need to be on ebay to find the other sites.

19 Dominant General-purpose Search Engines a) are just as important to culture and politics as they are to economic life, b) give users less verifiable information about key aspects of their operations, and are often credence goods, making user community influence doubtful (though integration of G+ and search may change that) c) how many copies of the web and immense amounts of data on past search patterns are possible?

20 Social Networks a) they are becoming crucial hubs of social interactions, cultural distribution and promotion, and political organizing. b) social networks provide a good deal of leverage to their members to police their bad behavior, opening up voice options c) competition: highly contestable, given earlier points about diversity of consumer preference

21 Online Privacy and Antitrust Law -In cases where there is a dominant market force, there would be less pressure from competitors to increase privacy protections, or new privacy measures might be adopted at a slower rate. -When the market has competitors, consumers are able to vote with their feet and could switch to a different social networking Web site if the site they were currently using fails to meet privacy expectations -Restrictions on data sharing can also impact the ability of a new competitor to emerge. Because of this, legislatures should take into consideration how new data privacy laws could impact the dominant online forces by inadvertently creating a monopoly.

22 LiveUniverse v. MySpace No. CV , 2007 WL (C.D. Cal. June 4, 2007) -Plaintiff, LiveUniverse, operated an online social networking site called vidilife.com. - LiveUniverse alleged that MySpace prevented users from watching vidilife.com videos that had been posted to a user s profile, deleted all vidilife references on profiles, and prevented users from mentioning vidilife, in violation of Section 2 of the Sherman Act. MySpace filed a motion to dismiss. -LiveUniverse s complaint defined the relevant antitrust market as Internetbased social social networking in the geographic area of the United States -In determining whether MySpace was a dominant market force, the court looked to the number of visitors the site attracted. Because studies showed that over 80% of social networking users visited MySpace, the court concluded that MySpace did have a dominant market share.

23 LiveUniverse v. MySpace No. CV , 2007 WL (C.D. Cal. June 4, 2007) -The court granted MySpace s motion to dismiss on the grounds that LiveUniverse could not allege an actionable monopolization or attempt to monopolize antitrust claim. -In reaching this judgment, the court recognized that MySpace had a valid interest in preventing free riding Web sites from using the MySpace site to draw traffic to other sites. The court reasoned that MySpace s actions in monitoring their own site did not affect LiveUniverse s ability to operate its own competing social networking site, and therefore the anticompetitive measures did not amount to an actionable antitrust monopoly.

24 Facebook v. Power Ventures No. C JW, 2010 WL (N.D. Cal. July 10, 2010) -Power Ventures operated an Internet service that collected personal information from the Facebook site. Facebook brought suit alleging violations of several federal statutes, trademark infringement and copyright infringement. -Power Ventures asserted a counterclaim against Facebook alleging violations of Section 2 of the Sherman Act. -Power Ventures alleged that Facebook s practice of not permitting third parties to access user information amounted to the maintenance of a monopoly. Power Venture also alleged Facebook maintained its monopoly through threatening new entrants with copyright infringement suits. -The court began its analysis with considering whether Facebook willfully acquired or maintained monopoly power, and concluding that Facebook was not acting in violation of antitrust law when it refused to grant access to third party competitors to use its data. The court also rejected Power Venture s allegation that the threat of a copyright suit amounted to maintenance of the monopoly power, holding that Facebook has the legal right to manage the access to and use of its site.

25 Online Privacy and Antitrust Law Pamela Jones Harbour & Tara Isa Koslov, Section 2 in a Web 2.0 World: An Expanded Vision of Relevant Product Markets, 76 ANTITRUST L. J. 769, 773 (2010). -Pamela Jones Harbour and Tara Isa Koslov have suggested antitrust law should adapt to recognize the impact privacy considerations can have on the area of law. -While traditionally firms have competed on the basis of price, competition can also arise through other factors that are important to consumers, namely privacy policies. - Many large firms have taken steps to ensure transparency of their privacy policies, and make adjustments to their policies in response to changes in competitors policies.

26 Google Antitrust Investigation -Google recently announced the launch of a new service called Search Plus Your World, which uses the Google+ social networking site to help tailor search results. -With Search Plus Your World, users will now see posts, photographs and profiles of people in their Google+ circles returned from a search query, along with other outside links, but similar results from other social networking sites such as Twitter and Facebook will not be featured in the results. - The FTC was already investigating Google for antitrust violations, and this new service prompted the FTC to widen the probe to include Google+ promotional practices.

27 Google Antitrust Investigation -Critics of Search Plus Your World allege that Google is essentially using its dominance in the search engine market to unfairly promote its social networking venture as a way to try to compete with Facebook. -Google has responded that Search Plus Your World will help to benefit consumers and has also pointed out that Twitter and Facebook do not allow Google full access to posts and Tweets on the

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