Research Seminar

e-Globalization and Trade Agreements – Phillip McCalman

14 Feb 2023

12:30
-
13:30
Kiel Institut für Weltwirtschaft

Speaker

Phillip McCalman (University of Melbourne)

Abstract

The global success of online search engines and social media is driven by their free provision and high quality. These features are supported by a two-sided business model which exploits the information gained through search queries or links/likes to provide a highly profitable ad tech service 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 under-provides 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. If privacy policy is made at the national, rather than the global level, the actions of large countries tend to align with the global interest. This is due to a "Brussels effect" where a global monopoly platform endogenously improves privacy protection in all markets when a policy of greater privacy protection is imposed in one national market. 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.

Room

Lecture Hall (A-032)