The economics of privacy

People value privacy, but they also value convenience and free internet.

Paul Sakuma/AP/File
Microsoft's Internet Explorer browser shortcut is shown during a news conference at Google Inc. headquarters in Mountain View, Calif., Sept. 2, 2008. Recent security issues about Microsoft's browser show how much its customers value privacy.

A recent WSJ article about Microsoft’s browser security brings up many interesting points about privacy, advertising, and competition.

When people hear about internet privacy and tracking, the common reaction is fear of spyware, identity theft, and our information being published. These are certainly issues that ought not be belittled, but if critical information can easily be hacked by malicious spyware on a certain browser, how many people will continue to use it? Consider the case of Internet Explorer.

The main issue here is advertising. The trackers can record and analyze each mouse click. Then, the firms can target likely potential consumers for various kinds of ads. There are real benefits to the internet user. What benefit would an elderly man extract from an ad for nail polish? The more effective online ads are, the less online content for which consumers have to pay. Internet users ought to think of these ads as a selection of window displays made just for them, or even billboards.

Privacy is important though. Competition, however, rectifies many of the internet’s privacy harms. First, there are many browsers in competition with one another (Google Chrome, Safari, Firefox, Internet Explorer). With each browser come different trade-offs. For example, Safari is safe but slow compared to Chrome or Firefox. Internet Explorer, as the article explains, is notoriously susceptible to harmful third party trackers. There are also complements to browsers such as anti-virus software that contribute to the competitive internet marketplace of access and protection. There is also competition in how much certain browsers allow tracking firms or the government to track. Internet software companies can easily show how protected it is as leverage to increase use.

People value privacy; people also value convenience and free internet. The balance for each individual, I believe, can be best achieved through competition.

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