The New Neutralities
posted by Frank Pasquale
“Cloud computing” is the new buzzword in cyberspace, describing the migration of information and applications from desktop PCs to a “cloud” of computers located at companies like Google and Facebook. While many business writers are wondering about “who will own the cloud,” Randy Picker has been blogging and writing about its legal implications. Here’s part of his abstract on the interplay between competition and privacy:
[C]loud service providers will also have available to them a rich datastream that arises from their customer’s activities. To date, these intermediaries have faced few limitations in how they use the information that they see. That information can be used to improve their core businesses . . . To focus on Google as the largest player in this space, there is no obvious limit to its scale and an advertising-supported business adds revenue with each additional screen that is viewed.
In the past, we have regulated intermediaries at these transactional bottlenecks – banks, cable companies, phone companies and the like – and limited the ways in which they can use the information that they see. . . . [But] we need to be acutely aware of how our choices influence competition. An uneven playing field – allowing one firm to use the information that it sees while blocking others from doing the same thing – creates market power through limiting competition. We rarely want to do that. And privacy rules that limit how information can be used and shared across firms will artificially push towards greater consolidation, something which again usually works against maintaining robust competition.
Just as Lior Strahilevitz has worried that privacy laws will interfere with stigmatized groups’ ability to compete in the job market, Picker claims that such restrictions will prevent the types of information arbitrage that could help smaller players.
I hope that Picker’s pro-flow information policy also extends to an endorsement of data portability requirements–e.g., allowing users of Facebook to port their social graph to another social network, or Google Adsense users to move their data to another search-advertising platform. But I also worry that the quest for competition in the cloud may be misplaced in some markets. Check out David S. Evans’s chart of “Shares of Market Leaders in Major Internet Platforms.” That’s a lot of 99 and 98%s for eBay. Though the market may be losing faith in Facebook, and some sellers may be exiting eBay, many centrifugal forces push in the direction of platform domination by one or a few companies in these spaces.
That’s one reason why my work on intermediaries tries to take seriously the possibility that Picker elides: that competition will be an ineffective way of making intermediaries responsive to citizens and consumers. My main intuitition (in a piece I’m working up called “The New Neutralities”) is that competition is only one of many tools we can use to encourage responsible and useful intermediaries. We should rely on market competition to the extent that a) the intermediary in question is an economic (as opposed to cultural or political) force; b) the “voice” of the intermediary’s user community is weak (since competition is designed to provide those users an “exit” option, ala Hirschman); c) competition is likely to be genuine and not contrived. I also think these criteria help us map older debates about platforms onto newer entities.
1) Search Engines: For example, the debate on net neutrality has influenced my work on search engines, and has already inspired work on search neutrality by Andrew Odlyzko. This is because dominant search engines a) are just as important to culture and politics as they are to economic life, b) give users very little verifiable information about how they operate, and are essentially credence goods, making user community influence doubtful, and c) have many strategies available to create virtually insuperable barriers to those aspiring to overtake them. The first point–regarding cultural power–should lead scholars away from merely considering the economics of network effects in evaluating search engines. We need to consider all dimensions of network power.
2) Auction Platforms: What about auction platforms, another internet platform discussed in David S. Evans’ article? Here I am more sanguine about a purely economic, antitrust-driven approach to possible problems. To use the criteria mentioned above: a) a site like eBay is a very important online marketplace, but that’s just about all it is–a marketplace and b) the user community at eBay understands its reputation rankings very well, and has shown remarkable capacities for cohesion and self-organization to protest (and occasionally overturn) policies it dislikes. To me, these factors overwhelm the possibility that c) competition in the general-auction (as opposed to niche auction) market may be unlikely to develop. If such competition fails to develop, we have the precedent of antitrust judgments against MS (and parallel requirements of some forms of “operating system neutrality”) to guide future movements for online auction platform neutrality. While eBay’s user community successfully pressured Disney to end its 2000 special-preference deal with eBay, in the future law might require the full disclosure (and perhaps put conditions on) such deals.
3) Social Networks: My final example is social networks, another area where tipping can quickly lead to one or a few players’ dominance. My intuitions are that social networks are somewhere between search engines and auction sites as to factor a); that they empower communities at least as powerful as those seen on eBay to “police” their own policies; and that competition is more likely to develop in the social network space than in the search engine or auction platform industries. I think upcoming debates about social network “neutrality” and transparency will look a bit like current debates on “device neutrality.” Consider this discussion from Jonathan Zittrain’s book on appliance neutrality:
Reasonable people disagree on the value of defining and legally mandating network neutrality. But if there is a present worldwide threat to neutrality in the movement of bits, it comes from enhancements to traditional and emerging “appliancized”services like Google mash-ups and Facebook apps, in which the service provider can be pressured to modify or kill others’ applications on the fly. Surprisingly, parties to the network neutrality debate—who have focused on ISPs—have yet to weigh in on this phenomenon. . . .
[A] norm of protecting settled expectations might suggest the following: if Microsoft wants to make the Xbox a general purpose device but still not open to third-party improvement, no regulation should prevent it. But if Microsoft does so by welcoming third-party contribution, it should not later be able to impose barriers to outside software continuing to work. Such behavior is a bait and switch that is not easy for the market to anticipate and that stands to allow a platform maker to exploit habits of generativity to reach a certain plateau, dominate the market, and then make the result proprietary—exactly what the Microsoft case rightly was brought to prevent.
I like Zittrain’s idea of proponents of different “neutralities” talking to each other more. But in order to avoid colonization in such encounters, I would like to structure the mutual influence on the basis of the a) cultural, b) communal, and c) competitive dynamics surrounding new intermediaries. That’s why I’d ground calls for search neutrality in the net neutrality debate; calls for auction platform neutrality in the literature on operating systems; and calls for social network neutrality in the literature now growing up around device and appliance neutrality. That trichotomy may seem a little too “neat” at present, but does have the virtue of identifying debates where economic analysis alone may be relevant, and where it should only be one small part of larger policy decisions.
PS: This is in part a response to critiques of a talk I gave last week, which was blogged here and here.
Photo Credit: Fernando Arconada.
August 15, 2008 at 11:59 am
Posted in: Cyberlaw, Economic Analysis of Law
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Responses (5)
Randy Picker - August 15, 2008 at 12:48 pm
Frank,
I have a March 2007 post on data portability if you are interested:
http://uchicagolaw.typepad.com/faculty/2007/03/mandatory_data_.html
James Grimmelmann - August 15, 2008 at 2:19 pm
In some contexts, data portability and privacy are incompossible. I should not have a guaranteed legal right to take “my” data from Facebook and move it to another platform. On a social network site, “my” data and “your” data are hopelessly entangled, and my data portability means your loss of privacy. Facebook has legitimate reasons not to let Robert Scoble screen-scrape his contacts’ information from Facebook and import it into Plaxo. His doing so undermines their privacy preferences and Facebook’s ability to enforce those preferences. Strong data portability in a social context leads inevitably to lowest-common-denominator privacy protections.
Bruce Boyden - August 16, 2008 at 2:24 am
James: Incompossible? Merriam-Webster’s website says it’s a word, but I have to pay to get access to the online definition. Is it just a synonym of “incompatible”?
A.J. Sutter - August 16, 2008 at 12:48 pm
I think it’s a casual form, or perhaps just a more charitable one, of nincompossible.
A.J. Sutter - August 16, 2008 at 12:53 pm
Actually, I was wrong a moment ago: it’s from Ambrose Bierce. See http://dd.pangyre.org/i/incompossible.html .
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