Contact: Ashley Creel
May 18, 2009 – Commercial use of information on the Internet benefits consumers, according to a new study by TPI scholars Thomas Lenard and Paul Rubin. The new study examines the role of information in improving the ability of markets to deliver the goods and services individuals want.
The study notes that tracking of online consumer activity to better target advertisements by search engines and online advertisers and, more recently, the desire of Internet Service Providers to do the same, has increased privacy concerns. Congress recently held hearings on consumer privacy and is likely to consider legislation this year.
Lenard and Rubin examine the arguments of privacy advocates, who argue that the use of individuals’ information online should be curtailed. The authors note that the privacy advocates’ analysis assumes that privacy is a “free lunch”-that consumers can obtain more privacy without giving anything up.
This is not the case. The study shows there is a tradeoff between privacy and information. More privacy, by reducing the availability of information online, would come with a cost to consumers. For example, the online advertising industry has used customer information to deliver advertising messages better targeted to consumers’ interests, and used advertising revenues to provide new and highly valued services, such as search engines, email and social networking sites, to consumers without charge. Untargeted ads are less likely to be relevant to consumers, and thus advertisers will not be willing to pay as much for them. The availability of free online services would decrease if providers were unable to place more valuable-that is, well-targeted-ads on their sites.
Lenard is President and Senior Fellow at TPI; Rubin is a Senior Fellow at TPI and Dobbs Professor of Economics and Law at Emory University.
The Technology Policy Institute
The Technology Policy Institute is a research and educational organization that focuses on the economics of innovation, technological change, and related regulation in the United States and around the world. More information is available at http://www.techpolicyinstitute.org/