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Thursday, May 3, 2007

Privacy and the Google-DoubleClick acquisition
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Opponents of the proposed acquisition of DoubleClick by Google are raising privacy as one of their primary concerns. Indeed, shortly after the acquisition was announced, the Electronic Privacy Information Center (EPIC) and several other public interest groups filed a complaint with the Federal Trade Commission asking the agency to investigate how Google manages personal information and to block the acquisition unless the parties adopt a number of new information practices. The complaint alleges that “the increasing collection of personal information of Internet users by Internet advertisers poses far-reaching privacy concerns,” and that the conduct of Google and DoubleClick “has injured consumers throughout the United States by invading their privacy.” It would be nice to have some evidence for such a sweeping assertion, but the complaint provides none, perhaps because such evidence is difficult to find.

A few years ago, Paul Rubin (PFF adjunct fellow and professor of economics and law at Emory) and I investigated the Internet advertising market in a monograph titled Privacy and the Commercial Use of Personal Information. We found that:

  • Both consumers and advertisers benefit from better targeting of advertising messages, which is made possible by the use of personal information. Better targeting means that consumers receive more messages that are of interest to them and, equally important, fewer messages that are not of interest. (Thus, to the extent that the acquisition of DoubleClick by Google will increase the amount of usable personal information available to the combined firm, it will facilitate more precise targeting of advertising messages. This is a benefit, not a cost, to consumers.)

  • Notwithstanding the widespread perception that personal information is subject to misuse, there is little in the way of evidence, even anecdotal evidence, that consumers are being harmed by the legal use of personal information for advertising or other commercial purposes.

  • Firms that violate consumer expectations about privacy face a loss of reputation that translates into losses in the marketplace. This happened to DoubleClick a number of years ago, when the company was planning to link online and personally identifiable information through its acquisition of another firm. Consumer opposition caused DoubleClick to cancel those plans, even though they might well have produced consumer benefits. The company’s stock price declined. The decline was short-lived, however, perhaps because a subsequent FTC investigation, also initiated by an EPIC complaint, found the company had not violated any FTC requirements.

  • Regulatory measures of the type proposed by groups like EPIC that would limit the collection and use of information would have an adverse effect on competition and innovation. Such proposals would exacerbate, rather than alleviate, market failures and likely impose major costs on consumers and the economy. For example, entry by new competitors into markets (which provides great benefits to consumers) is facilitated when new entrants can acquire information about potential customers. Limitations on information use benefits existing firms at the expense of new firms.

We need to remember that the Internet is built on the free flow of information, and that this has great benefits for consumers. Proposals to interfere with that information flow, whether by interfering with a merger or otherwise, should be subject to careful scrutiny and implemented only if there is solid evidence that their benefits are greater than their costs.

posted by Tom Lenard @ 12:37 PM | Privacy

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