Allowing Concerned Consumers to Opt-Out of Information Use is Preferred Approach, Authors Conclude
Washington, D.C., November 17, 2022 – As Congress and the Federal Trade Commission (FTC) consider new rules governing the use of data, a review of available research by economists with NERA Economic Consulting finds that limiting online advertising’s access to data about audience interests and demographics substantially reduces revenue to online content providers by 50 to 70 percent. Such limits will disproportionately affect small publishers and advertisers and have the unintended effect of strengthening the competitive advantage of large platforms. Revenue losses will threaten the foundation of free online services that are worth $30,000 per year to the typical consumer, the review found.
“The availability of data to personalize advertising produces important, and substantial, benefits to consumers and to the marketplace as a whole,” said Dr. J. Howard Beales, co-author of the review, an Emeritus Professor of Strategic Management and Public Policy at the George Washington School of Business, an affiliated academic in NERA’s Communications, Media, and Internet Practice, and former director of the FTC’s Bureau of Consumer Protection. “Conventional media have long depended on audience demographics for both placing advertisements and for creating content to attract the viewers advertisers want to reach. Data-driven online advertising allows small and emerging firms to compete more easily for consumer attention and to reach an audience that may be interested in their products.”
The review noted that user-derived information increases the value of digital advertising three-fold or more and that such advertising is particularly important to small publishers. Contextual advertising is unlikely to replace the revenue losses from data restrictions as context is a complement, not a substitute for demographic and interest information, it concluded.
“Advertising is vital to the competitive process, reducing prices, encouraging innovation, and narrowing differences among demographic groups,” said Dr. Andrew Stivers, co-author of the review, associate director in NERA’s Antitrust Practice, and former deputy director for consumer protection in the FTC’s Bureau of Economics. “Less effective online advertising means consumers would face even higher prices in an economy already marked by significant inflation. Initiatives to block the flow of data favor incumbents, reducing competition and creating significant barriers to entry to smaller platforms and publishers.”
“Allowing consumers concerned about privacy to opt out of information use is a preferable approach to accommodating consumer preferences,” Dr. Beales said. “Consumers make rational choices about how to allocate their time and attention. Judging from their behavior, many consumers are willing to share their information in exchange for free content. Given the value of advertiser-supported services, this is a reasonable tradeoff for consumers to make.”
The study was sponsored by the Digital Advertising Alliance and Privacy for America.