Looming Privacy Regulations May Strengthen Facebook and Google

Facebook and Google may emerge stronger after Europe enacts sweeping new regulations that prioritize people’s data privacy. Credit Tomi Setala/Bloomberg

SAN FRANCISCO — In Europe and the United States, the conventional wisdom is that regulation is needed to force Silicon Valley’s digital giants to respect people’s online privacy.

But new rules may instead serve to strengthen Facebook’s and Google’s hegemony and extend their lead on the internet.

That could begin playing out next month, when Europe enacts sweeping new regulations that prioritize people’s data privacy. The new laws, which require tech companies to ask for users’ consent for their data, are likely to hand Google and Facebook an advantage. That’s because wary consumers are more prone to trust recognized names with their information than unfamiliar newcomers. And the laws may deter start-ups that do not have the resources to comply with the rules from competing with the big companies.

In recent years, other regulatory attempts at strengthening online privacy rules have also had little effect at chipping away at the power of the largest tech companies, ultimately aiding internet incumbents rather than hurting them.


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“Regulations help incumbents,” said Avi Goldfarb, a marketing professor at the University of Toronto who has studied the effect of privacy regulations on competition. Mr. Goldfarb was the co-author of a 2013 reportthat said privacy regulation could be anti-competitive because the cost of getting permission from users for their data was typically much higher for a younger company than for an established firm.

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That Facebook and Google may emerge stronger from all of this can seem like a distant prospect. The Silicon Valley companies have been under scrutiny for months for how they collect and use people’s data, with Facebook reeling from revelations that the political research firm Cambridge Analytica harvested the personal information of up to 87 million of its users. That led to Congress dragging Mark Zuckerberg, Facebook’s chief executive, to Washington this month for a grilling.