By Mark Jamison

This will be interesting: The Wall Street Journal reports that the Federal Trade Commission (FTC) is about to
launch a rulemaking to ramp up regulation of Big Tech’s collection and use of
user data. FTC Chair Lina Khan says this is keeping with the agency’s missions of
consumer protection and promotion of competition. But there is solid economic
research showing that such regulations often have the opposite effect — namely
harming consumers and protecting large businesses from competition.

One of the latest pieces of said evidence was a paper presented at the FTC’s recent microeconomics conference. The
authors — a doctoral student from Northwestern University and two marketing
professors from Boston University and the University of Colorado, respectively
— examined the impacts of the European Union’s (EU) General Data Protection Regulation
(GDPR), which sets guidelines for how any organization offering goods or
services in Europe collects and processes personal information from EU
citizens. GDPR, which went into effect in May 2018, has global reach: The
University of Florida (where I teach) changed its data management policies to satisfy the
regulations.

The research examined how GDPR affects web use and
e-commerce, and discovered that the amounts measured fell 11.7 percent and
13.3 percent respectively following GDPR’s implementation. The researchers
found that some portion of these declines resulted from GDPR decreasing the
value of internet usage. The remaining portions resulted from GDPR allowing
internet users to opt out of tracking and data gathering.

The researchers also found that GDPR harms competition by
giving advantages to larger businesses. They write, “Smaller e-commerce sites
see twice the decline in recorded revenue (–17.4%) than larger sites (–8.9%)”
because the smaller sites have a harder time obtaining user consent. If Khan is
right that “concentrated control over data has enabled
dominant firms to capture markets and erect entry barriers,” then the new FTC
regulations could exacerbate the problem.

This paper is simply the latest in a line of research finding that GDPR negatively affects consumers and businesses, especially small businesses. Two of the earliest studies found that GDPR decreased venture capital availability in the EU, especially for newer, data-related, and consumer-facing ventures. Another study found that GDPR increased “market concentration among technology vendors that provide support services to websites.” Another found that “websites reduced their connections to web technology providers after GDPR” and that firms offering such services generally lost market share to Google. Yet another found that GDPR caused traffic to EU websites to decline 4 percent relative to US sites.

Supporters of GDPR-like regulations may celebrate these
findings, arguing that the EU’s intent was to decrease data collection and use
and that decreased e-commerce and web use is a natural and good result. Google
might agree given that it grew relative to its rivals under these regulations,
but it is unclear that consumers and small businesses would agree: It is
unlikely that consumers opting out of tracking foresee that their choices
decrease the value of their web experiences. And small businesses see higher costs
and less revenue.

It might be tempting for groups cheering Khan’s push for a
rulemaking on Big Tech data practices to argue that the FTC can avoid GDPR’s
pitfalls and provide a win-win for consumers and competition. This is unlikely:
GDPR favors large firms because compliance is more costly for small firms than
for large ones. This is generally true for regulations. And privacy regulations
accentuate large firms’ big data advantages by restricting small firms’ data-gathering
abilities.

Given that leading progressive Democratic Senators and Khan seem to be of the same mind, the FTC will
likely press forward with data regulations despite a clear conflict with the
agency’s core mission. There is some belief that the FTC lacks authority for such a
rulemaking. Just in case it does, people with knowledge would do well to ensure
that the FTC’s record in the rulemaking is well-populated with substantive
research.

Finally, the FTC is to be commended for hosting research
conferences that allow papers whose conclusions differ from some commissioners’
policy preferences. America is better for it.

(Disclosure statement:
Mark Jamison provided consulting for Google in 2012 regarding whether Google
should be considered a public utility.)

The post New Federal Trade Commission regulations could protect big business appeared first on American Enterprise Institute – AEI.