The Market for Privacy Lemons. Why “The Market” Can’t Solve The Privacy Problem Without Regulation.

For the last 25 years, the official policy of the United States with regard to digital privacy has been to rely on "market mechanisms," primarily policed by the Federal Trade Commission's Section 5 authority to prosecute "unfair and deceptive" practices. Despite 25 years and increasing dissatisfaction, both industry proponents and other stakeholders and decisionmakers continue to insist that market forces will either produce market-based privacy solutions or, in the alternative, consumers do not actually value privacy despite their statements to the contrary. In this blog post, I apply the rationale of George Akerlof's seminal paper "The Market For Lemons" to the existing privacy market. I conclude that, like the used car market analyzed by Akerlof, the structure of the privacy market makes it unreasonable to expect that privacy friendly services to emerge, with the exception of "pay for privacy" services (similar to the way that the market for new cars differs from the market for used cars).