Conclusion

This paper examines how market structure is affected by offering privacy protection. The model
proposes a new hypothesis in the ongoing policy discussion in privacy regulation in regions as the US
and Europe.

Privacy regulation may result in the entrenchment of incumbent firms which reduces incentives for
quality investments. This effect will be particularly noticed in firms with limited price flexibility in
consumer-facing markets, as online media

According the model large firms have no inherent advantage over small firms in building trust with
consumers. However, when consumers are more inclined to trust large firms with their data, the
consent providing to small firms will be further discouraged.

The model concerns privacy regulation regarding tracking on the advertising-supported web. The
model can be further extended to other factors where data use is prevalent. For instance, the
generalist could be a health organisation and the specialist could be a distinctive clinic. Both use data
to access medical histories and reduce record-keeping costs.

There are many reasons to protect consumer privacy in various industries. The model indicates that
privacy regulations may also favour incumbents and large firms over new entrants and small firms.
This finding contrasts with the current legal debate that primarily focusses on the impact of privacy
as a criterion to reject proposed mergers. The model therefore presents a new and potentially
important consideration to the debate on privacy regulation.

Policy implications

The results indicate that the inquiring of imposed obliged consent may disadvantage small and new
companies. In the study, consumers had to agree to share their data when deciding whether to make
use of a product. This finding affect the privacy policies in the following ways:

One way to prevent regulations from harming the competition is to simplify the consent process by
using standardized privacy agreements that are easy for consumers to understand. This would
reduce the cost of consenting to data sharing and help prevent smaller companies to be pushed out
of the market. These efforts in establishing standards, such as the W3C’s “Do Not Track” initiative are
slow in making progress. Governments could promote standardization to reduce externalities of
regulations.

In the model, consumers are faced with a cost every time they need to consent to sharing their data.
An alternative to this is a global opt-in. Where consumers agree to share certain data to all producers
in advance. This would require consumers to pay a fixed cost for consenting to data use before using
any products. If a global opt-in system where used, there would be no additional barriers to enter in
the regulatory game, which would reduce anti-competitive effects. Governments may encourage
single opt-in mechanisms that are administered through browser settings to implement global
consent mechanisms.

The EU has however rejected single opt-in measures because they are difficult to implement under
several laws such as the EU privacy and Electronic Communications Directive, which requires a sliding
scale of consent based on privacy risk. Meaning, that some cookies are accepted by a browser and
other may require pop-up windows requesting consent. The sliding scale means that regulatory
requirements differ across websites, forcing a company specific context. The model in this paper
highlights that these context dependent consent requirements may lead to anticompetitive effects.
Discussion around consent

In the paper consent is one of the main points of discussion. Consumers are imposed to make a
decision whether to accept or deny cookies, which determines what you release as personal data.
But is this really a fair choice? Nowadays websites require the consumer to accept cookies otherwise
you can’t even enter the website itself. The consumer is forced to give their personal data and allow
the firm to make use of cookie tracking.

Is giving consent to the use of personal data really a choice for the consumer?

Our answer:

We don’t think consenting to cookies is really voluntary. Many consumers do not really understand
what they are accepting. The terms and conditions are written in complex and incomprehensible
language, which makes it difficult for the consumer to make a considered decision.

In some cases denying consent isn’t really an option if you want to make use of a particular product.
Some websites allow only for denying optional cookies, the basic cookies are included and
mandatory.

As you can see in the picture, the necessary cookies can’t be switched off (left). From the moment
the consumer gives consent they lose control over how their data is used or shared. Once the
consent is given, consumers lose the ability to opt-out of certain uses of their data. These factors
limit the voluntariness of the consenting of consumers and further usage of their personal data.