Probably not. Indeed, they will more likely benefit internet-based companies than consumers.

Why? Markets work to compensate consumers for the money or effort they expend for protecting their privacy. And the costs are restricted to only those consumers who want to protect their own privacy. In contrast, the costs of laws are spread to everyone through taxes, fees, etc., and markets don’t have to compensate consumers for government-imposed costs.

Why should a provider such as Amazon compensate its customers for allowing their information to be collected and used?

It is required by the economic incentives of the company and its customers.

Suppose that customers think it is creepy that Amazon gathers information on them when they buy books. (I’ll call this the creepiness factor, but it could be any reason for disliking Amazon watching and learning about the customer.) Then, for these customers to be willing to buy from Amazon, the company has to provide a price that compensates them for the creepy feeling. Otherwise, the customers either would not buy or might go to Barnes & Noble, for example, and pay cash. If, on the other hand customers think it is great that Amazon gathers information and uses it to make product recommendations, for example, then Amazon can reflect that premium feeling in the prices it charges. Either way, Amazon’s prices reflect how customers feel about Amazon and what they know about Amazon’s data practices.

But what about companies such as Facebook that don’t charge consumers?

A similar thing happens. Once Facebook users learn the company’s data practices, they consider the creepiness factor in deciding whether to be on the platform, how often to use it, and for what purposes. If the creepiness factor is high, Facebook has to make sure that using Facebook is sufficiently valuable to consumers so that they feel compensated for the creepiness. Otherwise, their use of Facebook would be limited, and perhaps non-existent.

What if users actually value Facebook’s data collection and use? They can enjoy the benefits of Facebook’s services that rely on the company’s big data and the benefits of the company’s efforts to take care of customers who experience creepiness.

Read more of this AEI article by Mark Jamison by clicking here.