Facebook’s Data Collection from an Economic Perspective

New Publication

Prof. Dr. Oliver Budzinski (Ilmenau University of Technology), Prof. Dr. Marina Grusevaja (Wiesbaden Business School - RheinMain University of Applied Science) and Victoriia Noskova, M. Sc. (Ilmenau University of Technology) have published a paper on the topic: “The Economics of the German Investigation of Facebook's Data Collection” in the peer-reviewed international journal Market and Competition Law Review. The article is a part of Volume V (I) (pp. 43-88).

The paper deals with recent investigation of Facebook’s data collection practices by German competition authorities (Bundeskartellamt). The authors address question whether Facebook’s practices regarding data collection could constitute an abuse of market power from an economic perspective. In doing so, they summarize the state of advanced economic theories, including influences from behavioral economics, addressing such markets, and discuss four potential theories of harm.

The authors conclude that such theory of harm as excessive data processing from third parties could constitute an abuse from an economic perspective. However, in contrast to the user-centric reasoning employed by Bundeskartellamt, the authors argue that it is essential to consider why the situation of such extensive data collection was possible (in particular, established conditions for third-parties and their incentives for business-to-business relations).  Another theory of harm from this case, excessive data collection and conditions, has rather ambiguous outcomes and requires case-specific reasoning to be valid as abusive. Two other theories connected to the case are deterrence through barriers to access which entails economic merit, but rather does not constitute abuse; and bundling, tying, and walled garden strategies which was not in core of current investigation but has potential to raise anticompetitive concerns in the context of the business behavior of companies like Facebook and therefore be part of future cases.

More papers on the digital economy from the Institute of Economics.

Acknowledgment: Victoriia Noskova is grateful for the financial support provided by FAZIT-Stiftung during the work on this project.