Will Regulating Big Tech Protect Our Privacy, or Their Profits?


With the revelations that social media companies like Facebook have been rather liberal in their data-sharing policies, many are concerned about how their information is being used? Indeed, even Congress is considering if regulations are needed to protect consumers' data from the loose standards that Facebook has had for so long.

But congressional intervention in the form of regulation could actually benefit big tech companies more than it would consumers. Digital privacy scholar Babette Boliek explains:

Economic evidence from past regulatory regimes has shown that regulation favors incumbents and stifles innovative, new firms from competing. In that respect, (Facebook founder Mark) Zuckerberg’s invitation of regulation is less self-flagellation than it is a competitive strategy.

When a company seems to invite regulation, raise a red flag, and look at what is not being said.

As a general rule, the concern with passing regulation that strengthens and protects incumbents is that it may lessen competition. This may, in turn, lead to higher consumer prices and less innovation such that the intended regulatory benefits are swamped by the unintended consequences. There are a few reasons why regulation may help the incumbent. One reason is fairly straightforward — regulators demand to see compliance, and compliance is expensive. Incumbents are larger and can usually absorb these costs more effectively than small firms. Another reason is that regulation usually stops the market at the status quo — thereby favoring the existing titans of the market.

One of the proposed policy ideas for regulating big tech is mandating an "opt-in," as opposed to our current "opt-out" system. This seems to be a fair way of giving consumers the choice, but again, it has an unintended consequence.

On the one hand, a change from an opt-out to an opt-in system (for example) may help incumbents because, such as in the children’s cereal example, incumbents already have high levels of data and the change would just hurt the newcomer who has comparatively little data.

Regulations that are allegedly aimed at protecting consumers could just benefit the big firms that already exist at the expense of smaller ones, which may go under due to added compliance costs. Any new regulation on data collection and privacy would have to be carefully written to make sure that consumers are not ripped-off while Facebook comes out better than before.