tag:theconversation.com,2011:/us/topics/ftc-42400/articlesFTC – The Conversation2023-10-06T07:34:41Ztag:theconversation.com,2011:article/2146692023-10-06T07:34:41Z2023-10-06T07:34:41ZUS regulator is suing Amazon – here’s what this could mean for your online shopping<figure><img src="https://images.theconversation.com/files/552132/original/file-20231004-27-j64e6i.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4294%2C3214&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/germany-rostock-juni-13-2021-stack-1992003263">Elpisterra/Shutterstock</a></span></figcaption></figure><p>If you’re one of the <a href="https://www.businessinsider.com/amazon-shopping-prime-membership-us-stopped-growing-first-time-ever-2023-1?r=US&IR=T">more than 200 million</a> Prime members Amazon claims to have worldwide, you’ll be well aware of the benefits. Among other things, it gives you access to a video and audio streaming service and free, fast delivery on all Amazon-dispatched items – for <a href="https://www.amazon.co.uk/gp/help/customer/display.html?nodeId=G34EUPKVMYFW8N2U">less than £100 per year</a>. </p>
<p>One of the reasons so many consumers sign up for, <a href="http://germangutierrezg.com/Gutierrez2021_AMZ_welfare.pdf">and value</a>, this service is that Amazon offers a massive range of products that it’s difficult to buy cheaper elsewhere. But if Amazon’s offering is so great, why is the US competition regulator <a href="https://www.ftc.gov/news-events/news/press-releases/2023/09/ftc-sues-amazon-illegally-maintaining-monopoly-power">suing the online marketplace</a> to force it to change the very service that so many people seem to love? </p>
<p>According to the Federal Trade Commission (FTC), which ensures fair and competitive markets in the US, Amazon looks so good to consumers because it uses its dominant position to force its competitors to look even worse. Amazon makes more sales in the US <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/1910129AmazoneCommerceComplaintPublic.pdf">than the next 15 largest online retail firms combined</a>, so any abuse of its market power could, as the lawsuit claims, “profitably worsen its service for customers”. </p>
<p>In other words, the FTC is accusing Amazon of using its significant market position to offer a less than stellar service because it’s more profitable for the company.</p>
<p>The FTC isn’t saying Amazon is too big. But <a href="https://www.ftc.gov/news-events/news/press-releases/2023/09/ftc-sues-amazon-illegally-maintaining-monopoly-power#:%7E:text=big%2C%20but%20because-,it%20engages%20in,-a%20course%20of">the regulator believes</a> its business model “prevents current competitors from growing and new competitors from emerging”. </p>
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Read more:
<a href="https://theconversation.com/how-bezos-and-amazon-changed-the-world-154546">How Bezos and Amazon changed the world</a>
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<p>Amazon has called the suit “<a href="https://www.aboutamazon.com/news/company-news/amazon-ftc-antitrust-lawsuit-full-response">misguided</a>” and said that, if successful, it would “force Amazon to engage in practices that actually harm consumers and the many businesses that sell in our store”. Examples it gave included having to feature higher prices, offer slower or less reliable Prime shipping, and make subscriptions more expensive.</p>
<h2>Consumers pay too much</h2>
<p>The FTC’s main claim is that Amazon artificially increases the price of most products sold online – on its platform but also on competing services. And the FTC says Amazon makes a lot of money in this way by squeezing both small businesses and consumers.</p>
<p>Businesses pay advertising fees to have their product displayed on Amazon. They then pay <a href="https://sell.amazon.co.uk/pricing?ref_=sduk_soa_priov_n#selling-plans:%7E:text=Our-,selling%20plans,-give%20you%20the">seller</a> and <a href="https://sell.amazon.co.uk/pricing?ref_=sduk_soa_prirf_n#referral-fees:%7E:text=Amazon%20jargon%3A-,Referral%20fees,-For%20every%20item">referral</a> fees (a percentage of the total price including things like shipping and gift-wrapping) in exchange for using it – and also need to pay for the cost of Amazon’s <a href="https://sell.amazon.com/fulfillment-by-amazon">fulfillment service</a> if they want to be eligible for free delivery. This means businesses send their products to an Amazon warehouse from which they are packed and shipped, but the service can also include dealing with customers and returns processing.</p>
<p>Amazon takes nearly one out of every two dollars of sales from the retailers who pay all those fees, according to <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/1910129AmazoneCommerceComplaintPublic.pdf">the lawsuit</a>. This means a business that wants to charge $1 for a product on its own website must charge almost $2 to make the same profit when selling through Amazon.</p>
<h2>Selling on Amazon</h2>
<p>It would seem more sensible for a seller to offer their product for cheaper on another platform that charges lower fees. But Amazon has made that almost impossible, according to the FTC. The regulator claims the company permanently screens product prices on competing websites. If a business tries to sell for cheaper elsewhere, it is immediately punished.</p>
<p>Forcing sellers to sign a contract that stops them from offering their product for cheaper on another website has been illegal since <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A62016CJ0230">2017 in the EU</a>, and Amazon <a href="https://competitionlawblog.kluwercompetitionlaw.com/2019/07/30/bundeskartellamt-ends-abuse-probe-after-amazon-agrees-to-changing-business-terms-for-dealers/">agreed in 2019</a> to also remove these price parity clauses in North America and Asia. A study of the hotel platform booking.com shows <a href="https://www.sciencedirect.com/science/article/pii/S0014292120302555">this ban benefits customers</a>. </p>
<p>But the regulator suspects that, instead of using a contract, Amazon simply hides the businesses that undercut it from its site’s search results. <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/1910129AmazoneCommerceComplaintPublic.pdf">According to the suit</a>: “Using its vast surveillance network, Amazon systematically punishes sellers when Amazon detects a lower price on other online stores.”</p>
<p>So, to be able to include the Prime eligibility label – a guarantee of free delivery within one or two days to subscribers, which also improves visibility on the website – businesses must offer their products via Amazon fulfillment. This makes it much harder for them to sell from a competing platform – and if they did, their Amazon sales could suffer if they try to offer it at a lower price elsewhere. </p>
<p>As consumers, we see that Amazon offers the cheapest products and a wider range, so have no reason to shop somewhere else. We become lazy. If a shopping platform has a great range accompanied by helpful ratings and reviews from previous consumers, why would you even look somewhere else? Even more so if your site membership offers you free delivery. </p>
<p>But a well-functioning market relies on some consumers <a href="https://www.sciencedirect.com/science/article/pii/S0167718720300369">being savvy enough to look for the better deal</a>. If no one comparison shops, competition disappears and all consumers lose.</p>
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<img alt="A worker sorts Amazon packages on a conveyor belt in a warehouse." src="https://images.theconversation.com/files/552135/original/file-20231004-23-q9fyb7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/552135/original/file-20231004-23-q9fyb7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/552135/original/file-20231004-23-q9fyb7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/552135/original/file-20231004-23-q9fyb7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/552135/original/file-20231004-23-q9fyb7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/552135/original/file-20231004-23-q9fyb7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/552135/original/file-20231004-23-q9fyb7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">An Amazon fulfillment centre in Vélizy, France.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/france-sept-23th-2019-logistics-activity-1514808590">Frederic Legrand - Comeo/Shutterstock</a></span>
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<h2>What do consumers want?</h2>
<p>The FTC wants to end all these practices because it believes they hurt consumers. It doesn’t want sellers to have to rely on Amazon logistics, and is pushing to ban the anti-discounting practices that it says block potential competitors. It also wants to make it easier for customers to end their Prime subscriptions.</p>
<p>But is this really what consumers want? Amazon’s practices lead to higher prices than if it was offering a better deal to small businesses, according to the FTC. But, being so big and having those massive warehouses and sophisticated logistics also serves a purpose: Amazon can dispatch a huge variety of products quickly at a reasonable cost. </p>
<p>The FTC will have to win its case in court – and this has proven <a href="https://www.bloomberg.com/news/articles/2023-07-24/ftc-s-khan-defends-merger-record-after-microsoft-activision-loss">particularly difficult</a> in its other recent cases. Earlier this year, it <a href="https://www.reuters.com/markets/deals/us-ftc-withdraws-case-against-microsoft-activision-deal-before-internal-agency-2023-07-20/#:%7E:text=WASHINGTON%2C%20July%2020%20(Reuters),O">failed to block</a> Microsoft’s US$68 billion deal to buy game-maker Activision. </p>
<p>The main challenge for the FTC this time will be to prove that the practices it identifies as harming consumers are more important than the potential cost for us all of losing the comfort and scale of the services offered by Amazon. Whether or not western consumers are still doing most of their online shopping on a single platform in 10 years time will depend heavily on what the US court decides.</p><img src="https://counter.theconversation.com/content/214669/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Renaud Foucart does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>If the competition regulator gets its way, it could force significant changes to the online shopping giant.Renaud Foucart, Senior Lecturer in Economics, Lancaster University Management School, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1896182022-08-30T12:19:56Z2022-08-30T12:19:56ZFTC lawsuit spotlights a major privacy risk: From call records to sensors, your phone reveals more about you than you think<figure><img src="https://images.theconversation.com/files/481648/original/file-20220829-9139-k3v5qt.jpg?ixlib=rb-1.1.0&rect=0%2C25%2C5700%2C3763&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Where you've been and who you've interacted with are not difficult for governments and corporations to find out.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/young-woman-using-mobile-phone-against-bus-royalty-free-image/605380195">Maskot via Getty Images</a></span></figcaption></figure><p>The Federal Trade Commission <a href="https://www.ftc.gov/news-events/news/press-releases/2022/08/ftc-sues-kochava-selling-data-tracks-people-reproductive-health-clinics-places-worship-other">filed suit</a> against Kochava Inc. on Aug. 29, 2022, accusing the data broker of selling geolocation data from hundreds of millions of mobile devices. Consumers are often unaware that their location data is being sold and that their past movements can be tracked, according to the commission. </p>
<p>The FTC’s suit specified that Kochava’s data can be used to <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/1.%20Complaint.pdf">track consumers to sensitive locations</a>, including “to identify which consumers’ mobile devices visited reproductive health clinics.”</p>
<p>When the U.S. Supreme Court <a href="https://theconversation.com/roe-overturned-what-you-need-to-know-about-the-supreme-court-abortion-decision-184692">overturned Roe v. Wade</a> on June 24, 2022, many people seeking abortion care found themselves in legal jeopardy. Numerous state laws criminalizing abortion thrust the perilous state of personal privacy into the spotlight. As a <a href="https://scholar.google.com/citations?hl=en&user=6emSUYoAAAAJ">cybersecurity and privacy researcher</a>, I’ve seen how readily people’s movements and activities can be tracked.</p>
<p>If people want to travel incognito to an abortion clinic, according to <a href="https://www.buzzfeednews.com/article/sarahemerson/abortion-digital-privacy-guide">well-meaning advice</a>, they need to plan their trip the way a CIA operative might – and get a <a href="https://www.howtogeek.com/712588/what-is-a-burner-phone-and-when-should-you-use-one/">burner phone</a>. Unfortunately, that still wouldn’t be good enough to guarantee privacy. </p>
<p>Using a maps app to plan a route, sending terms to a search engine and chatting online are ways that people actively share their personal data. But mobile devices share far more data than just what their users say or type. They share information with the network about whom people contacted, when they did so, how long the communication lasted and what type of device was used. The devices must do so in order to connect a phone call or send an email.</p>
<h2>Who’s talking to whom</h2>
<p>When NSA whistleblower Edward Snowden <a href="https://www.theguardian.com/world/2013/jun/06/nsa-phone-records-verizon-court-order">disclosed</a> that the <a href="https://www.nsa.gov/">National Security Agency</a> was collecting Americans’ telephone call metadata – the <a href="https://www.lawinsider.com/dictionary/call-detail-record">Call Detail Records</a> – in bulk in order to track terrorists, there was a great deal of public consternation. The public was rightly concerned about loss of privacy. </p>
<p>Researchers at Stanford later showed that call detail records plus publicly available information could <a href="https://doi.org/10.1073/pnas.1508081113">reveal sensitive information</a>, such as whether someone had a heart problem and their arrhythmia monitoring device was malfunctioning or whether they were considering opening a marijuana dispensary. Often you don’t have to listen in to know what someone is thinking or planning. Call detail records – who called whom and when – can give it all away.</p>
<p>The transmission information in internet-based communications – <a href="https://www.thegeekstuff.com/2012/03/ip-protocol-header/">IP-packet headers</a> – can reveal even more than call detail records do. When you make an encrypted voice call over the internet – a Voice over IP call – the contents may be encrypted but information in the packet header can nonetheless sometimes <a href="https://doi.org/10.1109/SP.2011.34">divulge some of the words you’re speaking</a>. </p>
<h2>A pocket full of sensors</h2>
<p>That’s not the only information given away by your communications device. Smartphones are computers, and they have <a href="https://gizmodo.com/all-the-sensors-in-your-smartphone-and-how-they-work-1797121002">many sensors</a>. For your phone to properly display information, it has a gyroscope and an accelerometer; to preserve battery life, it has a power sensor; to provide directions, a magnetometer. </p>
<p>Just as communications metadata can be used to track what you’re doing, these sensors can be used for other purposes. You might shut off GPS to prevent apps from tracking your location, but <a href="https://doi.org/10.1109/SP.2016.31">data from a phone’s gyroscope, accelerometer and magnetometer</a> can also track where you’re going.</p>
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<figcaption><span class="caption">What the sensors in your phone do and how they add up to a lot of data about you.</span></figcaption>
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<p>This sensor data could be attractive to businesses. For example, <a href="https://appft.uspto.gov/netacgi/nph-Parser?Sect1=PTO2&Sect2=HITOFF&u=%2Fnetahtml%2FPTO%2Fsearch-adv.html&r=1&p=1&f=G&l=50&d=PG01&S1=%2820160114.PD.+AND+%28Facebook.AS.+OR+Facebook.AANM.%29%29&OS=PD/1/14/2016+and+%28AN/Facebook+or+AANM/Facebook%29&RS=%28PD/">Facebook has a patent</a> that relies on the different wireless networks near a user to determine when two people might have been close together frequently – at a conference, riding a commuter bus – as a basis for providing an introduction. Creepy? You bet. As someone who rode the New York City subways as a young girl, the last thing I want is my phone introducing me to someone who has repeatedly stood too close to me in a subway car.</p>
<p>Uber knows that people <a href="https://www.npr.org/transcripts/478266839?storyId=478266839&t=1569586261094">really want a ride when their battery power is low</a>. Is the company checking for that data and charging more? Uber claims not, but <a href="https://metro.co.uk/2019/09/27/uber-charge-battery-lower-10778303/">the possibility is there</a>.</p>
<p>And it’s not just apps that get access to this data trove. <a href="https://clearcode.cc/blog/what-is-data-broker/#what-are-data-brokers?">Data brokers</a> get this information from the apps, then compile it with other data and provide it to companies and <a href="https://cdt.org/insights/report-legal-loopholes-and-data-for-dollars-how-law-enforcement-and-intelligence-agencies-are-buying-your-data-from-brokers/">governments</a> to use for their own purposes. Doing so can circumvent legal protections that require law enforcement to go to court before they obtain this information.</p>
<h2>Beyond consent</h2>
<p>There’s not a whole lot users can do to protect themselves. Communications metadata and device telemetry – information from the phone sensors – are used to send, deliver and display content. Not including them is usually not possible. And unlike the search terms or map locations you consciously provide, metadata and telemetry are sent without you even seeing it. </p>
<p>Providing consent isn’t plausible. There’s too much of this data, and it’s too complicated to decide each case. Each application you use – video, chat, web surfing, email – uses metadata and telemetry differently. Providing truly informed consent that you know what information you’re providing and for what use is effectively impossible.</p>
<p>If you use your mobile phone for anything other than a paperweight, your visit to the cannabis dispensary and your personality – how <a href="https://doi.org/10.1016/j.paid.2014.08.023">extroverted you are</a> or whether <a href="https://doi.org/10.1126/science.aaq1433">you’re likely to be on the outs with family since the 2016 election</a> – can be learned from metadata and telemetry and shared.</p>
<p>That’s true even for a burner phone bought with cash, at least if you plan on turning the phone on. Do so while carrying your regular phone and you’ll have given away that the two phones are associated – and perhaps even that they belong to you. As few as <a href="https://doi.org/10.1038/srep01376">four location points can identify</a> a user, another way your burner phone can reveal your identity. If you’re driving with someone else, they’d have to be equally careful or their phone would identify them – and you. Metadata and telemetry information reveals a remarkable amount about you. But you don’t get to decide who gets that data, or what they do with it.</p>
<h2>The reality of technological life</h2>
<p>There are some constitutional guarantees to anonymity. For example, the Supreme Court held that the right to associate, guaranteed by the <a href="https://constitution.congress.gov/constitution/amendment-1/">First Amendment</a>, is the <a href="https://www.law.cornell.edu/supremecourt/text/357/449">right to associate privately</a>, without providing membership lists to the state. But with smartphones, that’s a right that’s effectively impractical to exercise. it’s nearly impossible to function without a mobile phone. Paper maps and <a href="https://www.link.nyc/">public payphones</a> have virtually disappeared. If you want to do anything – travel from here to there, make an appointment, order takeout or check the weather – you all but need a smartphone to do so.</p>
<p>It’s not just people who might be seeking abortions whose privacy is at risk from this data that phones shed. It could be your kid applying for a job: For instance, the company could check location data to see if they are participating in political protests. Or it could be you, when the gyroscope, accelerometer and magnetometer data gives away that you and your co-worker went to the same hotel room at night. </p>
<p>There’s a way to solve this chilling scenario, and that’s for laws or regulations to require that the data you provide to send and receive communications – TikTok, SnapChat, YouTube – is used just for that, and nothing else. That helps the people going for abortions – and all the rest of us as well.</p>
<p><em>This article was updated on Aug. 29, 2022, to indicate that the U.S. Federal Trade Commission filed suit against a data broker.</em></p><img src="https://counter.theconversation.com/content/189618/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Susan Landau receives funding from the William and Flora Hewlett Foundation and the National Science Foundation. She is affiliated with the National Academy of Science, Engineering, and Medicine and the Center for Democracy and Technology,</span></em></p>Even a burner phone paid for with cash can reveal your identity and where you’ve been. A data privacy expert explains.Susan Landau, Professor of Cyber Security and Policy, Tufts UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1872782022-07-25T13:42:43Z2022-07-25T13:42:43ZTech firms face more regulation after moves to stop ‘killer’ acquisitions – but innovation could also be under threat<figure><img src="https://images.theconversation.com/files/474828/original/file-20220719-16-9if249.jpg?ixlib=rb-1.1.0&rect=20%2C25%2C3323%2C2180&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Regulators are increasingly concerned about the impact of larger firms acquiring smaller rivals.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/businesswoman-drawing-big-fish-eat-small-235025512">Shutterstock</a></span></figcaption></figure><p>One way to eliminate the competition in business is simply to buy them out and shut them down. And that means less choice for consumers and sometimes the loss of innovative and, in the case of the pharmaceutical industry, even life-saving products. But such so-called killer acquisitions are likely to face greater scrutiny in the US and EU following a recent expansion of competition regulators’ powers.</p>
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<p>A July 2022 decision by the European Court of Justice has <a href="https://www.euractiv.com/section/digital/news/eu-court-confirms-commissions-extended-powers-in-merger-reviews/">expanded</a> the European Commission’s ability to investigate a wider range of mergers and acquisitions (M&A). And last year, the US Federal Trade Commission (FTC) also <a href="https://www.ftc.gov/system/files/documents/public_statements/1596396/statement_of_chair_lina_m_khan_commissioner_rohit_chopra_and_commissioner_rebecca_kelly_slaughter_on.pdf">changed its criteria for scrutinising</a> certain deal types. </p>
<p>Historically, these regulators have only been empowered to examine business deals of a certain size, mostly between potential direct competitors. These recent rulings will empower them to examine almost any purchase. </p>
<p>When applying these new powers to fast-moving industries such as pharma or technology, however, regulators must navigate a world of costly and risky investments in research and development. It’s very difficult for regulators to spot a killer acquisition before it happens, and many M&A deals can actually benefit consumers. So calling it wrong could actually stifle innovation and stop new products from reaching the market.</p>
<p>US and EU regulators share the same fear: if dominant players are allowed to buy up start-ups, this could impact innovation and market concentration, depriving consumers of the benefit of new products and technology. In its announcement about its new approach, the FTC said “several decades” of consolidation across the economy has corresponded with a “lessening of competition reflected in growing mark-ups and shrinking wages”. </p>
<p>There is <a href="https://academic.oup.com/qje/article/135/2/561/5714769">research</a> to support this view. Similarly, <a href="https://ec.europa.eu/competition/consultations/2021_merger_control/guidance_article_22_referrals.pdf">EU regulators</a> want to be able to investigate – and potentially prevent – any acquisitions they believe may hurt consumers. </p>
<h2>Killer acquisitions</h2>
<p>When competition regulators try to ensure that established firms buying small innovative players don’t hinder or even destroy innovation, killer acquisitions are one of their top concerns. As documented in an <a href="https://www.journals.uchicago.edu/doi/10.1086/712506">influential economic paper</a> on the pharmaceutical industry, the goal of the dominant firm in such a deal is to destroy a potential competitor to its own business, even if it means patients never benefit from better treatments.</p>
<p>The recent changes to US and EU M&A scrutiny powers were triggered by a 2020 <a href="https://investor.illumina.com/news/press-release-details/2020/Illumina-to-Acquire-GRAIL-to-Launch-New-Era-of-Cancer-Detection/default.aspx">announcement</a> by US biotech firm Illumina about its plans to acquire Grail, a developer of early-detection cancer tests. At the time, this sounded like the kind of acquisition that would not suffer much scrutiny by antitrust authorities. </p>
<p>Grail’s product is not yet operational and acquiring it does not affect the dominant market position of Illumina. The deal did not even breach the EU merger regulation threshold of €5 billion (£4.3 billion) combined worldwide turnover for the companies involved. </p>
<p>Almost immediately, however, regulators <a href="https://www.ftc.gov/news-events/news/press-releases/2021/03/ftc-challenges-illuminas-proposed-acquisition-cancer-detection-test-maker-grail">in the US</a> and the <a href="https://ec.europa.eu/commission/presscorner/detail/en/IP_21_3844">EU</a> challenged the merger. Both announced plans to scrutinise its potential impact on competition and innovation in the market for genome-based diagnosis. </p>
<p>In this kind of situation, regulators are often concerned about market concentration. If another start-up comes up with better diagnostic tests, for example, a dominant player like Illumina might <a href="https://www.jstor.org/stable/2534783">make its life difficult</a> in order to protect its recent acquisition. </p>
<p>But killer acquisitions are the most extreme case of this kind of acquisition deal. <a href="https://www.journals.uchicago.edu/doi/10.1086/712506">Research shows</a> that only about 6% of pharma acquisitions involve a large company buying a smaller one with a promising new drug simply to discontinue the innovative project.</p>
<p>In digital markets, dominant firms are also often suspected of pursuing a similar strategy. Last year, the UK regulator <a href="https://www.gov.uk/government/news/cma-directs-facebook-to-sell-giphy">ordered Facebook to sell Giphy</a>, a database of GIF-like animations it had <a href="https://www.theverge.com/2021/11/30/22740272/facebook-giphy-acquisition-competition-and-markets-authority-uk-regulator">acquired</a> in 2020 for US$315 million (£262 million), for fear that it was a killer acquisition aimed at destroying a potential rival in the advertising market. When Meta started its appeal of this decision in April 2022, Giphy had <a href="https://www.reuters.com/technology/meta-fights-overturn-uk-order-sell-giphy-2022-04-25/">yet to sell a single ad</a> in the UK.</p>
<figure class="align-center ">
<img alt="blue puzzle pieces, aerial view of city skyscrapers" src="https://images.theconversation.com/files/474826/original/file-20220719-12-86lje8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/474826/original/file-20220719-12-86lje8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=360&fit=crop&dpr=1 600w, https://images.theconversation.com/files/474826/original/file-20220719-12-86lje8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=360&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/474826/original/file-20220719-12-86lje8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=360&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/474826/original/file-20220719-12-86lje8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=452&fit=crop&dpr=1 754w, https://images.theconversation.com/files/474826/original/file-20220719-12-86lje8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=452&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/474826/original/file-20220719-12-86lje8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=452&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Mergers & acquisitions activity.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/merger-acquisition-business-concepts-join-company-716579470">Shutterstock</a></span>
</figcaption>
</figure>
<p>Similar to the pharma sector, however, <a href="https://www.crai.com/insights-events/publications/beyond-killer-acquisitions-are-there-more-common-potential-competition-issues-tech-deals/">few tech deals seem to</a> correspond to the specific definition of a killer acquisition. And, in fact, dominant firms buying innovative start-ups before they generate any profit is a common business model in the digital economy.</p>
<p>In 2013, Waze was a potential disruptor to Google Maps as the dominant firm in the market for free online maps. But when <a href="https://techcrunch.com/2013/06/11/its-official-google-buys-waze-giving-a-social-data-boost-to-its-location-and-mapping-business%22%22">Google acquired it</a> for US$1.1 billion, it did not close Waze, as you would expect with a killer acquisition. </p>
<p>Instead, it added some of Waze’s innovative features into Google Maps and <a href="https://www.reuters.com/article/us-alphabet-google-waze-idUSKBN2AJ02O">kept the former as a niche product</a>. This allowed Google to stay dominant and <a href="https://www.jurist.org/news/2022/04/federal-antitrust-lawsuit-filed-against-google-over-maps-monopoly-and-waze-deal/">to boost its profits</a> from user data. </p>
<p>In this case, consumers benefited from a better Google Maps product, but Waze now has less incentive to innovate because it is not competing anymore. The FTC did not oppose the acquisition <a href="https://www.bloomberg.com/news/articles/2013-10-01/google-said-to-avoid-u-s-antitrust-challenge-over-waze">in 2013</a> but is now <a href="https://www.bloomberg.com/news/articles/2020-02-14/google-s-waze-deal-is-a-likely-target-in-new-ftc-antitrust-sweep">reportedly considering looking at it</a> again.</p>
<h2>Regulators’ big gamble</h2>
<p>If regulators routinely block such acquisitions, start-ups will need to operate differently. Rather than relying on an acquisition by a dominant player to inject capital into the company, they will have to find other ways to earn money – possibly by charging consumers directly. </p>
<p><a href="https://www.vox.com/2014/10/28/11632404/facebook-paid-19-billion-for-whatsapp-which-lost-138-million-last-year">WhatsApp</a> and <a href="https://www.npr.org/2012/04/10/150372288/instagram-sells-for-1-billion-despite-no-revenue?t=1658220346107">Instagram</a>, for example, had almost no revenue when Facebook bought them for US$19 billion and US$1 billion respectively. But they benefited from being acquired by a larger platform. Neither were killer acquisitions, but both increased market concentration.</p>
<p>By opening acquisitions of small and innovative firms to more scrutiny, regulators are taking a massive bet. To block an acquisition, they must demonstrate that it actually hurts innovation, often in very technical fields. </p>
<p>While researchers have been able to identify killer acquisitions after the fact, convincing a judge at the time of the purchase that a deal is bad for consumers <a href="https://www.cnbc.com/2021/05/17/att-fought-doj-for-time-warner-only-to-spin-out-three-years-later.html">is much more difficult</a>. As such, the stakes are high for regulators: a wrong decision could affect the future of medicine and the future of our digital lives.</p><img src="https://counter.theconversation.com/content/187278/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Renaud Foucart does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Preventing big firms buying up small ones can sometimes stop new products reaching consumers.Renaud Foucart, Senior Lecturer in Economics, Lancaster University Management School, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1596222021-04-27T12:11:25Z2021-04-27T12:11:25ZFTC warns the AI industry: Don’t discriminate, or else<figure><img src="https://images.theconversation.com/files/396892/original/file-20210423-19-1kbxh05.jpg?ixlib=rb-1.1.0&rect=8%2C8%2C5982%2C3979&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The FTC put companies that sell AI systems on notice: Cross the line with biased products and the law is coming for you.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/illustration/arrested-robot-with-handcuffs-royalty-free-illustration/636870131?adppopup=true">Maciej Frolow/Stone via Getty Images</a></span></figcaption></figure><p>The U.S. Federal Trade Commission just fired a shot across the bow of the artificial intelligence industry. On April 19, 2021, a staff attorney at the agency, which serves as the nation’s leading consumer protection authority, wrote a blog post about biased AI algorithms that included a blunt warning: “Keep in mind that if you don’t hold yourself accountable, the FTC may do it for you.” </p>
<p>The post, titled “<a href="https://www.ftc.gov/news-events/blogs/business-blog/2021/04/aiming-truth-fairness-equity-your-companys-use-ai">Aiming for truth, fairness, and equity in your company’s use of AI</a>,” was notable for its tough and specific rhetoric about discriminatory AI. The author observed that the commission’s authority to prohibit unfair and deceptive practices “would include the sale or use of – for example – racially biased algorithms” and that industry exaggerations regarding the capability of AI to make fair or unbiased hiring decisions could result in “deception, discrimination – and an FTC law enforcement action.”</p>
<p>Bias seems to pervade the AI industry. Companies large and small are selling <a href="https://www.vox.com/recode/2020/2/18/21121286/algorithms-bias-discrimination-facial-recognition-transparency">demonstrably biased systems</a>, and their customers are in turn applying them in ways that disproportionately affect the vulnerable and marginalized. Examples of areas where they are being abused include <a href="https://towardsdatascience.com/real-life-examples-of-discriminating-artificial-intelligence-cae395a90070">health care, criminal justice and hiring</a>.</p>
<p>Whatever they say or do, companies seem <a href="https://www.nature.com/articles/d41586-018-05469-3">unable or unwilling to rid their data sets and models of the racial, gender and other biases</a> that suffuse society. Industry efforts to address fairness and equity have come under fire as inadequate or poorly supported by leadership, sometimes <a href="https://www.bloomberg.com/news/articles/2021-04-21/google-ethical-ai-group-s-turmoil-began-long-before-public-unraveling">collapsing entirely</a>.</p>
<p>As a <a href="https://scholar.google.com/citations?user=5PcO_84AAAAJ&hl=en">researcher who studies law and technology</a> and a longtime observer of the FTC, I took particular note of the not-so-veiled threat of agency action. Agencies routinely use formal and informal policy statements to put regulated entities on notice that they are paying attention to a particular industry or issue. But such a direct threat of agency action – get your act together, or else – is relatively rare for the commission.</p>
<h2>What the FTC can do – but hasn’t done</h2>
<p>The FTC’s approach on discriminatory AI stands in stark contrast to, for instance, the early days of internet privacy. In the 1990s, the agency embraced a more <a href="https://www.ftc.gov/news-events/press-releases/1999/07/self-regulation-and-privacy-online-ftc-report-congress">hands-off, self-regulatory paradigm</a>, becoming more assertive only after years of privacy and security lapses.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/397160/original/file-20210426-17-3ar78c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A seated woman gestures with her left hand as she speaks into a microphone" src="https://images.theconversation.com/files/397160/original/file-20210426-17-3ar78c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/397160/original/file-20210426-17-3ar78c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/397160/original/file-20210426-17-3ar78c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/397160/original/file-20210426-17-3ar78c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/397160/original/file-20210426-17-3ar78c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/397160/original/file-20210426-17-3ar78c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/397160/original/file-20210426-17-3ar78c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Tech industry critic Lina Khan’s nomination to be a commissioner on the FTC is further evidence of the Biden administration’s intention to use the agency to regulate the industry.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/SenateFTC/6683f1a88cee46a983b9d136a11cb0d3/photo?Query=Federal%20Trade%20Commission&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=434&currentItemNo=10">Graeme Jennings/Pool via AP</a></span>
</figcaption>
</figure>
<p>How much should industry or the public read into a blog post by one government attorney? In my experience, FTC staff generally don’t go rogue. If anything, that a staff attorney apparently felt empowered to use such strong rhetoric on behalf of the commission confirms a broader basis of support within the agency for policing AI.</p>
<p>Can a federal agency, or anyone, define what makes AI fair or equitable? Not easily. But that’s not the <a href="https://www.ftc.gov/about-ftc">FTC’s charge</a>. The agency only has to determine whether the AI industry’s business practices are unfair or deceptive – a standard the agency has <a href="https://www.ftc.gov/public-statements/2003/05/ftcs-use-unfairness-authority-its-rise-fall-and-resurrection">almost a century of experience enforcing</a> – or otherwise in violation of laws that Congress has asked the agency to enforce.</p>
<h2>Shifting winds on regulating AI</h2>
<p>There are reasons to be skeptical of a sea change. The <a href="https://news.bloombergtax.com/privacy-and-data-security/ftcs-demand-for-tech-company-data-shows-underutilized-power">FTC is chronically understaffed</a>, especially with respect to technologists. The Supreme Court recently <a href="https://www.supremecourt.gov/opinions/20pdf/19-508_l6gn.pdf">dealt the agency a setback</a> by requiring additional hurdles before the FTC can seek monetary restitution from violators of the FTC Act. </p>
<p>But the winds are also in the commission’s sails. Public <a href="https://www.pewresearch.org/internet/2018/11/16/public-attitudes-toward-computer-algorithms/">concern over AI</a> is growing. Current and incoming commissioners – there are five, with three Democratic appointees – have been <a href="https://www.wsj.com/articles/ftc-nominee-khan-signals-support-for-aggressive-approach-on-big-tech-11619029550">vocally skeptical</a> of the technology industry, as is <a href="https://www.cnbc.com/2021/03/09/biden-loads-administration-with-big-techs-most-prominent-critics.html">President Biden</a>. The same week as this Supreme Court decision, the commissioners found themselves <a href="https://www.commerce.senate.gov/2021/4/strengthening-the-federal-trade-commission-s-authority-to-protect-consumers">before the U.S. Senate</a> answering the Commerce Committee’s questions about how the agency could do more for American consumers.</p>
<p>I don’t expect the AI industry to change overnight in response to a blog post. But I would be equally surprised if this blog post were the agency’s last word on discriminatory AI.</p>
<p>[<em>Understand key political developments, each week.</em> <a href="https://theconversation.com/us/newsletters/politics-weekly-74/?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=politics-understand">Subscribe to The Conversation’s election newsletter</a>.]</p><img src="https://counter.theconversation.com/content/159622/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ryan Calo co-founded research organizations that receive funding from Microsoft, the MacArthur Foundation, the Knight Foundation, the Omidyar Network, and other sources. He is affiliated with various non-profit organizations, including R-Street, the Electronic Frontier Foundation, the Electronic Privacy Information Center, the Center for Democracy and Technology, the Future of Privacy Forum, and AI Now.</span></em></p>The Federal Trade Commission is rattling its saber at the technology industry over growing public concern about biased AI algorithms. Can the agency back up its threats?Ryan Calo, Professor of Law, University of WashingtonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1554112021-02-25T17:48:29Z2021-02-25T17:48:29ZThree ways to encourage companies to keep our data safe<figure><img src="https://images.theconversation.com/files/384482/original/file-20210216-19-oxfwy5.jpg?ixlib=rb-1.1.0&rect=8%2C58%2C1500%2C1041&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">How can we keep our personal data safe? </span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/jimkaskade/15538115700/in/photolist-pF3Usy-RptCsT-T2D3w3-CEmgyU-oKUMHg-2f6axYh-2f6ayus-24yiUyM-5Xma5d-2f6aB71-2d53akR-RZmHWQ-oVpQbV-24yiU12-mZDZ8r-bq9U2H-bq9TZF-Mvahk4-oCpukD-Dyed6e-9eAVm8-2goBaQN-22hocSg-Msr4ew-Msr3d3-MvahQx-MsqXw9-2b9Kh8L-24yiUPg-LNdz9B-2khdskm-2hUwUZj-2i7KKXE-MEzZpm-MhztwS-25Q4aBN-MsqWHf-pZWAB7-L6s3DG-Wdz53p-LF5S9s-MvahLz-LF5RKG-MsqTUj-Msr2cf-UWePAj-22emP4d-25TTEVH-MvahGM-GeH5Mc">Jim Kaskade/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>With online shopping, loyalty programs, smart devices and many other aspects of our daily lives, the companies that make it all possible can collect vast amounts of our personal data. Sometimes its just common sense, like when we hail a taxi with mobile app – we want the platform to know our location to match us to the closest driver. With this and other data, companies can personalize their products and services to fit our preferences and needs.</p>
<p>At the same time, the ubiquitous availability of data that is so deeply personal presents risks. If the company that gathered it is less than virtuous, we may find ourselves signed up for unwanted ads, or worse. A notorious example is the consulting firm Cambridge Analytica, which exploited the Facebook data of <a href="https://www.businessinsider.com/cambridge-analytica-a-guide-to-the-trump-linked-data-firm-that-harvested-50-million-facebook-profiles-2018-3?IR=T">50 million Americans in an attempt to sway the 2016 elections</a>. While this is an extreme example, smaller scale but similar data leakage and misuse incidents occur on a daily basis. </p>
<p>What measures can governments and regulators take to prevent such abuses? How should companies and digital businesses, for whom a large part of their business models are our data, change their practices and policies so that our data are safe? </p>
<h2>Why current regulation is inefficient</h2>
<p>To shed light on digital privacy and design measures that regulators and companies can undertake to preserve consumer privacy, a team of researchers from the US, UK and Canada studied the interaction between three parties who are concerned with our data: us as individuals, the companies we interact with, and third parties. Our research question was: how does a company’s data strategy – essentially, its decisions of how much data to collect and how to protect data – influence the interaction between these three parties?</p>
<p>We found that in general, when companies choose data policies based only on self-interest, more data are collected than what would be optimal for consumers. <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3704446">Our findings</a> indicate that when industry leaders – for example, <a href="https://www.wsj.com/articles/the-facts-about-facebook-11548374613">Mark Zuckerberg</a> – claim that they collect the exact amount of data (or even less) than their consumers wish, they’re not always being honest. </p>
<p>Our work highlights the need for regulation of such markets. In the United States the key data regulator is the Federal Trade Commission (FTC). After the Cambridge Analytica scandal erupted, the <a href="https://www.ftc.gov/news-events/press-releases/2019/07/ftc-imposes-5-billion-penalty-sweeping-new-privacy-restrictions">FTC fined Facebook $5 billion</a>, even as it left the company’s business model untouched. The FTC’s major efforts are now essentially directed at asking companies to enforce their data-protection policies and deliver at least a minimal level of data protection. Our research shows that this is simply not enough.</p>
<h2>Two solutions to reduce data collection</h2>
<p>We propose two key types of instruments for discouraging companies from collecting more data than is strictly necessary:</p>
<ul>
<li><p>A tax proportional to the amount of data that a company collects. The more data a company collects about its customers, the higher the financial costs of these data to the company.</p></li>
<li><p>Liability fines. The concept is that the fines levied by regulators on companies after a data breach should be proportional to the damage that consumers suffer. In the case of Cambridge Analytica, the breach was massive so the company should have to pay a substantial fine.</p></li>
</ul>
<p>Both these instruments can help in restoring efficiency in these kinds of markets and help a regulator like the FTC to push companies to collect only the exact amount of data that customers are willing to share.</p>
<h2>Rethinking revenue management</h2>
<p>Recent years have seen an emergence of data-driven revenue management. Companies increasingly harness our personal data in order to sell to us products and services. Insurance companies offer personalized quotes based on intimate details of our lives including our medical histories. The financial industry designs loans that fit our spending patterns. Facebook and Google decide how to build our news feeds with an eye on their advertisers. Amazon chooses an assortment of products to offer to each customer based on their past purchases.</p>
<figure class="align-center ">
<img alt="Facebook offices." src="https://images.theconversation.com/files/384483/original/file-20210216-21-1akztco.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/384483/original/file-20210216-21-1akztco.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/384483/original/file-20210216-21-1akztco.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/384483/original/file-20210216-21-1akztco.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/384483/original/file-20210216-21-1akztco.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/384483/original/file-20210216-21-1akztco.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/384483/original/file-20210216-21-1akztco.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Facebook’s advertising-driven business model gives it incentive to gather as much information as possible about its users.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/eston/691552110">Eston Bond/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>What is common to all these seemingly different companies is the way in which they decide which price to set or which assortment to show each individual customer. The key ingredient is customers’ data: companies engaged in personalized revenue management apply sophisticated machine-learning techniques and algorithms on the historical data of their previous customers in order to build models of human behavior. In essence, the company can come up with the best possible price (or assortment, for example) for the new customer because he or she will resemble previous customers with similar characteristics.</p>
<p>With this kind of decision-making framework usually used in the data-driven revenue management applications, which heavily relies on the (potentially sensitive) historical data, there are pressing privacy risks. While a hacker might simply steal historical data, they don’t necessarily have to hack into a database. <a href="https://arxiv.org/abs/1912.01667">Recent research in computer science</a> shows that adversaries can actually reconstruct sensitive individual-level information by observing companies’ decisions, for example personalized prices or assortments.</p>
<h2>Privacy-preserving revenue management</h2>
<p>In our work we design “privacy-preserving” algorithms to be used by companies engaged in data-driven decision-making. These algorithms are aimed at helping such companies to limit harm imposed on their customers due to data leakage or misuse, while still allowing profit. While data cannot be made 100% safe, the goal is to reduce potential harm as much as possible, striking the right balance between benefits and risks.</p>
<p>One possible way to design privacy-preserving algorithms for the companies engaged in data-driven revenue management is to impose an additional constraint on the companies’ decision-making framework. </p>
<p>In particular, we can require that the decisions of the company (i.e., an insurance quote or an assortment of products) should not be too dependent on (or too informative of) the data of any particular customer from a historical dataset that the company used to derive this decision. An adversary, thus, should not be able to backtrace company’s decisions and infer sensitive information of the customers in the historical dataset. Formally, such requirement corresponds to designing <a href="https://en.wikipedia.org/wiki/Differential_privacy">“differentially private”</a> revenue-management algorithms. The concept has become an established de facto privacy standard in the industry used by companies such as Apple, Microsoft, and Google as well as public agencies such as the US Census Bureau.</p>
<p>We find that such privacy-preserving (or differentially private) algorithms can be designed through addition of carefully adjusted “noise” – essentially, any meaningless data that is akin to a flip of a coin – to companies’ decisions or to the sensitive data that a company uses. For instance, an insurance company designing a quote for a particular customer can first calculate the true-optimal price (for instance, the price that would maximize company’s revenue from this particular customer), then flip a coin and add $1 if getting heads and subtract $1 if getting tails. By adding such “noise” to the original true-optimal price, the company makes the carefully designed price “less optimal”, which potentially reduces profits. However, adversaries will have less information (or less inference power) to deduct anything meaningful about sensitive information regarding the company’s customers.</p>
<p>In our study we show that the company does not have to add a lot of noise to provide sufficiently strong consumer privacy guarantees. In fact, the more historical data the company has, the less expensive such privacy preservation is. In fact, in some cases privacy can be achieved almost for free.</p>
<hr>
<p><em>This article is based on the working paper <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3704446">“Privacy-Preserving Personalized Revenue Management”</a>, co-written with Yanzhe Lei of Queen’s University and Sentao Miao of McGill University, and the working paper <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3459274">“Digital Privacy”</a>, co-written with Itay P. Fainmesser of Johns Hopkins University and Andrea Galeotti of London Business School.</em></p>
<p><em>An earlier version of this article was published on <a href="https://www.hec.edu/en/knowledge/articles/how-can-we-force-companies-keep-our-data-safe">Knowledge@HEC</a>.</em></p><img src="https://counter.theconversation.com/content/155411/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ruslan Momot receives funding from HEC Paris Foundation and a grant of the French National Research Agency (ANR), "Investissements d’Avenir" (LabEx Ecodec/ANR-11-LABX-0047).</span></em></p>Companies today collect vast amounts of our personal data. What measures can governments and regulators take to reduce the inherent risks and keep our data?Ruslan Momot, Assistant professor of operations management, HEC Paris Business SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/830632017-08-28T02:45:51Z2017-08-28T02:45:51ZAmazon’s Whole Foods deal could still be reversed thanks to forgotten antitrust case<figure><img src="https://images.theconversation.com/files/183527/original/file-20170827-27527-1f652gp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Amazon may make it impossible for Whole Foods rivals to compete.</span> <span class="attribution"><span class="source">AP Photo/Julie Jacobson</span></span></figcaption></figure><p>Amazon formally took ownership of Whole Foods this week after the Federal Trade Commission <a href="https://www.ftc.gov/news-events/press-releases/2017/08/statement-federal-trade-commissions-acting-director-bureau">signaled</a> on August 23 that it <a href="https://www.washingtonpost.com/news/business/wp/2017/08/23/ftc-clears-amazon-com-purchase-of-whole-foods/?utm_term=.8c4312e81500">wouldn’t stop the deal</a>. </p>
<p>The online retailer isn’t wasting any time remaking the high-end grocery chain in its low-price image. Its first act <a href="http://phx.corporate-ir.net/phoenix.zhtml?ID=2295514&c=176060&p=irol-newsArticle">involved cutting prices</a> on dozens of items, from avocados to tilapia. But that is not what is <a href="https://www.nytimes.com/2017/08/24/technology/whole-foods-amazon-lower-prices-prime.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=first-column-region&region=top-news&WT.nav=top-news&_r=0">sending shivers</a> down the aisles of rival food retailers like Walmart, which now controls <a href="https://www.cnbc.com/2017/05/24/wal-mart-regaining-grocery-share-from-competitors-at-accelerating-rate.html">20 percent of the grocery market</a> by pursuing just such a <a href="http://www.businessinsider.com/why-walmart-can-pull-off-everyday-low-prices-while-everyone-else-keeps-failing-2012-9">low-price strategy</a>.</p>
<p>The reason, which the FTC ignored in providing its imprimatur, is that Amazon gives Whole Foods access to an <a href="http://www.retailtouchpoints.com/topics/e-commerce/amazon-claims-56-of-general-merchandise-traffic">online marketing platform</a> that no other grocery company, even a behemoth like Walmart, can hope to reproduce. </p>
<p>My research suggests that only a few decades ago the FTC would have used antitrust law to block the deal – and it still has the power to do so. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/183524/original/file-20170827-27564-18wzknt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/183524/original/file-20170827-27564-18wzknt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/183524/original/file-20170827-27564-18wzknt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/183524/original/file-20170827-27564-18wzknt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/183524/original/file-20170827-27564-18wzknt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/183524/original/file-20170827-27564-18wzknt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/183524/original/file-20170827-27564-18wzknt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Amazon will give Whole Foods a marketing platform for its products that few rival grocery stores can compete with.</span>
<span class="attribution"><span class="source">AP Photo/Gene J. Puskar</span></span>
</figcaption>
</figure>
<h2>Predatory promotion</h2>
<p>Everyone knows that Amazon is the biggest online retailer. The company handles <a href="http://www.businessinsider.com/amazon-accounts-for-43-of-us-online-retail-sales-2017-2">43 percent of all internet purchases</a> in the U.S., attracting so much business that its website is actually the country’s <a href="https://www.alexa.com/topsites/countries/US">fifth-most trafficked</a>. </p>
<p>But not everyone realizes that Amazon is also the king of online product search. By offering a huge range of products – almost <a href="https://www.scrapehero.com/how-many-products-are-sold-on-amazon-com-january-2017-report/">400 million</a> – Amazon entices more than half of online shoppers to <a href="https://www.bloomberg.com/news/articles/2016-09-27/more-than-50-of-shoppers-turn-first-to-amazon-in-product-search">bypass the usual search gatekeepers</a> and start their product hunt directly on its website.</p>
<p>Whole Foods will now have exclusive access among grocery retailers to this enormously valuable search engine. And it will be near impossible to compete with a company whose products and grocery delivery services can be <a href="https://www.forbes.com/sites/jeffreydorfman/2017/08/25/amazon-and-whole-foods-merger-to-introduce-cross-platform-selling-and-lower-prices/#677924c412f8">ordered directly through a website</a> that America already uses for nearly half of its online shopping. </p>
<p>That is bad for consumers because it means that Whole Foods may come to dominate the grocery world not by offering better products for the best prices, as you’d find in a well-functioning market, but because of the promotional advantage that comes from its tie-up with Amazon.</p>
<p>Congress passed the <a href="http://gwclc.com/Library/America/USA/The%20Clayton%20Act.pdf">Clayton Act</a> in 1914 to handle just this situation. The act <a href="https://www.law.cornell.edu/uscode/text/15/18">tasks</a> antitrust regulators with blocking acquisitions for which “the effect … may be substantially to lessen competition.” You might therefore have expected the FTC, which reviews mergers in the grocery industry, to take a special interest in this deal. </p>
<p>You’d be wrong, of course, because since the early 1980s antitrust regulators at the FTC and Justice Department have taken a narrow approach to merger enforcement, generally treating only <a href="https://scholar.google.com/scholar?cluster=3535564822158216845&hl=en&as_sdt=0,11">large deals between direct competitors</a> as a potential threat to competition. </p>
<p>That explains why the FTC approved the Whole Foods deal with <a href="https://www.bloomberg.com/news/articles/2017-08-23/amazon-s-whole-foods-deal-wins-fast-track-u-s-antitrust-nod">lightning speed</a>. Since Amazon had <a href="http://www.investors.com/news/amazon-fresh-grocery-threatens-wal-mart-kroger/">almost no presence</a> in the grocery industry when it inked the agreement, it didn’t qualify as a direct competitor.</p>
<p>In the 1960s and ‘70’s, however, things were different, as I show in <a href="http://ssrn.com/abstract=3027662">a recent paper</a>. During that time, the FTC fought a remarkable campaign to prevent companies from using promotional advantages to colonize new markets. Among the FTC’s victories in its battle against such “<a href="https://scholar.google.com/scholar?cluster=17099653873917998840&hl=en&as_sdt=0,11">predatory promotion</a>” were its reversals of household products giant Procter & Gamble’s <a href="https://scholar.google.com/scholar_case?case=17605714045622526127&q=procter%27s+acquisition+of+clorox&hl=en&as_sdt=80006">acquisition of Clorox bleach</a> and <a href="https://scholar.google.com/scholar_case?case=7491871295013379985&q=ftc+v.+general+foods&hl=en&as_sdt=80006">General Foods’ purchase of S.O.S.</a>, the scrub pad maker.</p>
<p>Like Amazon, both P&G and General Foods acquired companies in markets in which they were not yet direct competitors. Like Amazon, both could leverage their vast product lines to offer their new acquisitions a massive promotional advantage. The difference is that back then P&G and General Foods had a sizable advantage in television advertising, rather than online search traffic, because their extensive product portfolios allowed the companies to <a href="https://scholar.google.com/scholar?cluster=7534880275645364220&hl=en&as_sdt=0,11">negotiate bulk discounts from the major networks</a>.</p>
<p>The legal precedents created by those cases give the FTC a basis for unwinding the Amazon Whole Foods deal but have been ignored for decades by federal antitrust enforcers.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/183525/original/file-20170827-27564-1gje02x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/183525/original/file-20170827-27564-1gje02x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/183525/original/file-20170827-27564-1gje02x.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/183525/original/file-20170827-27564-1gje02x.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/183525/original/file-20170827-27564-1gje02x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/183525/original/file-20170827-27564-1gje02x.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/183525/original/file-20170827-27564-1gje02x.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The FTC convinced the Supreme Court that Procter & Gamble’s purchase of Clorox in the 1950s violated antitrust law.</span>
<span class="attribution"><span class="source">AP Photo/Mary Altaffer</span></span>
</figcaption>
</figure>
<h2>Lessons from the case against P&G</h2>
<p>The FTC’s <a href="https://www.ftc.gov/sites/default/files/documents/commission_decision_volumes/volume-63/ftcd-vol63july-december1963pages1407-1506.pdf">case against P&G</a> is particularly relevant today. Filed in 1957 shortly after the Clorox purchase closed, it established for the first time that, as the Supreme Court put it, an acquisition that creates “<a href="https://scholar.google.com/scholar_case?case=17605714045622526127&q=procter%27s+acquisition+of+clorox&hl=en&as_sdt=80006">huge assets and advertising advantages</a>” can violate antitrust law. </p>
<p>P&G’s product line was <a href="https://www.ftc.gov/sites/default/files/documents/commission_decision_volumes/volume-63/ftcd-vol63july-december1963pages1407-1506.pdf">so large</a>, extending from Ivory soap to Duncan Hines cake mix, that it was already the nation’s largest national TV advertiser. This allowed P&G to negotiate bulk discounts on advertising time that it could pass on to Clorox. </p>
<p>The FTC feared that those discounts would give Clorox privileged access to the dominant marketing platform of the era. When Americans tuned in to the <a href="https://www.youtube.com/watch?v=nLaDfQF3YKc">Big Three television networks</a>, they would see Clorox, and only Clorox, for sale, much as when Americans use Amazon to search for groceries online, they will see only Whole Foods groceries available for delivery.</p>
<p>The FTC filed suit to unwind the deal, arguing that P&G would drive competitors from the market, not because those competitors offered an inferior product – all bleach is chemically identical – but because P&G had a promotional advantage. Similarly, Whole Foods will be able to use Amazon’s website to swallow up market share, even though its rivals also offer similar services and products, such as <a href="http://www.slate.com/blogs/business_insider/2017/03/27/kroger_s_organics_are_threatening_whole_foods_popularity.html">organic produce</a> and <a href="https://www.cnbc.com/2017/01/30/online-grocery-sales-set-surge-grabbing-20-percent-of-market-by-2025.html">online ordering</a>. </p>
<p>After <a href="https://scholar.google.com/scholar_case?case=6839327024219684325&q=ftc.+v.+procter&hl=en&as_sdt=80006">an initial setback</a>, the FTC <a href="https://scholar.google.com/scholar_case?case=17605714045622526127&q=ftc+procter+and+gamble&hl=en&as_sdt=80006">won its case</a> in the Supreme Court in 1967, establishing a precedent for the first time that mergers that create massive promotional advantages can violate the law, even when there is no direct competition between the target and acquiring companies. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/183526/original/file-20170827-27532-1b3vbrp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/183526/original/file-20170827-27532-1b3vbrp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=466&fit=crop&dpr=1 600w, https://images.theconversation.com/files/183526/original/file-20170827-27532-1b3vbrp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=466&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/183526/original/file-20170827-27532-1b3vbrp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=466&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/183526/original/file-20170827-27532-1b3vbrp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=585&fit=crop&dpr=1 754w, https://images.theconversation.com/files/183526/original/file-20170827-27532-1b3vbrp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=585&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/183526/original/file-20170827-27532-1b3vbrp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=585&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">After his election victory in 1980, President Reagan remade the FTC, ending its campaign against predatory promotion.</span>
<span class="attribution"><span class="source">AP Photo/Rusty Kennedy</span></span>
</figcaption>
</figure>
<h2>Reversing course</h2>
<p>President Ronald Reagan <a href="https://www.washingtonpost.com/archive/business/1982/01/16/cereal-maker-antitrust-case-is-dismissed/f343e32f-5217-43af-978c-2d5fe553fc83/?utm_term=.6c09d67be912">cut short</a> this campaign against predatory promotion in the early 1980s by <a href="https://www.washingtonpost.com/archive/business/1984/09/26/pertschuk-exits-ftc-with-guns-blazing/5e9c7df9-e639-41af-8c8c-202fcdb55eca/?utm_term=.e882292421a3">appointing new officials to the FTC</a> who argued that promotion is good for consumers, regardless of whether it confers an advantage on a particular competitor, because it provides consumers with <a href="https://www.ftc.gov/sites/default/files/documents/commission_decision_volumes/volume-103/ftc_volume_decision_103_january_-_june_1984pages_204-373.pdf">useful product information</a>. The idea has proven immune to subsequent changes in administration.</p>
<p>In <a href="http://ssrn.com/abstract=3027662">my paper</a> I counter that this argument rings hollow in the information age, because consumers can now get all the product information they need from myriad sources online. Making Whole Foods’ groceries searchable on Amazon’s website doesn’t increase the internet’s cache of product information – consumers can already get that on the grocer’s <a href="http://www.wholefoodsmarket.com/online-ordering">website</a> – but it will steer consumers squarely toward Whole Foods’ products.</p>
<p>The FTC can still reverse course and <a href="https://www.ftc.gov/sites/default/files/documents/public_statements/consummated-merger-challenges-past-never-dead/120329springmeetingspeech.pdf">block the deal after it closes</a>, as it did in the forgotten P&G case. </p>
<p>If it doesn’t, then your only option for buying anything could one day be Amazon. And if that happens, <a href="https://books.google.com/books?id=tkIeAAAAIAAJ&dq=inauthor%3A%22Alfred%20Marshall%22&pg=PA180#v=onepage&q&f=false">textbook economics teaches</a> that those avocados won’t stay cheap for long.</p><img src="https://counter.theconversation.com/content/83063/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ramsi Woodcock does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The deal escaped scrutiny because the two aren’t direct competitors, yet Amazon’s huge marketing platform will help Whole Foods steamroll rivals. In the past, the Supreme Court has said this violates antitrust law.Ramsi Woodcock, Professor of Legal Studies, Georgia State UniversityLicensed as Creative Commons – attribution, no derivatives.