E-Globalization and Trade Agreements

The global success of online search engines and social media is due to their free access and high level of quality. However, these features are supported by a business model that exploits personal user data to provide targeted advertising services to third parties. Does this business model deliver socially desirable outcomes at the global and/or national level? To explore these questions, we characterize how a global monopoly platform chooses the level of privacy protection and service quality. When a platform operates a free service model it over-exploits personal information and underprovides quality compared to a global planner. Despite distortions along two dimensions, global welfare can be improved by a policy of enhanced privacy protection alone. In fact, it is likely that enhanced privacy protection will also induce higher platform quality. Furthermore, when privacy policies are set at the national level, large countries tend to align with the global interest, thanks to a “Brussels effect” where a global monopoly platform will improve privacy protection across all its markets in response to a policy change in one country. The alignment of unilateral and multilateral incentives reduces the need for a trade agreement to cover privacy protection. However, countries do have a beggar-thy-neighbor motivation to apply ad tech taxes, making these policies an area where international cooperation is needed.