In Chapter 5 of the forthcoming Stigler Center ebook Digital Platforms and Concentration, published in anticipation of the eponymous conference at Chicago Booth on April 19 and 20, ProMarket editor Guy Rolnik and coauthors give an overview of the challenges facing the regulators of tech giants today.
Editors’ note: See also our 2017 conference volume Is There a Concentration Problem in America? Other chapters from this year’s ebook can be read at the following links:Recent tidal waves of scandals and public upheavals have shed light on the potential perils and risks of digital monopolies such as the five Silicon Valley giants: Facebook, Google, Amazon, Apple, and Microsoft. Examples such as the foreign meddling in the US election via large-scale advertising campaigns on Facebook (1), or the alleged abuse of market power by Google resulting in one of the largest antitrust fines ever levied by the European Union (€2.42 billion, ), are frequently echoed in mainstream media.
In 2017 alone, the five Silicon Valley giants have added nearly a trillion dollars to their aggregate value, which is now more than double the value of the largest seven banks in the world. In conjunction with the increased popularity of those platforms—the number of users ranges from 310 million for Amazon to 2.2 billion for Facebook and Google—the public discourse focuses not only on the merits of these digital platforms but also on the potential threats they pose to markets, financial institutions, and democratic processes (3).Some point to the mere size, power, and unregulated conduct of these digital monopolies. Others focus on the unprecedented scale and speed with which personal data is collected and used in the context of prediction algorithms, an omniscient, opaque machinery that threatens to erode the very foundation of privacy (4). Still others highlight the ability of digital monopolies to control much of our attention, which allows them to dictate which content we are exposed to and to influence our behavior. In this “economy of attention,” users’ eyeballs have become the main commodity traded (5, 6). The price for ads on YouTube or Facebook, for example, ranges from a few cents to several dollars depending on the specificity of the target audience.
An analysis of the academic and public discourse highlights eight key challenges posed by the digital monopolies:
1. Risk of data breaches. A security breach of any of the digital monopolies could result in Exabytes of users’ most vulnerable information being publicly exposed (7). Besides the risk of irreparable damage to people’s reputation, private lives, and identity (as in, e.g., the “Ashley Madison” case (8)), such a breach could result in unprecedented damage to our economy (as in, e.g., the “Sony Pictures” case (9)) and our political standing (as in, e.g., “Wikileaks Cablegate” (10)). Importantly, a security collapse of that nature might only be the start of a series of follow-up breaches. A hack of Google’s Gmail, for example, could allow the perpetrators to obtain a user’s bank account password through the “forgot password” functionality, and ultimately lead to a collapse of businesses and industries (e.g. banking, taxation, weapon silos, etc.). Compared to what was deemed a “too big to fail” state when a handful of banks collapsed in 2008, such a crisis could be unparalleled. Although the digital monopolies employ talented security teams to prevent such hacks, the public has no guarantee that a skillfully deployed attack (e.g., by another nation-state, powerful underground organization, or simply a disgruntled employee) would not be successful. Even with the best efforts of the digital monopolies—which often heavily depend on the priorities of high-ranking leaders in the organization—societies should hence operate under the assumption that the data held by the digital monopolies could be leaked at any point in time.
2. Data control. The concentration of unprecedented amounts of behavioral user data may become the most precise and effective tool for targeted marketing. Our digital footprint reveals a lot more about us than first meets the eye: it conveys information about our preferences, our habits, and our psychological traits (4, 11). Recent research, for example, shows that targeting user segments with advertising messages tailored to their psychological profiles (e.g., their extroversion level) significantly increases clicks and purchases (12). While the ability to target individuals of a certain behavioral, sociodemographic, and psychological profile might not pose an immediate threat in the context of advertising consumer goods, there are many other contexts in which overly precise targeting could hurt the most vulnerable members of society. Being able to target “homosexual individuals living in a specific zip code,” for example, could turn out to be lethal in a number of countries around the world. The same is true for targeting people with an addictive personality with gambling ads, or an unsuspecting low-income family with a subprime mortgage offering.
3. Attention as currency. The majority of online social networks—be it Facebook, Snapchat, or YouTube—are designed and built to encourage individuals to spend as much time and resources within the platform as possible. While this is no different than other media channels, like TV, online social networks have far advanced their capabilities to manipulate and prey on users’ weaknesses, turning “user-oriented” services into addictive, time-wasting traps (13, 14). Recent work in neuroscience and marketing have shown that exposure to content at a rate of as little as three views is sufficient to generate a conscious awareness of a brand (15), whereas ten views can yield unconscious drive or preference for a product (16). Studies in psychology (17) and neuroscience (18) show that one change people’s behavior, both short-term and long-term, by influencing their preferences or altering their neural pathways. Beyond behavior changes due to content, works in neuroscience are suggesting that the effects of digital content on our brain is not limited to the time of exposure but also have addictive attributes that resemble chemical addiction to substances (19, 20). Finally, studies in psychology are showing that the adverse effects of the time spent on digital platforms are translated to increases in depression and other negative psychological outcomes (21)....