A close look on privacy protection as a non-price parameter of competition

Competition in data-driven markets creates tension between undertakings’ incentives and consumers’ online privacy. Driven by the need to collect and process as much personal data as possible, online firms have caused significant privacy harms, drawing attention to their data processing activities. In this context, a great number of consumers have expressed dissatisfaction about privacy-intrusive practices. Accordingly, privacy-sensitive consumers should choose their online service providers based on the higher or lower degree of privacy protection they offer, all other things equal. However, a reality check shows that privacy protection has not emerged as a meaningful competition parameter. This article explores and disentangles the causes of this counter-intuitive phenomenon, showing that, for privacy protection to serve as a meaningful competition parameter, four conditions must be met. As these conditions are not presently fulfilled, privacy protection as a competition parameter is currently a theoretical construction. This finding motivates two important policy prescriptions.